Risks of Realtor Representation in a Short Sale

A lot of realtors and agents are frustrated about the risks of representing sellers or buyers in short sales.?
I’ve even heard about lenders that won’t do purchase money loans on any properties with an active NOD or NTS on record.
Is the lending industry shooting itself in the foot? If you cannot efficiently structure “normal” purchase transactions to avoid foreclosure, won’t that exacerbate the crisis even more?

Hi Tom - YES lenders are absolutely shooting themselves in the foot as it is in their best interest to do a short sale rather than complete the foreclosure.
The biggest difficulties tend to resolve around 2nds, and total debt-to-equity. Every Realtor should take a quick look at these things before agreeing to do a short sale. If the 1st and 2nd mortgages are with different lenders and the debt-to-equity is so high that the 2nd has to be wiped out completely you may want to pass as it is very difficult to get a 2nd to agree to take nothing (or close to nothing), and you have to get agreement from 2 different parties. You can determine this very quickly using a tool like ForeclosureRadar.com that shows all the loans and debt-to-equity ratio.

Hi Sean:
that’s an interesting comment. We tend to see 2nd’s willing to take 10% of their original balance any day, as long as we have a discount approved by the first.
The difference between 10% and “next to nothing” is usually not that much (on an $80,000 2nd, 10% would be $8,000; the 1st generally allows about $2,000 to go to junior liens. If you can find a buyer who is willing to hold out for the approval that’s a bridgeable gap.
But in general, approvals can be pushed more easily if you have a short sale offer on the table (usually from an investor…)