By EATTLEPI.COM STAFF
For 10 months, she tried to get mortgage lenders to approve the short sale of a Maple Valley home for $480,000.
"We had a first and a second mortgage on it and neither would budge," the real estate agent, who asked not to be named, recounted last week.
The problem was that the lenders had two reviews that valued the home at more than $480,000, she said.
Ultimately, the home went to foreclosure auction, where it fetched just $440,000, she said. "We lost the buyer, lost the sale."
A short sale occurs when a lender accepts less than the balance on a mortgage as part of the sale of a home whose value has dropped below what's owed and whose owner doesn't have the money to make up the difference. The benefit to lenders is that short sales often mean smaller losses than carrying out a foreclosure, putting a home up for auction and then trying to sell it through an agent as a lender-owned property if it doesn't get an acceptable auction bid.
They're increasingly common these days, as the values have dropped on many homes whose buyers had little or no equity in the first place.
While this increasing volume of short sales is tempting agents who are trying to survive a slow market, nightmare stories like Adams' continue to scare many away. Both of these factors are helping drive business to real-estate educators such as Jillayne , who drew 20 agents, including the unnamed one above, to a short-sale class in Kent last week.
"That's where the market's going," said Kathy Holt, an agent with Greene Realty, in Olympia.
Short sales and lender-owned homes now account for about 35 percent of listings in Thurston County, Holt estimated. "They're coming up every day in large numbers, so I wouldn't be surprised if it's even larger than that."
Last month, the Northwest Multiple Listing Service, which covers 19 Washington counties, announced it would start making agents check
boxes to indicate if a listing is a short sale or lender-owned property. This will allow better tracking of the number of such listings and their share of the market.
Some agents, like Holt, came to the class because they saw a new opportunity.
Barbara Lopes, a Bellevue RE/Max agent, said she has never handled a short sale in her approximately 30 years in the business.
"There was no need," she said. "It was a whole different market."
But they're probably going to be an important part of the market for a while yet, Lopes said. "It's going to take a long time to recover."
Other agents, like Adams, came after bruising short-sale experiences.
Nate Hasson, an agent with John L. Scott Real Estate in Renton, said his first short sale took four months to close after getting a buyer, and his second is at four and a half months and counting.
But it's business, he said. "I wish I had like 30 of them going right now."
Agents trying to line up a short sale for sellers need to get past lenders' default departments, Schilcke said.
"These people are only authorized to get money out of your client," she said. "You need to talk to loss mitigation."
Loss-mitigation staffers each have hundreds of cases on their desks, Schilcke noted.
Files that are close to foreclosure, have all the documentation and make a clear, compelling case that short sales will cut the lender's losses get quick attention, while others sit in the pile, she said. "The transactions that get the attention are the ones where the bank is probably going to lose a whole lot of money."
Schilcke recounted agents persuading lenders that a home wasn't worth the headache of foreclosure through such steps as mailing in a plastic-sealed swath of carpet polluted with pet urine or a video highlighting pet-urine stains using black light.
Neighborhood marketing statistics and other scary numbers also help.
"In one of the recent short sales we just got approved we actually put crime rates in the neighborhood and prostitution and drugs," Hasson said.
Schilcke is less critical than many of how long lenders are taking to work through short sales and lender-owned homes.
It would be impossible for them to hire and train enough people to deal with all of the problem loans expeditiously, she said, adding: "It's not the bank's job to get rid of our inventory."
Schilcke said short-sale class enrollment dropped off last year, after the state Legislature passed a distressed-property law aimed to protect people in danger of losing their homes to foreclosure from getting ripped off by people offering to help. Many real-estate agents said the rules subjected them to unreasonable liability in handling short sales.
Enrollment has bounced back this spring, since the Legislature approved a new exemption from the law for agents doing their normal jobs.
Schilke just sent state regulators her plan for a class on mortgage modifications. She's hoping to get approval for the class to count as agent continuing education and start offering it this summer.
Here are some other tips from Schilcke:
Make sure sellers know they'll be liable for the difference between the loan balance and the sales price unless they can prove they can't pay it.
Make sure short-sale documents don't allow lenders to go after buyers for the difference later.
Collect financial distress documentation, such as a layoff notice, medical bills and investment statements.
Check the closing documents from sellers' loans for signs of fraud, which puts sellers in a better position to negotiate with lenders.
Make sure sellers actually are motivated to sell.
If sellers have more than one mortgage, talk to the lender in last position first, because they have the most to lose if a home goes to foreclosure and, so, are most motivated to make a deal.
Refer legal questions to a lawyer and financial questions to an accountant, but don't limit what you'll answer so much that you have no apparent value to customers.
Make sure buyers' agents know you've got the process lined up, so they'll actually show the home.
If you're representing potential buyers of a short-sale home, make sure the listing agents know what they're doing.
Know that lenders always try to get agents to cut their commission but never abandon a deal because agents refuse.
Connect sellers with social-service agencies that can help with issues such as finding a place to live after the sale
ries.
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