We recently closed this short sale and helped the seller avoid a big deficiency judgment. Ed and Cathy bought their house at the top of the market in 2005. It had dropped in value and they couldn't afford the mortgage payment anymore.

We listed the home and started the short sale negotiations with the lender. The lender was a credit union. They were losing about $110,000 on the short sale. They told us that they wouldn't approve the short sale unless the seller's signed a promissory note and agreed to repay them for the loss. We discussed this with the sellers.

They weren't not willing to accept the promissory note. They had experienced a substantial reduction in income and did not see any way they could repay the debt. The bank wanted them to repay $726 monthly for the next 20 years. That may not sound like a lot of money to some of us. But, to Ed and Cathy, it was much more than they could afford.

The sellers told us that if they had no other choice, then they would agree to the promissory note and then declare bankruptcy when the bank tried to collect. We agreed that that was an option. But, we also thought that the bank was being unreasonable. We explained the situation and asked them to approve the short sale and forgive the debt.

Our contact at the bank wouldn't do that. We continued to sell him on it. We explained that this was the best opportunity for the credit union to reduce their losses on this loan. We explained that the only other option was to wait another 6-12 months for the foreclosure case to go through and then sell the home. However, we estimated that would cause the lender to lose an additional $20,000 to $30,000.

They would lose more if the seller declared bankruptcy and the foreclosure case dragged on even longer. Finally, our contact agreed to approve the short sale and forgive the debt. The home sellers were able to short sale and move on with their life with no deficiency or promissory note. Remember, it is a rare situation where a lender will not approve a short sale and forgive the loan. But this is an example of how a good short sale Realtor can help you avoid a deficiency even if the lender does not want to forgive the debt.

I just saw a horrible story in the news about what happens when people understand how a short sale works. According to the article in the Daily Mail, then story starts with someone who was probably upside down and couldn't sell his home. This guy had a $3.5 Million Dollar Home and couldn't afford it. It sounds like he had had it on the market for a while and it wasn't selling.

This guy is behind on payments and upside down. He obviously decided that his best option was to burn the house down. So, he burns the house down. Someone finds out and he is convicted of arson. He is sentenced to prison for 16 years. Right after his sentencing he takes a pill and dies in what looks like a suicide.

Here is what is so sad. This guy could have simply short sold his home and walked away. If you are upside down on your home and behind on payments, don't try to burn it down! It just isn't worth it! There is a very good chance that if he had short sold his home, then his lender would have forgiven the debt. If not, then he could declare bankruptcy and wipe out the debt that way.

He would have been eligible to buy another home in 3-5 years, and seven at the most. Problem solved! Instead this guy just kept on making bad decision after bad decision and ended up dead! Please contact me if you are upside down, cannot afford your home, and are concerned about a deficiency judgment. I will explain your options and the likelihood of a deficiency.

If I think there is a chance of a deficiency, then I will recommend that you talk to a bankruptcy attorney. They will explain whether or not you can wipe out the debt with a bankruptcy. These are much better options that doing stupid, crazy things like burning your house down.

Why would a bank go to the trouble of a foreclosure if there is already a tenant in the house paying them?

That's an interesting question. I think that the reason this happens is because the banks are not in the real estate business. They don't want to deal with collecting rents, handling evictions, and all the other work associated with rental properties. 


They just don't have the infrastructure in place to deal with that. I think the other reason is because there are federal banking laws that prohibit banks from owning investment property. If the banks were allowed to own rental property, then they would be more inclined to foreclose on homes. Because of this, the banks don't want to own a home with a tenant. They want to foreclose on the house, sell it, get their money back, and lend that money to someone else. That is why the foreclose on tenant occupied homes.

I read a blog post by another agent the other day. He had a long story about a short sale that he worked on that was so difficult. He said the lender sent him a form on Friday.

On Friday afternoon, they demanded that he send them back a form signed and notarized by the sellers. He sent it back to them on Saturday. On Monday, they closed the short sale file because they hadn't received the form within 24 hours. Apparently they didn't check their faxes over the weekend.

According to the story the agent just resubmitted the short sale file and waited another 60 days for the short sale file to be processed. It appears that this agent let the short sale lender push him around.

But why waste 60 days because of the short sale lender's unreasonable demands? Why put your home sellers at further risk of losing their home to foreclosure? The short sale lender should have re-opened that file right away. And they would have if the agent had held them accountable for their actions.

The bottom line is that this agent let the short sale lender dictate everything to him. He allowed them to have all the power. He never stood up for himself. Now, I'm sure you are wondering how this agent could have stood up for themselves. Here is the simple way to do it. It all goes back to who owns the loan. A little known fact is that 80% of all loans are not owned by the banks themselves. Most of them are owned by Uncle Sam or an unknown third party. In this situation you find out who owns the loan and contact them directly. I've posted on this blog instructions on how to find the owner of the loan.

