Walking and Falling from the Short Sale Tightrope

Back in the spring of 2007 Peter Harris and I helped a woman with a very compelling hardship sell her condo short at the Roundtree complex in San Rafael.  That was the first short sale I participated in, a sale where one or more lenders agrees to take a loss on the sale of a property. 

From May 23, 2007 to July 1, 2008 only one other Marin County agent completed as many short sales as me, which was only five but each sale was a major chore in that emerging segment of the market.  While working with banks on short sales I was able to successfully transition to representing bank owned properties known as REOs, at the time another emerging market segment in the real estate industry. 

Over the years I have represented two Realtors on the short sale of their own houses, one of whom worked for another broker.  I also mentored another Realtor whom I helped sell several homes short, and Realtors both inside and outside Bradley Real Estate have sought out my council when short selling homes.  So I have some knowledge and experience with short sales. 

This past week I fell off the short sale tightrope for the first time.  I was working with an asset manager who directed me to lower the price of the property and literally on the day of the scheduled foreclosure I was able to deliver a full priced offer and every document needed to forestall the foreclosure.  Unfortunately the asset manager was simply the middle man between me and the investor who was holding the note.  The investor had not given approval on the lowered, listed price which was $20,000 under what the investor wanted.  So the investor denied the file and the property foreclosed that day, despite the fact that the asset manager had okayed the price and would have proceeded with the short sale if he was calling the shots.

The real issue with that property was that the market was falling too fast around it.  When we priced the property where the investor wanted it originally we were definitely ahead of the curve, a good 10 percent under the next closest property in part because the unit was not as desirable as the comparable units.  In the meantime no offers were being received and other properties began dropping their prices near to and then significantly under us.  I could only get the asset manager to agree to drop the price $10,000 then $5000 and finally another $5000 which was simply not competitive enough to keep up.   I only learned shortly before the foreclosure that the price reductions were not done with the investor’s approval.

Getting lenders to agree to prices on properties is becoming more and more of an issue with short sales.  In January of this year I sold another condo short in the Roundtree complex of Marinwood.  If I had not received a full priced offer the bank was going to foreclose.  Thankfully in that situation the investor and the asset manager were on the same page, but I had several other buyers who were lined up with offers under the asking price.

Selling a property short is not easy.  Sometimes the investors and asset managers won’t take reasonable offers.  Other times sellers decide they’d rather let properties foreclose.  There can be tax and legal consequences, although those issues have improved for most short sellers.  It’s a tightrope.  I fell off. That won’t stop me from getting back on, and it will help me to make sure asset managers and investors are on the same page in the future.