Denying fallacies and gaining expertise can help brokers deal with distressed property

Alex Charfen, co-founder and CEO, Distressed Property Institute

As published in Scotsman Guide's Residential Edition, June 2009.

Mortgage brokers should know the pros and cons of short sales to help homeowners struggling with mortgage payments. Brokers should be a catalyst for change in this economy. Helping close short sales represents an important part of that change and can reduce today's alarming foreclosure numbers.

Making Home Affordable _____________________________________ The U.S. Treasury Department has announced changes to the Making Home Affordable Program, designed to aid borrowers who are underwater on their home loans. For its May 14 progress report, click here.

Short sales can be difficult. They occur when a home's sales value is less than what the owner owes on the loan for the property. Lenders agree to discount the existing loan balance in return for the sales proceeds; this helps them mitigate larger potential losses on the property.

Knowing some basics about the process — and what common myths to discredit — can help. Here is a look at some of those myths and proof that they aren't necessarily true.

Myth No. 1: Short sales are impossible and never get approved.

Although it's true that short sales can be difficult — and that brokers must learn a new process — one of the biggest issues with short sales is lack of knowledge on the part of real estate professionals. Servicers and lenders often find themselves overwhelmed by the number of woefully incomplete and improperly assembled short-sale packages they receive. Learning how to provide decisionmakers with the best information in the proper package can go a long way toward achieving success with these deals.

Myth No. 2: Banks aren't accepting short sales but instead waiting for a bailout.

The reality is that more banks are pursuing short sales aggressively. According to the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision (report: bit.ly/1a9zHX), loan servicers approved almost three times as many short sales in the fourth quarter of 2008 as they did in the first quarter of the same year.

Myth No. 3: Homeowners must be behind on their mortgage in order to negotiate a short sale.

Some lenders do only grant short sales for homeowners in default, but more lenders are now looking for other verifiable hardships, such as job loss or income decline. The requirement to be in default has been reversed at almost every major servicer and lender — given that a legitimate hardship exists.

Myth No. 4: Homebuyers aren't interested in short sales.

While this might be true of some buyers, others take the opposite approach. Real estate agents report that many buyers specifically request a list of short-sale and foreclosure properties. Thanks in part to the national media attention for the low prices of distressed homes, these properties have become synonymous with good deals.

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