It’s time for a ban on all third party short sale negotiators.

Not a day goes by that I do not hear a story from a Realtor, loan originator or consumer about a questionable if downright bad experience with a third party short sale negotiator. We’ve reached a point in time where we ought to consider eliminating all third party short sale negotiators. At the end of this article I will provide suggestions for home sellers, home buyers, real estate brokers/Realtors, attorneys, and regulators in order to maximize good consequences and minimize bad consequences for all parties.

Yesterday I received a frantic call from a homebuyer we’ll call Maggie, who found me online via this blog post. Maggie fell in love with a short sale house but after her offer was accepted and moving toward the close of escrow, the third party short sale negotiator announced that since the lender would not pay his full fee (short sale negotiator was already being paid $3000), as the buyer, she would have to come up with an additional $7,000 at the close of escrow.  Maggie was in love with the house but didn’t have the extra 7K so the third party short sale negotiator suggested she get a loan and pay him after the close of escrow.

There are so many things wrong with the above scenario I don’t even know where to begin.  So let’s begin at the beginning. The growth of fee-based, third party short sale negotiators was fueled by a perfect storm:

1) Collapse of the real estate bubble and resulting growth of over-mortgaged homeowners.
2) Rapid growth in the need for real estate listing brokers who know how to negotiate a short sale.
3) Decimation of the subprime industry and resulting out-of-work loan originators and Realtors.
4) “Get rich quick

67 thoughts on “It’s time for a ban on all third party short sale negotiators.

  1. Great post, Jillayne! I certainly hope Maggie reported that so-called professional negotiator to the authorities. Short sales are a necessary evil that we all will be forced to deal with for several years so there are few excuses for choosing to remain in the dark on the negotiation of a short sale from start to finish.

  2. I’ve seen this happen recently with a second lien holder just prior to closing pulled the stunt of demanding an extra $7k in “certified funds” in addition to the $3k they had agreed to. When I read their approval letter of the short sale, I immediately sent an email to all parties stating ANY funds, including this extra $7k would have to be on the HUD or it’s a RESPA violation.

    It’s digusting that they wait, intentially, until the very last minute, buyers are exhausted from the short sale process and just have moving on their minds…and they pull this stunt when emotions are at their peak.

    Jillayne, does this happen more with 2nd lien holders than 1st?

    I also don’t see DFI’s logic in having short sale negotiators being licensed mortgage originators – this should be a separate desigination with it’s own unique requirements. It’s not anything like originating mortgages… this must be DFI’s way of getting more $$? I’d think DOL would be more involved in thsi profession.

  3. Well I think the process of negotiating loan terms with a lender falls under the definition of what a loan originator does all day long, this is why the license has to be an LO license and not a real estate license. I don’t care which licensing group gets the licensing revenue…as long as they have to be licensed somehow. I honestly don’t think the incoming revenue is going to do much to cover the costs associated with overseeing this particular group.

    I hear about problems with second lienholders as well, where the second lienholder refuses to clear title unless they’re given more than what the first lienholder will allow. Since the first will want “first” dibbs on ALL money coming in the direction of the lenders, the second will often want that money paid off the HUD. I HATE hearing about Realtors (and buyers) who were strong-armed into doing this but it is happening.

  4. Great post Jillayne and your advice to buyers to refuse to pay the short sale negotiator’s fee is spot on.

    As an attorney who regularly represents buyers of short sales my primary concern is the potential for vicarious liability to run to my client for the short sale agent’s malfeasance. I can just picture it now, a short sale negotiator convinces a poor seller to agree to a short sale that does not eliminate all the debt and then a few years later a collections agency sues the seller to collect. The seller gets wise and goes to see a consumer protection attorney who determines the short sale negotiator committed legal malpractice and decides to go after him. Of course, the normal approach is to sue everybody and to follow the money. So they look into it and find out the buyer paid the negotiator’s fee which suggests the negotiator was working on behalf of the buyer. Worse still is that some negotiator’s make the buyer sign paperwork that could further suggest the negotiator was acting on the buyer’s behalf. Wham bam, next thing you know the buyer is liable for the negotiator’s negligence and/or fraud.

