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Errol Mooney
Marples and Associates
2016 President Delta Association
of Realtors
Director Delta Association of Realtors
Director California Association of
Realtors 2014-2017, 2019

CA DRE # 01349235
2453 Discovery Bay Blvd, Ste. 100
Discovery Bay, CA 94505
Phone: 925-381-3838
Email: errol@mooneyhomes.com

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Short Sales

A Special Report Prepared by REALTOR® Errol Mooney

8340 Brentwood Blvd.

Brentwood, CA 94513

2453 Discovery Bay Blvd. Suite 100

Discovery Bay, CA 94505




About Short Sales


“Short sale” is one of the most misunderstood terms

in the real estate industry. Whether you are a buyer

looking for a bargain or a seller looking to get our from

under a troubling loan situation, it pays to understand

what short sales represent and the things you need to

know before making any crucial decisions.

(and How They Affect Both Buyers and Sellers)

The 10 Biggest Myths

About Short Sales

(And How They Affect Both Buyers and Sellers)

“Short sale” is one of the most misunderstood terms in the real

estate industry. Whether you are a buyer looking for a bargain or

a seller looking to get out from under a troubling loan situation, it

pays to understand what short sales represent and the things you

need to know before making any crucial decisions.

A Growing Trend

With the recent growth of the sub-prime mortgage trend and the subsequent fallout

from so many questionable loans, more and more listings on today’s market are

categorized as “short sales.” This is one of the most misunderstood terms in the real

estate industry. As a real estate professional working with both sellers and buyers,

I come across short sale situations every day. I’ve found that people who know

what they are doing are able to avoid the common pitfalls and make good financial

decisions for their future, whether you are a buyer looking to find a good deal on a

home or a seller looking to get out from under your upside-down loan.

The Definition of a Short Sale

Let’s start with a basic definition of a short sale. A short sale (also known as a

“short payoff”) occurs when a lender or lenders accept a discounted payoff on an

existing mortgage. Generally, they agree to minimize—and sometimes completely

eliminate—closing costs for the homeowner in order for the bank to avoid the costs

and hassles of foreclosure. In other words, when a homeowner owes more than can

be collected through the traditional sale of their property, a short sale allows them

to sell the property before it gets foreclosed upon, thus lessening—and in some

cases, eliminating—the negative impact on the individual’s credit rating.

The Definition of a Compromise Sale

If the seller has other assets or is gainfully employed, the lender might choose to do

a compromise sale. In a compromise sale, the lender will place a short demand into

escrow that allows the sale to close, but will require a payoff from the seller for the

balance still owed. This note may be secured by other real property or it may be a

personal note.

Know How to Make the Right Decisions

Though it’s important to know about the compromise sale option, my focus in this

special report is on short sales. My goal is to provide you with the education and

insights you need before going down the complex path of the short sale. Whether

you are a buyer looking to purchase a short sale property or a seller looking for

short sale approval on your property that may be worth less than you still owe,

this report will outline the pros and cons of short sales. Here, you will find 10 of

today’s most common myths about short sales along with the accurate information

you need to know to make educated real estate decisions.

You will find that the first five myths are geared

toward sellers and the last five are geared

toward buyers, but I highly recommend studying

all of them in order to have a full understanding

of how short sales will affect every facet of your

real estate experience.

Seller Myths

Seller Myth #1:

It’s Easy to Get Approval from Your Bank to Conduct a

Short Sale

Perhaps the biggest misconception about short sales is that it is easy to get the bank

to agree to a reduced payoff on the loan. Many homeowners figure that as long as

they are in a situation where their property is worth less than they owe, they are a

candidate for a short sale—with the hopes of “breaking even” at the very least.

The truth is, it’s not that easy to

get approved for a short sale. The

thing to remember is that banks

are always looking out for their

own best interests. Nobody is more

tuned into current property values

than banks and they will generally

do what’s best for their bottom

line. Whether they foreclose or

go to a short sale, they are taking

a hit financially. So, if it makes

more sense for them to foreclose

on your property for any number of

reasons, there is a good chance they will pursue that option. Rarely can the bank be

swayed emotionally by your financial situation. Most times it comes down to this:

if they feel they can save additional time and costs by approving a short sale, then

they will be more willing to work it out with you.

