As we look forward into 2012, the need for brokers who can successfully provide services for short sale transactions will continue. Brokers who can investigate, organize, multitask and problem solve with the numerous players involved in a short sale will continue to have success in these demanding transactions. 

Brokers who have mastered the ability to see the transaction from start to finish, respecting and working with not only the buyer and seller but the necessary ancillary participants, achieve short sale success. The ability to keep each participant informed and provide timely and complete paperwork will move everyone forward to the same goal: the closing. Encouraging the seller to use available resources and have tax advisors and legal counsel available will increase the likelihood of success. Part one of this two-part series will examine how the broker can prepare for success even before listing the property. 

Before the Listing 

Prepare in advance for the listing presentation if the transaction is believed to be a potential short sale. Brokers may begin by having a strong relationship with a local title company where the broker may request a preliminary search and hold on the property. This will give the broker a snapshot of the condition of title and will identify the property owners. Given the various ways title may be held today, for example, trusts, life estates, LLCs and corporations, the broker will determine who has the authority to sell, the first step to a successful transaction. 

The search and hold will also identify what judgments or liens have been attached to the property. A lien is the legal claim of one person on the property of another person to satisfy a debt or other obligation. Liens come in various shapes and sizes, but they all attach to the real estate, such that the property cannot be sold unless the liens are paid or removed. Types of liens include mortgages, judgments, construction liens, various tax liens, child support liens, and condominium and association liens.

Having this knowledge upfront can minimize potential stumbling blocks to the sale. 

The Listing Presentation

Think of the listing presentation as a two-way job interview. While convincing the seller to list with the brokerage firm, the agent must simultaneously ask exploratory questions and engage their best listening skills to identify the potential seller’s goals and motivations. Careful client screening may result in the broker returning to the office without the listing, making the determination that the seller is not able to or is not ready to sell. 

Listening will help the broker sort through the myriad of potential seller motivations. Does the seller really want to stay in their home and needs to know if that is feasible? Alternately, the sellers may acknowledge that they cannot remain in their home but don’t know if they can sell, do a short sale or if they should allow the bank to foreclose. By helping the seller articulate their goals, the broker can determine if the listing is worth taking. The WRA-SSC Short Sale Checklist is designed to help the broker and property owner gather this information and assess the seller’s situation to decide if a short sale is a good solution. The checklist includes background information, potential alternatives and then a roadmap of what will be required to move forward with a short sale. 

If the seller wants to avoid foreclosure and wants to remain in the property, the broker can give the seller contact information for the Homeowner Preservation Foundation at www.995hope.org or 1-888-995-HOPE. Many lenders have created borrower-friendly Web pages to educate borrowers about how to negotiate a loan modification or what to expect if the property goes into foreclosure or if the seller attempts a short sale. Although this conversation may not result in a listing at this time, the homeowner may use the broker’s services in the future if it becomes unfeasible for the borrower to remain in the property. 

Short Sale or Foreclosure? 

The seller may be ready to sell but has more debt than there is equity in the home and is deciding whether to list the property for sale or let it go to foreclosure. Here the broker must walk a thin line between giving general information or engaging in the unlicensed practice of law. The broker may, in general terms, explain that foreclosure is the legal process that a mortgage lender can use to repossess, or take over, the property. When a homeowner does not make his mortgage payments, the lender may have the right to repossess, and in most instances, resell the home. If the property is worth less than the total amount owed on the mortgage loan, a deficiency judgment also may be pursued. More information about foreclosure is available in the January 2007 Legal Update, “Avoiding Foreclosure,” at www.wra.org/LU0701.

A short sale is one method for a seller to avoid foreclosure. After the short sale, the lender may discharge the debt or may pursue the deficiency after the sale is complete. The lender’s decision is made on a case-by-case basis and will be determined by the seller’s financial situation. 