Then, you tell the owner what is happening. But, you have to make your case. Remember, these loan owners only care about the economics. They don't care about a sob story about how the lenders are mean and your feelings go hurt. They only care about how it affects their bottom line. That is how you make your case. 


Here is an example of what you say to them. "In October, we received an offer on this short sale for $356,000. We submitted it to the ABC Bank, who is handling the loan. They were very difficult to work with. They would not give us an answer on the offer for 68 days. In that time, the buyer canceled their offer. We put the home back on the market. Another buyer made an offer for $347,000. We submitted that offer to the short sale lender. It's been the same problem." Next, I would go into detail on how they canceled the short sale process for no reason.

Then I would detail how much money I estimated this loan owner lost as a result of the lender's actions. In this example, it is probably $11,000. That is the reduction in the sales price and lost interest income and other costs. After you inform the loan owner of what is happening, they will contact the lender and ask them to do a better job. There are more things you can do, but this is a start.

The way that most lenders handle short sales is very weird. They have a strange policy of demanding that all home buyers close on their home purchase within 30 days of them approving the short sale. The sad truth is that you can only push home buyers so hard. On a traditional sale many people wait two and six months for their home to sell. Most buyers agree to close within 30 days.

The biggest reason for a closing delay is because the lenders want more documentation from the buyers. They want to make sure that the buyer is qualified for the loan. It's part of the lending business. It sometimes happens to buyers who the lenders had said were "pre-approved." So the reality is that everyone wants to close within 30 days. But, the party holding up the closing is often the buyer's lender.

Most agents and home sellers agree to wait until the buyer's financing comes together. The alternative is to put their home back on the market and wait another 2-6 months for it to sell. You can beat the buyer over the head and punish them for not closing on time. You can say, "If you don't close by X date, then I will sue you for your deposit and I will not sell my home to you."

But that will not force the buyer's lender to close any faster. The buyers usually get angry. They will probably hire a lawyer and fight to get their deposit back. Then they'll go buy another home. Most parts of the country have thousands of homes to pick from. They will have an easy time finding another home to buy. Sure, you may sue them for their deposit. But, the extra time waiting for another buyer usually isn't worth the aggravation involved. So, why does this matter to you if you are short selling your home?

The bottom line is that new federal lending regulations have caused the lending process to take more like 45-60 days. Some lenders have been able to close within 30 days but most still take 45 to 60 days. As a result, your short sale Realtor will probably have to ask for an extension on the short sale approval. Short Sale Lenders don't like to approve extensions.

They think that if they start allowing 60 days for a short sale to close, then all short sales will close in 60 days. The person at the bank isn't selling his own home. He still gets paid whether or not the home sells. They are insulated from the reality of what it is like to actually sell a home. If the sale is delayed you will need a good, experienced short sale Realtor to make the case for the lender to extend the short sale approval until the sale closes. If not, then you will have to cancel the sale, resell the house, re-negotiate the short sale and go through the entire process all over again.

Now, do you see why an inexperienced agent would think that short sales are difficult? The good news is that an experienced short sale agent is usually able to convince the lender to extend the closing until the buyer is able to close. 

Remember the first time you drove a car? Was it easy? No, it wasn't. The first time we drive we have both hands on the wheel and are looking in every direction. We are focused on the road ahead to make sure we don't have an accident.

After we have been driving for a while we start to relax. "Driving isn't so hard after all", we think to ourselves. After a little practice some people are eating, steering with their knees, and even putting on makeup in the car.

Most of us would agree that driving is actually pretty easy once you have some practice. The same thing applies to short sales. They are very difficult and frustrating when you first start out. However, once you have some experience short sales become easy. "I remember when this happened to me on my last short sale. I did X and it produced Y result", you say to yourself.

So, you do X on this short sale and the short sale succeeds. Pretty soon short sales are just like driving. You know what you are doing and most short sales are easy. You will know what is happening when you hear someone say, "Short sales are impossible. You shouldn't short sale your home because they never get approved." That person probably doesn't have much experience with short sales and are frustrated as a result.

Bank of America used to be very difficult to work with when people were interested in short selling their homes. This has changed somewhat recently. Bank of America developed a new system which makes the short sale process faster and easier. The introduction of the new system, Equator, has played an important role in revolutionizing their short sale system and improving their short sale process.