The first thing you should do is consult with a real estate agent who understands

short sales and has a strong grasp of the subtle intricacies of banks’ approval

The thing to remember is that

banks are always looking out

for their own best interests.

Nobody is more tuned into

current property values than

banks and they will generally

do what’s best for their

bottom line.

processes. A knowledgeable agent can offer you guidance throughout the short

sale approval process. Then, once you and your agent have a good understanding

of what you are asking for, contact your lender as soon as possible to discuss your

situation, research your options and ultimately ask for a short sale approval on your


Seller Myth #2:

The Agreed-Upon Short Sale Price is the FINAL Price

This is where many sellers—and the buyers making offers—get caught off-guard

by short sales. Though the initial short sale approval process is quite detailed and

in-depth by the bank, they are primarily looking at the bottom line (that a short sale

will cost them the least amount of extra time and money). Basically, with the initial

price approval, they are willing to put the property out there as a short sale to see

what they can get in return. They will determine a price range at that point, usually

with a “bottom-end” price they are willing to accept.

Where it gets confusing is after a buyer makes an offer that is accepted by the seller

and listing agent. That’s when the “real” short sale approval process begins. At

this point, the bank will re-review the

current market value of the property,

including a full appraisal. They

will also fully review the financial

situations of both the seller and the

buyer to ensure that their investment

is safe. Through this detailed—and

often quite lengthy—process, the bank

will determine if they are still willing

to accept the price. And so begins the

frustrating part of the short sale roller coaster. They may choose to come back with

a counter-offer or pull the plug on the listing altogether. Ideally, they will accept

the offer and it will most likely go smoothly after that. But you always have to

remember the bank will hold the cards as long as they want through what can be a

lengthy process.

Where it gets confusing is

after a buyer makes an offer

that is accepted by the seller

and listing agent. That’s when

the “real” short sale approval

process begins.

Seller Myth #3:

Defaulted Payments and Home Equity Loans Will Not

Impact Short Sale Approval

Unfortunately, many sellers seeking short sale approval from their bank are under

the impression that this is an opportunity to “cut the cord” and get out of their

property clean and scot-free. As you can tell from reading this report, it’s not as

simple as that.

In many cases, homeowners have defaulted on loan payments and/or Homeowner

Association dues. If this is your situation, don’t go into the short sale process

assuming that you will be absolved of these back payments. In fact, any money you

owe will certainly factor into the short sale approval by your bank. You may come

out of the short sale process still owing them money, it may become a compromise

sale or you may not be approved for a short sale at all. Rather, the bank may opt for

foreclosure if the payment situation is severe enough.

If you are considering seeking a short sale at all, it’s important that you keep

your mortgage payments and HOA dues current. This will greatly improve your

chances of getting your short sale approved. It will also help your credit rating.

If all your payments are up to date, then a short sale will not have as much of a

negative impact—and in some rare cases, not at all—on your credit score. If you

have defaulted on payments, then it could have more of a negative impact on your


If your payments are all up to date, then another option you can ask your real

estate agent and lender about is offering your deed in lieu of foreclosure. In a

nutshell, this is when you simply hand over your title deed to the bank before the

foreclosure process begins. This can be a viable option to consider depending on

your situation, but make sure you have the information and guidance you need

from industry experts. Nothing is ever as simple as it seems.

Another factor that can come into play is if you have an outstanding home equity

loan or second/third mortgage. If there are multiple lenders involved, it greatly

complicates the approval process and lessens your likelihood of attaining short

sale approval. The bank that holds your first loan will have the biggest say, but the

more lenders and loans that are involved, the harder it will be to get a short sale

agreement that is to everyone’s liking. In many cases the bank holding the second

loan will not recover much—if any—money in a short sale. If your second loan is

held by the same bank that holds the first, then it slightly increases your chances

for approval.

Seller Myth #4:

Once Approved for a Short Sale, Your Worries of

Slipping into Foreclosure Are Over

As we’ve discussed in previous myths, you must keep in mind the bank is always

in control and always doing what’s in its best interest. Even though the bank has

indicated it is willing to approve your short sale and allow your agent to put the

listing on the market, they will always reserve the right to retract the offer and

begin the foreclosure process. This can be a very frustrating experience for sellers

looking to avoid the unpleasant foreclosure process.