    I actually spoke on this very subject at the Inman Connect meeting last year in Bellevue. I warned the real estate agents in attendance to beware the short sale negotiator . I also predicted that over the next 3 to 6 years that we will see a wave of litigation against agents and brokerage companies who insisted that their clients use particular short sale negotiators only to step back and not remain involved in the transaction advocating for their client’s best interest.

    Well, we’re ready to help:

  5. Hi Marc,

    Thanks for your opinion….I have a question:

    “and find out the buyer paid the negotiator’s fee which suggests the negotiator was working on behalf of the buyer.”

    So what about in regular real estate when the commission for both real estate agents is coming from the seller’s proceeds? Does that also mean the agent working with the buyer is actually working on behalf of the seller?


    • Your question calls for a legal opinion which I’m reluctant to give in a public forum. So, let me answer by pointing out that in Washington state the relationship between “buyer

  6. Jillayne,

    Just came across this article on banks pursuing deficiencies after foreclosures: This is kind of along the lines of what I fear about short sale negotiators. If the negotiator doesn’t get express agreement (i.e., in writing) from the sellers lender(s) that all debt is being satisfied in full and the seller is relieved of all liability on the debt, there’s a very good likelihood that the deficiency may come back to haunt the seller months or even years later. That goes double in the case of junior loans. This is precisely the type of fact pattern that could give rise to a malpractice claim against the negotiator and the real estate agents involved.

  7. Hi Marc,

    But, but, but isn’t this practicing law? How can a third party negotiator negotiate terms of a contract with just….(in WA State) a loan originator license? DFI seems to be okay with this because LOs on the retail side are negotiating terms on behalf of a borrower to place a new loan, but LOs do not negotiate changes to the Deed of Trust on behalf of a homebuyer or refinancing homeowner on the retail side.

    Next question: What do you think about my comments regarding law firm advertising? Is there a rule in the Professional Standards of Conduct that says members have to clearly identify themselves on websites so consumers can figure out who you (the lawyers) are?


  8. I have been involved in buying distressed properties in the past 2 years.

    In one case, the bank refused to pay the negotiator fee, so the negotiator wanted the buyer to increase the purchase price. The buyer refused and the house was foreclosed. (Later sold for much less.)

    In many cases, short sales with negotiators sat on the market for months (e.g. 6 months or “forever”.) What good are these negotiators if they can’t close the deal in a timing manner? The buyer walked after 4-6 months because market has changed (i.e. price has dropped further) or he lost interest.

    In some notorious cases, the negotiators require the buyer to do the inspection before they will even negotiate with the bank. The buyer is forced to pay for inspection fee and other costs without any assurance that the bank will accept the offer. The buyer is forced to stay in the deal or he will lose the money spent.

    In one case, the negotiator fee was not listed on the MLS and showed up as an addendum in the sales agreement. The negotiator turns out to be an attorney who recently started practicing in the state. The fee was supposed to be paid by the buyer.

    In all these cases, because of the additional costs involved, the bank is actually taking a bigger loss than those without negotiators. Many times the bank balks and the deal falls through and the house was foreclosed. Everyone loses in these situations.

    IMHO, many of these negotiators are scrupulous and are holding everyone, especially the bank, hostage. If we are to allowed these negotiators, we should fix their fees to no more than $2,000 and hold them accountable. We should prosecute any illegal dealings to deter the opportunistic negotiators.

    Someone from the Seattle Times should write about these short sales negotiators. I have not seen much value add from their involvement in the deals I was involved in.

  9. Hi Eastsider,

    And yet every now and then I’ll run into a Realtor who swears by his favorite negotiator telling stories of fast approvals, etc. I’d really like to see movement back to bringing the duty of negotiating back to the listing broker side of the plate. In my perfect world, then only highly competent listing brokers, who are highly trained to do short sales would WANT to take those listings.

    Pre-qualifying the seller before taking the listing is probably one of the most important steps and listing brokers need to constantly be dialed into the loss mitigation side of the business which is constantly and rapidly changing.