The approval time for short sales has been decreased to 60-90 days in most cases. As a seller you can create an account on their website, upload the necessary documents: the short sale package, your bank statements, any authorization for third parties, and a hardship letter. The Bank will alert you and your agent after the short sale is initiated with the Bank. At this point you are to upload financial information for the short sale. Any other lien holders are contacted as well. 


Once they have received all the documents that they need, then they will begin the approval process and order an appraisal on the property to ensure the offer is in accordance with the market value of the property. If everything looks good, then they will approve the short sale. The actual closing normally occurs within 30-45 days afterwards.

In yesterday's blog post we explained why some Realtors consider short sales to be a "nightmare." Then we explained how we do to inform the actual loan owner of the lender's negligence. Today, we'll explain how this works if the lender owns the loan in house. After all, there is no third party loan owner who will hold the lender accountable. Here is what you do in this situation.

First, contact the CEO. We have a solid strategy that will puts us in contact with the CEO of almost any bank. We have used this strategy to contact the CEO of Bank of America, JP Morgan Chase, Suntrust, and many other lenders.

Then we detail the problem with the CEO and explain how much money their company will lose if they do not approve the short sale. We have a calculator that we use that breaks down these numbers. It is based on examples of when a lender turned down a $385,000 short sale offer, foreclosed on the house, and then sold it for $230,000. (Most people would be shocked at how much banks lose because of their flawed short sale processes.)

Here is what happens when this process is carried out effectively. We contacted the CEO of a Top 20 American Bank. We explained how the short sale department wouldn't respond to emails or phone calls. Then we explained that we estimated this would cause his bank to lose around $30,000. We backed up our estimate with examples of other lenders who rejected a short sale and lost tens of thousands more after foreclosing the property and then selling it. The CEO wasn't happy (to say the least.) Later that day the head of the short sale department called us to discuss the file. He gave us his direct phone number and begged us to never call the CEO again.

You have to remember that every dollar is important to these CEOs. They work so hard to increase earnings every way possible. They don't care about excuses. They want results. They assume that every employee and department could work harder and do a better job. When you show them how someone is not doing their job and costing the bank $30,000, then they are unhappy. Obviously this CEO was under a lot of pressure to boost earnings. We learned he had been replaced a few months later. 

Many homeowners facing foreclosure come home to find the locks on their doors changed out. They are locked out of their own home. We have seen lenders do this to homeowners who still own and live in their home. In one example, an American Veteran was facing foreclosure. He went to the hospital for some medical treatment.

He came home to find the locks on his home changed. All of his personal belongings had been put out at the curb. Some items were missing. Don't be surprised that this is happening. We recently saw a story that Bank of America allegedly foreclosed on a paid off house. If this does happen to you, then please remember that the lender is breaking the law. They are not allowed to change out the locks on your home until they have completed the foreclosure proceedings and evicted you from your home.

(Most lenders usually pay homeowners to move rather than bother with an eviction.) It is your home and you own it until the lender has foreclosed on it. In addition, you still have the right to live there until an eviction is finalized. Fortunately homeowners have rights (although the banks don't think that they should.). Here is what you should do if this happens to you.

1. File a police report against your lender for breaking and entering.

2. Contact your senators, and the Attorney General for your state.

3. Hire an Attorney and get some cash for your aggravation. In the example above, the Veteran received compensation for having his rights violated and was reimbursed for the missing personal belongings.

People get paid whenever a large corporation breaks the law. I estimate that you can get between $5,000 and $10,000 for your time and money. The lenders are breaking the law and should face criminal and civil penalties. The lawyer representing you has a lot of leverage because he can subpoena the bank and find out the employee who made the mistake. That employee and the person who actually came out to the house could face criminal charges. It will be less expensive for your lender to pay you versus having to deal with an employee facing criminal charges and jail time.

Yes, it is legal for one to place multiple offers on many properties. But it is also risky. Whenever a short sale is approved the home seller will accept the buyer to actually buy their home. So what happens if two short sales are approved at the same time? They will be very unhappy when they find out that the buyer is unable to buy their home. The buyer will probably lose their escrow deposit.

In addition, the home seller may decide to sue the buyer and ask the judge to force them to perform according to the contract. The judge may judge in their favor with monetary damages. This is why I don't recommend putting multiple offers on different short sales. It puts the home sellers at risk of losing their home to foreclosure as a result of a buyer wasting their time on a short sale.

If you are buying, then make sure the seller's agent is experienced at short sales and has a good track record of short sale success. If you are selling, then I would recommend accepting offers from only buyers that are truly interested in buying your home. Ask them to commit to waiting for an answer on the short sale. The short sale process is much simpler when a buyer commits to buy a certain home if the short sale is approved. They get the home they want and the short sale only has to be approved one time.