Rarely will this happen once your short sale is approved, but it’s important to know

that it can. Banks don’t like going through the foreclosure process any more than

homeowners do, but they will do what they have to in order to do what they think

will be best for their bottom line. So, if your listing stays on the market for a really

long time or they begin to feel that the short sale listing price is too high to sell in

the current market, then they may choose to pursue foreclosure of the property.

Again, it’s vital to know what you are getting into when selling your property via

short sale. Make sure you read the paperwork thoroughly and look out for any

deadlines or loopholes that might be included in the contracts. Don’t be afraid to

speak with a real estate agent and lender in order to better understand the playing

field when it comes to short sales and foreclosures.

Seller Myth #5:

Real Estate Agents Are “Cleaning Up” in the

Short Sale Market

While it’s been a tough time for the majority of real estate agents out there in

today’s market, some agents have been able to find business in the short sale and

foreclosure markets of recent years. But it’s not a bed of roses. Listing agents

are generally getting less commission in a short sale because of the bank’s heavy

involvement and in order to keep seller’s closing costs to a minimum. With that

said, it is often a lot more work for an agent to represent the listing because they

are dealing with both the bank and the seller. There is a lot of going back and

forth. They have to manage both sides to keep everyone as happy and informed as

possible throughout the process, oftentimes acting as more than a regular agent.

They are more like an interpreter, intermediary and peacekeeper.

Some agents do have relationships directly with specific banks and are representing

any number of short sale or bank-owned (REO) properties at one time. Keep in

mind that when working with an agent like this, their primary customer is generally

the bank, so they may not be as attentive to the needs of the seller as they would

like. It’s not always the case, but it can be. In fact, one of the most frustrating parts

of short sales for agents and clients is the waiting game because it takes longer to

get the information reviewed by all the parties involved.

That’s why it’s important to develop a relationship with an agent before you pursue

a short sale approval—an agent who not only knows how the short sale market

works, but is definitely on your side throughout the listing process (including

escrow and closing). An experienced real estate professional—with the help of

your lender—can help you explore all your options before you make decisions that

will greatly impact your immediate financial future, as well as your credit rating for

future purchases.

Useful Tips for Short Sale Sellers:

1. CURRENT PAYMENTS. Keep your loan and HOA payments

current to avoid credit problems and increase chances of short

sale approval.

2. LENDER CONSULTATION. Talk to your lender as soon as

possible to see what your short sale options are.

3. REALTOR® CONSULTATION. Talk to a real estate

professional who understands short sales and can guide you

through the approval and listing processes.

4. DO YOUR HOMEWORK. Be flexible in your expectations.

Don’t automatically say “yes” or “no” to the first offer from the

bank. Do your homework and make sure to consider all aspects

of the offer against your financial situation to make the right


5. EMOTIONAL VALUE. Don’t get over-attached to what you

think your home is worth. In today’s changing market, values

are always shifting. You have to set realistic expectations and be

willing to accept what you can get.

6. PROPERTY DAMAGE. No matter what, do not damage the

property on the way out. In some cases, it can result in civil and

sometimes even criminal litigation.

Buyer Myths

Buyer Myth #1:

Buyers Will Find the Short Sale Market Teeming with

Incredible Values and Even Some Downright “Steals”

It is true that you can find some good deals with short sale properties.

Unfortunately, most buyers go into their home search thinking they will save 10

percent, 20 percent or more when they purchase a short sale property. On average,

most short sales will close at about 3-7 percent off the full market value.

The important thing to remember is just how savvy banks are. They are not going

to approve a short sale if it’s not going to net a decent return for them. They are

losing money no matter what, so they are going to try to lose as little money as

possible. They know market values better than anyone and will set the price based

on what they feel will be just low enough to sell, but will be closest to full market


So what does this mean to buyers? It means you can save a little money by buying

a short sale property, but don’t always expect to find a “steal.” You must also be

sure to factor in any renovation costs that may be associated with the property.

