Short sale negotiations

10 Replies

Hello,

I have been studying up on negotiating short sales and already have a client that will allow me to negotiate the structure on the property. My question is, is there a conflict of interest with me negotiating the short sale and also purchasing the property? If so, would it be better to set up a different company that handles the purchase and consequent sale of the property or, should I just have a realtor list it while I collect a negotiation fee? Any advice would be appreciated. Thank you.

FYI this deal is in Texas if that makes a difference. 

"Studying up on negotiating short sales" doesn't qualify you to do them. It's a case of you simply don't know, what you don't know. You're playing with somebody's future.  There can be a lot of turns and twists, which you need to know how to handle in advance, different strategies depending on the number and type of liens and who the Servicer and investor are, etc,etc.  Don't know about Texas, but most states require some type of licensing to do so, and rightly so.

As to purchasing a short sale property, you will be much better off finding an experienced short agent and negotiator, and let them do it.

I have had experienced short sale real estate agents negotiate properties for months and waste a lot of time for nothing. I would look for another source of properties.

And in some markets the banks are not budging much on price these days

Yes, a conflict exists.  You will be asked to sign an "arm's length transaction" document by the short selling bank, which indicates that you are not collecting any money that is not disclosed in the contract.  You are much better locating a listing agent for the property BUT, a listing agent (and Seller) will be required to have the property active on the market for a certain period of time.  Meaning, you might not be the person who gets into contract with the Seller.

Further, in Oregon, a real estate agent can't pay anyone a negotiating fee except an Attorney or a fellow Realtor.  PLUS, if a Realtor hires you as the negotiator, it could be argued that they are not representing their client by recommending a non-experienced party be the party to negotiate with the bank.  Short sales are much more complicated than you are expecting.

Not only do you have to sign the arm's length affidavit, but so does the Seller and the Real Estate Agent(s).  All parties would be subject to fraud charges if you are the purchaser and collecting money on the transaction.  The Listing Agent and Seller would be subject to fraud if they didn't have the property on the open market.

Further, even if you were a licensed Realtor, representing yourself, you would (often) be ineligible for collecting a commission for representing yourself.  Banks don't consider that discrimination because we (Realtors) are not a protected class.  Many Realtor's who are purchasers do not represent themselves in short sales for this reason.    

Any company that is involved with a purchase is required to provide articles of org as proof of the signing parties and company structure. Meaning, starting another company will not stop your relationship to the transaction from being known.      

Kim, 

You did an excellent write up. However, while laws may be laws the banks transact short sales all the time without real estate agents! :) If he is in negotiation with the owner of the property and is trying to help him rectify his situation as a principal in the matter I'm not to sure how far your version of everything will be upheld. There is nothing that makes a homeowner have to hire a real estate expert vs doing private business. A homeowner could authorize him to talk to the bank in his behalf. A bank will not do a short sale on a property unless properly informed of what makes the short sale necessary.  

If presentation is sufficient, and an intelligent negotiator is in place it can be done in a matter of days! Then sometimes it may take months! Just depends how intelligent and up to speed someone is on the que of accounts they are handling. If someone has proper signatory approval for such transactions the settlement letter can be typed immediately then paid via bank wire.  

Wow! I had no idea there were so many strong opinions on short sales. Let me clear up my "studying up on short sales" comment. I have been working with a mentor that is experienced in short sale negotiations and has finished numerous transactions. We have covered the process from start to finish and I am under no impression that they lead to quick or easy money. They are a strange beast to wrestle however, they aren't impossible. Like @Kathy Utiss  said, with a good presentation and knowledge of how the banks process a short sale packet they can be done. These answers have helped me quite a bit and if anyone has anymore answers or opinions I would love to hear them. 

Thanks everyone!

I'm considering buying a short sale and the Fannie Mae Arm's Length Affidavit does not allow me to collect a commission. I would assume it would cover short sale negotiating fees as well. Maybe you could find some gray area if you have another agent represent you and give you a referral fee after the transaction.

@ Kathy - While you may be one of those "intelligent" negotiators, Banks don't "do short sales without agents all the time". You may work for a local/regional institution that doesn't require it to be listed with an agent but, it sure won't be a Fannie/Freddie property and if you are regulated by NCUA or the FDIC and don't negotiate short sales within acceptable, "Arms Length" parameters, I wouldn't want to be a part of your next compliance exam.

If you take the altruistic motives of the OP you portray out of the situation, he's not "helping him rectify his situation", he's trying to purchase a property that he thinks will be a financial win to him. Nothing wrong with that but let's call a spade a spade and not put some Ghandi'esque spin on it.

And there IS something that makes the homeowner have to list it with an agent. A requirement from the lender and/or Fannie/Freddia also know as the U.S. Treasury Department. They require it be listed under all but the most detailed and exceptional circumstances that are well documented.

Presentation is nice but that's never going to be sufficient all by itself. There are many other required elements to a short sale. Presentation is only one. The best presentation in the world isn't going to make a sure sale go through if it doesn't meet the requirements of the investor/lender/servicer.

"Having the property signatory approval level" is a perfect reason WHY one should list the proeperty with an agent, so the rest of the deal can be reviewed and confirmed to be a proper transaction. All of my negotiators recommend a deal after an exhaustive financial analysis and after verifying that all the requirements of a short sale are met (Like being listed with an agent, executing a 4506T, providing a hardship letter, bank statements, tax returns, Arms Length affidavit, budget, etc..) and then signing off and verifying all of the requirements are met so that when its all done, a subsequent audit from an outside entity or regulatory agent will confirm that it was done properly and NOT just because some talented negotiator thinks it should have been done. Is it the highest and best offer (How woudl you know if it's not listed)? Is it going to close? Did the negotiator run OFAC on ALL parties to the transaction? Is it better than foreclosure? Does it meet minimum net proceeds requirements in the NPV calculations to proceed? Is it arms length? Is anyone getting an inside deal not available to the public at large? Is there PMI? Does the investor need to approve the deal? Does the insurer (If applicable)?. Is it a cash deal or is there financing and if there is financing is the bank (Or whatever financial institution it is) financing their own short sales (That's another can of worms)?

I understand what you are saying and yes, an educated negotiator can make or breaks a deal but that negotiator needs to follow the rules and make sure that everyone else follows the rules and yes, there are rules. If your lending institution gives you delegated authority to approve any deal you feel is a good deal without any oversight whatsoever, I'm not sure that practice would be to the benefit of the institution in the long run.

Originally posted by @Jairo Freyre :

Hello,

I have been studying up on negotiating short sales and already have a client that will allow me to negotiate the structure on the property. My question is, is there a conflict of interest with me negotiating the short sale and also purchasing the property? If so, would it be better to set up a different company that handles the purchase and consequent sale of the property or, should I just have a realtor list it while I collect a negotiation fee? Any advice would be appreciated. Thank you.

FYI this deal is in Texas if that makes a difference. 

If you have disclosed everything material to the bank -- your relationship to the seller, your intent and that you are an investor, not sure what conflict would exist. You also plan to collect a 'negotiation fee' from the realtor? You may have to rethink this strategy.

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