Do you charge a homeowner for doing a short sales?

Question

I recently came across an investor who charges the homeowner $500 for performing a short sale on their behalf without any money back guarantee of success.

His rationale is that this will greatly increase the likelihood of their participation during the short sale process.  He's lost many short sales because the seller will disappear during the process and when he cannot provide the bank with the sellers updated financial activity, the bank will go to auction with the property.  Charging homeowners in advance greatly reduces the likelihood of this outcome.

What are you thoughts?  Do you think this is the right way to do a short sale?

Scott Hubbard · Answer

No...  
          
          1. Your competition are agents and other investors and it is difficult to charge a seller upfront when your competition does not.
          
          2.  There is a huge push back by state and local officials against upfront loss mitigation fees.  There are many scamsters out there charging upfront fees and not doing anything for that fee.  I would not want to be lumped into that group.
          
          3.  If someone is losing their home, I would think $500.00 is not much motivation to keep them in the game when compared to the tens of thousands they are potentially on the hook for.
          
          4.  You would want to disclose that $500 on the HUD1 (which is the legal and ethical thing to do) and the Short sale lender will likely want that contribution.
          
          If I were unsure of the sellers motivations and believe he or she might want to walk away, then I would rather just not take them on.  There is a high-volume mentality to get as many short sale leads as possible in the pipeline.   I believe your better of pre-screening leads and focus on quality not quantity.

Jonathan Rexford · Answer

Not at all. First place in some states it is illegal to take up front money. In the State of Florida you must be a license Mortgage Broker to get paid for working a short sale deal. The up front fee must be part of services rendered.

Real Estate agents are not allowed to charge a fee for working short sales.

Attorney's can charge as their capacity as acting as a legal representative for the client.

Now this is just stuff that I have read for the state of florida. But I still don't think it is right to take money from a seller for a short sale.

Part of working a short sale with a seller is to be sure everyone is on the same team.  If this person that charges a fee, must not be screeniing well.  Sure some do fall through the cracks.  I walkaway from more short sales than I accept.  But this is a numbers game.