Short sales and REO transactions are a sign of the times and, unfortunately, they are not going anywhere. In fact, current estimates suggest that these transactions will represent a substantial portion (33% or more) of our business over the next few years. However, even as short sales steadily increase, many of our competitors have decided to refuse short sale listings because of there complexity and potential liability. Many brokerages have simply decided that there is no right way to do a short sale.

Intero is not one of those brokerages. Truthfully, prudent and experienced agents can do hundreds of short sales over a career and never see the inside of a court or DRE office. There is a right way to conduct these transactions. It requires discipline, time, and attention to detail. In my time dealing with short sale lawsuits, both at my former law firm and now as brokerage counsel, I can honestly say that every short sale foul up involved an agent that simply refused to exercise one or more of these necessary characteristics.

Discipline in short sale transactions

Short sales ARE NOT normal listings. They are different. Thus, a real estate sales agent must treat short sale listings differently. This means there are important disclosures that MUST be made PRIOR to signing a listing agreement. The state of California requires agents to explain 1) that they are not attorneys and won’t give legal advice, 2) that they are not CPA’s and they can’t give financial advice, and 3) that commencing a short sale will not stall foreclosure proceedings. At the moment that an agent first discusses listing a short sale with a seller without making this disclosure, the agent has breached her fiduciary duty.

Intero has created a “Short Sale Advisory and Hold Harmless Agreement” to help agents meet their duty when procuring short sale listings. Disciplined agents simply have the Advisory signed as soon as they are approached by a short sale seller. Undisciplined agents will not have this Advisory signed. Consequently, these agents are sued and have no valid defense.

Time in Short Sales

Next, short sales require time. These complex transactions involve numerous parties – sellers, buyers, agents, lenders, secondary lenders, negotiators, and normally a professional advisor (i.e. attorney or CPA). Short sales simply cannot be done quickly. As such, there are some listings that an agent must learn to flatly refuse. If a seller comes to you on the day of their foreclosure auction and asks for help “avoiding” foreclosure, you should say “no.” There is not enough time. An agent should not take a short sale listing unless the agent has at least a month to begin the long process of negotiating with the bank and steering the fiduciary toward competent advisors.

Please note; in my time as a real estate attorney, both at my former firm and now at Intero, every short sale suit has involved an agent that commenced a short sale listing within two weeks of foreclosure – each and every single one. Frankly, if you do not give yourself enough time to conduct these sales the right way; you will conduct them the wrong way.

Attention to Detail

Finally, attention to detail is important. Bear in mind, short sales are “exceptions.” The bank is making a special exception for a person facing insurmountable hardship. Thus, there are many special details that must be covered and verified to truly protect the broker and agent. For example, is there real hardship? If not, the bank may resend its “waiver of deficiency” at a later date for fraud. Then, the seller is hit with debt that she thought was waived, and you are hit with a lawsuit. Is the seller hiding assets? You will waste time, energy and reputation trying to procure a short sale for a seller that makes $300,000 a year, has 7 luxury cars, but is underwater on one of his mortgages. Agents don’t want to be interviewed by the FBI or become star witnesses for the IRS. Has each spouse been vetted in this community property state? The list goes on and on.

In conclusion, short sales are complex transactions that will become more and more prevalent in our area. However, they are exceptions, not the rule. Be sure to show discipline and get your special disclosures signed up front. Do not act as an attorney or CPA. Give yourself time to complete the transaction the right way. If you are going to be pressed for time, avoid the listing altogether. And always show attention to detail. Short sales require a special level of professionalism and competence, but if Intero agents can perform these transactions the right way, we will lead the industry for years to come.