Successful Short Sales Part II

September 23, 2009 · Posted in News For Homebuyers

I had a great comment on my blog about shorts sales. I felt both the questions and answers deserved their own blog post.

Question: How much was paid to the homeowner to contract the rights to buy a house facing foreclosure to try to pre-sell it to someone else for profit?

Answer: Why do you assume that the homeowner was paid anything? When a Realtor negotiates a short sale placing the home in a listing agreement, what do they compensate the homeowner? To the best of my knowledge the compensation is simply getting out from underneath the house without having the home foreclosed on.

Question: By marketing houses at a higher price then that required by the bank they are increasing the chance that no buyer will be found and the house will foreclose.? The compensation to the homeowner for this is?

Answer: Why would marketing the house at or below market value increase the risk of foreclosure? LMSG is negotiating the short sale based on their cash offer. If they cannot get the bank to accept a cash offer for below market value then no short sale occurs, no different than when a Realtor takes a listing in hopes of negotiating a short sale. If the bank won’t accept the offer the sale doesn’t go through.

Question: Technically, contracts are legal and binding if they offer a benefit to both parties. A normal RE agent contract for a short sale covers listing and bank negotiation processes. What is the compensation to the homeowner for contracting LMSG to have rights to sell their property and is the compensation fair relative to the increase risk of foreclosure?

Answer: I am not an attorney…nor did I sleep at a Holiday Inn express last night (anyone think I can get paid for product placement on my blog?). But my understanding of a binding contract is that it consists of 3 elements: competent parties, consideration and mutual assent. Your questions seems to revolve around what the seller gets in return for the services provided by LMSG and I see no difference between what the sellers receive from a realtor that lists and closes a short sale. They get out from underneath the mortgage.

Question: Aren’t there laws in effect about presenting all sales offers to sellers (and selling banks) and not hiding some for personal gain?

Answer: Again I am not an attorney, so without a doubt, consult one…but the seller not the bank is the owner of the home. The seller has accepted LMSG’s offer to purchase the home in a short sale, provided one can be negotiated. I don’t see why the bank would need to be made aware of any offers made to LMSG to purchase a property that neither currently own.

Question: My experience is that most times banks do not allow compensation to the homeowner in a short sale.

Answer: You seem to be looking for a smoking gun….in that the seller is being compensated in some way other than simply getting out from underneath a mortgage they cannot afford. I have been doing the same thing since the first deal was brought to my attention. I am a skeptic at heart but can’t find the problem with the business model.