Even if the seller has received the first notices regarding a foreclosure, the seller may, if the seller can provide clear title, sell the property any time before the judicial confirmation of a sheriff’s sale. The seller may wish to contact an attorney to help communicate with the lender regarding the Wisconsin foreclosure process. Whether the lender would be open to a short sale will depend in some circumstances if it is early in the foreclosure process or close to the sheriff’s sale when the lender has already expended resources on the foreclosure. 

Property owners will frequently ask if they should continue making their mortgage payments; these potential sellers may be searching for free legal advice from the broker, but brokers must avoid this potential trap. Just because the broker doesn’t get paid does not make answering this question acceptable - giving free legal advice is still the unlicensed practice of law. 

Bankruptcy?

Filing for bankruptcy does not mean that homeowners can necessarily save their homes; it often may be just a temporary stall tactic. Homeowners can work with their attorneys to determine if a Chapter 7 or Chapter 13 bankruptcy may be appropriate given their financial situation. Bankruptcy Basics information is available at www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspx. In this situation, if the seller is just looking for free legal advice or financial services, the broker may refer the owner to private legal counsel or other resources like the Homeownership Preservation Foundation or the Wisconsin Bar Lawyer Information and Referral Service. In addition, many lenders now have borrower-friendly websites that give borrowers help to navigate the refinance, foreclosure and short sale processes. The broker may recommend the website of the National Foundation for Credit Counseling, at www.nfcc.org, for nonprofit counseling agencies. 

Paperwork 

When preparing for the listing presentation, the broker may consider including the following documents in the listing packet: a WRA Short Sale Checklist, a WRA Listing Questionnaire Regarding Title Issues, and a copy of the Addendum SSL to the Listing Contract- Short Sales. Using these documents, the broker and potential seller can identify potential issues and begin to chart a path for success.

Short Sale Scams 

Brokers may need to caution sellers about possible scams in relation to short sales and foreclosures. When sellers are approached by persons claiming to be able to renegotiate with their lender for an upfront fee, they need to be cautious of fraud schemes. Wisconsin has adopted mortgage foreclosure consultant rules designed to protect consumers and regulate mortgage consultant conduct. Having the conversation with the seller up front may help avoid the risk. The broker again can direct the seller to non-for-profit and independent resources for assistance. For a summary of common fraud schemes, see the March 2010 Wisconsin Real Estate Magazine article “Out of the Pan and into the Fire” at www.wra.org/WREM/Mar10/ForeclosureAvoidance. 

You Got the Listing 

Once the broker obtains the listing, the work is only beginning on a potential short sale. The broker can work right away with the seller and lender to identify and gather all the necessary paperwork for the lender’s short sale packet. Tax returns, financial statements and hardship letters will need to be organized for the lender’s consideration. One of the key components is the hardship letter which explains why the borrower’s financial position has changed and why it would be in the lender’s best interest to approve a short sale. The broker may also assist the seller to create a spreadsheet of income and expenses as evidence of the seller’s need for the short sale approval. See again the WRA Short Sale Checklist. Don’t overlook the lender’s website to locate a wealth of information on lender process and expectations. Working with the lender and seller will help prepare the seller for the short sale approval process.

The Successful Sale 

Next month we will look at negotiating the offer, working with the lender and how to address many issues that may arise as a result of the short sale transaction. The following WRA resources are available to explore short sale transactions.

WRA Resources

• March 2010 Legal Update, “Uniform Short Sales,” online at www.wra.org/LU1003.
• March 2009 Legal Update, “Working with Distressed Sales,” online at www.wra.org/LU0903. 
• July 2009 Legal Update, “Solving the Mysteries of Short Sales,” online at www.wra.org/LU0907.
• January 2008 Legal Update, “Short Sales – A Risky Business,” online at www.wra.org/LU0801. 
• July 2010 Wisconsin Real Estate Magazine, “Advising Consumers about Foreclosures and Short Sales,” online at www.wra.org/WREM/Jul10/ForeclosuresShortSales.
• National Association of REALTORS^® Field Guide to Short Sales at www.realtor.org/library/library/fg335. 

Tracy Rucka is Director of Professional Standards and Practices for the WRA.