Short Sales in a Nutshell
by Tina Triano, Esq.

In my spare time, I provide counseling to homebuyers on behalf of American Home Buyers Alliance, a nonprofit organization that provides free counseling and home buyer grants in Silicon Valley. It is almost impossible to read any media publication without seeing an article about the housing crisis. Let’s take a closer look at a phenomenon known as a “short sale” resulting from homebuyers who have been unable to make their mortgage payments.
A short sale is a situation where the owner of a property is going to or has fallen behind on their payments to the lender. The seller hopes to sell the property for less than what is owed to the bank or lender. I emphasize “hopes.” Short sale properties are frequently listed by real estate agents at much less than a current appraisal would render and often nowhere near what the lender will accept as an offer. When a buyer makes an offer on a “short sale” property, the waiting period can be months. I personally know of two different home buyers who have been waiting over 3 months for an answer on their short sale offers, and I have heard of many more buyers still waiting. The excessive response time can be caused by various factors. Sometimes the seller has not yet negotiated the short sale with the lender and is waiting until they have a buyer to begin negotiations. Sometimes it is because the lender has absolutely no interest in entertaining a short sale offer under any circumstances. For example, if a lender is being asked to take a $100,000 loss, and the monthly mortgage payment is $3,000, the lender has a lot of time to wait before a foreclosure will result in more harm to them than a short sale, so they will wait it out.
I frequently advise buyers that I counsel through American Home Buyers Alliance that it is best to steer clear of short sale listings. For the most part, these properties aren’t really for sale at the low price at which they are being offered. The low price is bait to get buyers to bid on the properties. As an attorney, the practice is offensive because the property is being offered for sale at a price that is clearly false. If a seller is interested in listing their home as a short sale, the seller and the lender should negotiate an acceptable price using a fair market appraisal and the property should be listed at that price—but this is not what always happens. Also consider recent short sale statistics that indicate less than 3% of short sales turn into closed escrows.
If I have a client who is behind in mortgage payments, I frequently recommend bankruptcy—I do not practice bankruptcy law, but it can be the bridge to get caught up on payments. Under no circumstances do I advise my clients to continue to make partial payments. An owner in distress should not make any payments to their lender unless they are able to come up with the full amount owed. The reason for this is simple: If you review a standard Fannie Mae note, you will find that the lender is allowed to continue the foreclosure process even while the borrower is making partial payments in good faith. Many lenders have used the acceptance of partial payments as a ruse to get more money out of a borrower before the foreclosure. This conduct is completely legal.
I also do not recommend that a seller in distress seek advice from a real estate professional unless that professional possesses some certification that they are a foreclosure counselor. Instead, I suggest seeking counseling from a nonprofit organization that provides foreclosure counseling. A list of HUD approved foreclosure counselors is available at www.hud.org. One of these organizations may be able to assist you in resolving a potential foreclosure.

~Tina Triano is a California Attorney & Real Estate Broker with over 20 years of real estate contract/loan experience and over 15 years of estate planning including the implementation of capital gains tax avoidance methods. Tina is regularly a guest speaker in the real estate community. You can reach her at 408 425-7953 (appointment line) or email her at ahba@garlic.com.