With most short sale properties, it is truly “as-is” and there is rarely any “wiggleroom”

in the negotiations for concessions or repairs. Because the seller is largely

removed from the process, you will not easily be able to negotiate with the bank to

make necessary fix-ups, replace carpet, paint, etc. If you know the property needs

a lot of work, make sure to do a thorough evaluation of all the costs associated

with renovating the property before you make your offer. Determine whether the

reduction in selling price is worth what it will take to make the property livable for


A short sale transaction can be a long, laborious and time-consuming process

and can sometimes fall through completely at different points in the process.

As a buyer, it’s important not to get completely “wrapped up” in one short sale

transaction while watching other buying opportunities pass you by. Work with

your agent to leave yourself some “outs” in the offer process in case you decide to

pursue something else.

Buyer Myth #2:

Banks Are Desperate to “Unload” Their

Short Sale Properties

On the heels of Buyer Myth #1, it’s always crucial to keep in mind that the banks

are motivated by the bottom line. Many buyers go into a short sale offer thinking

that the process will go quicker because they think the banks are desperate to

unload the property. This is the perception for buyers when it comes to foreclosure

properties, as well.

The fact of the matter is that banks

are extremely careful with every

aspect of the short sale, from initial

approval of the price all the way

through to the close of escrow.

When you submit an offer, they will

scrutinize every detail. They will

fully review the seller’s situation

and your financial stability to make

sure there will be no problems with

the transfer of the property or payoff

of the loan. Again, these are the types of things that can often draw out the buying


With that in mind, you need to make sure you are covered on your end before

submitting an offer on a short sale property. Be sure to talk to a real estate

The fact of the matter is that

banks are extremely careful

with every aspect of the short

sale, from initial approval of

the price all the way through

to the close of escrow. When

you submit an offer, they will

scrutinize every detail.

professional and a knowledgeable lender. It is best to get pre-qualified for your

loan and submit a pre-qualification letter with your offer. This will show the bank

that you are not only serious about buying, but willing and able to pay for your

loan. If you want to take it one step further, you can consider getting pre-qualified

by the bank that holds the title. Quite simply, the more information they have about

you, the more faith they’ll have in you as a buyer and thus, the more likely you will

be to have your offer accepted.

Buyer Myth #3:

“Short” Sale Implies a “Shorter” Closing Period

This is where many people have misguided perceptions about short sales. People

hear the term and they think it means that the process will be “shorter” because

both the bank and seller want to sell the property as quickly as possible. That

is true in one sense, because they do want to get it off their books sooner rather

than later. However, they will still take whatever time they need to get the best

return on their investment. In addition to the extra diligence they will take to make

the decision, keep in mind a lot of banks are now too understaffed to handle the

growing number of short sales and foreclosures in a timely manner.

Because most banks are so stringent in the short sale approval process after you’ve

submitted an offer, it can often drag on for several extra weeks—if not months.

You just need to go in knowing that it could be a quick close or it could take much

longer. The frustrating part is that it can be hard to tell until you make the offer.

This is where an agent can help “scout” the listing for you by speaking with the

listing agent (and sometimes the bank itself) to feel out the situation and see what

the desired terms may be.

When I am working with buyers making a short sale offer, I always recommend

that they put a relatively short close period (30 days or less) in the contract. Why?

Because it shows the bank you are ready and willing to close quickly. They will be

drawn to your offer because they know you are more serious. It also gives you an

“out” later if they choose to drag on the escrow process.

But even though the bank may be more apt to accept your offer because of a short

close period, it does not necessarily mean that the escrow will close within that

timeframe. Most times it does not. They can extend the process as long as they

need in order to make their financial decision. This is very important to know and

understand before you make your offer, especially if you are in the process of

selling your current property and trying to “time it” accurately. Make sure your

agent stays on top of the listing agent—and even the bank, if needed—to keep the

process moving forward and to avoid having your contract get lost in the shuffle.

Buyer Myth #4:

The Listing Price is What the Bank Will Most Likely

Accept When You Make Your Offer

Before a short sale is ever put on the market, the listing agent and bank will

determine an undisclosed price range for the property. The high-end will be what

the bank would ideally like to get back. The low-end is the minimum they would

be willing to accept at the time of approval. The listing will generally go on the

market at a pr