    I’d also like to see an MLS rule change whereas all short sale homeowners would be required to pre-pay for 2 hours of legal counsel before the listing goes live in the MLS. Mandatory.

    Thanks for stopping by.

  10. Hi Jillayne,

    Fast approval happens when the bank has done a BPO AND the purchase price is close AND the bank is the first and second lien holders. What sellers need is legal advise so the banks do not go after them for deficiencies later. The only people who care about using negotiators are the listing agents.

  11. is there anyone in florida i can contact? i’ve been through this exact scenario. additionally, the listing agent turned out to be a titled corporate officer of the short sale negotiator firm. so she collected twice, commision from the sale, and my $6000 fee to the firm. i wanted the house and they threatened to tell b of a that i no longer wanted the house and subsequently pull my deal. so i paid the fee, and got the house, but i promised myself that i would do all i can to expose them and their practice of greed.

  12. obtaining a release of lien requires nothing more than delivering a great short sale packet to the lender. a box checking monkey can do that. many negotiators are nothing more than an overpaid fax service.

    I negotiate ALL my short sales. Every short sale approval letter for my financially distressed clients waives the deficiency. there is NO recourse. all property types. all loan types. all loan positions.

    an attorney negotiator is not necesarily better. I recently consulted gratis for a selling agent on a short sale. the listing agent and seller used a ‘short sale’ attorney. the attorney didn’t know about the Foreclosure Fairness Act! can you say malpractice?

  13. Hi Michael,

    I’d love to see a rule change whereas real estate brokers would only be allowed to do the negotiating, no more outsourcing to third parties and pushing the fee onto the buyer. If a real estate broker wants to take the listing and doesn’t know how to negotiate, then they’d be required to co-list it with someone in their office who does know how…maybe after X number of deals co-listing, theycould then go ahead and list/negotiate on their own. Sellers are not well served with what’s happening now.

    I’ve heard that the mediators who are in training to do the mediation via the Foreclosure Fairness Act are not trained in anything having to do with short sales and loan mods…they just know “mediation.” THAT should end well. /sarcasm.

  14. in addition to negotiationg my own listings I am also hired gun colisting broker for a few real estate brokers. I have an attorney on my team usually at no cost to the borrower unless the file is extremely complicated and problematic. the borrower is lawyered up right out of the gate as a too in my toolbox just in case.

    the Foreclsure Fairness Act was intended to force the bank to provide a decision on loan mods when it is believed the borrower qaulifies. Most borrower’s don’t qaulify to repay the loan under the modified terms. I think very few loan mods will get done under the FFA. I use the threat of mediation under the Foreclsure Fairness Act all the time to get the short sale closed. that is very handy on Fannie Mae loans with a blown BPO and a foreclosure date. we throw the BPO agent under the bus as incompetent. we throw the loan servicer/Fannie under the bus as failing to negotitate in good faith by refusing to review information clearly indicating the BPO is flat wrong. the loan servicer has to explain their actions to the mediator and the borrower’s attorney on our turf.

    I am also a part time employee for a law firm. I negoatiate short sales for them as an employee and not a licensed RE broker.

    there is a SS negotiting company in Seattle apparently in a licensing dispute with the WA DFI. bad news bears. I have heard rumors they do stuff off HUD outisde of closing…..RESPA violation? federal banking violation? bank fraud?

  15. Jillayne,

    WOW you seriously have been burned because you are painting with a WIDE BRUSH. It’s sad that the situation you speak of happened, however, not ALL 3rd party short sale negotiators are out to destroy the universe.

    So let me ask a couple questions. Are there fees in Washington State that are TYPICALLY fees the seller has to pay that the BUYER ends up paying ever? I know in my state, sellers are responsible for fire inspections, septic inspections, code inspections, occupancy inspections ALL that have to be completed before the sale closes, but in a short sale, most of the time guess who ends up paying? The BUYER! I don’t see the issue if the buyer knows up front that a fee is attached to a particular property and they LOVE the property. now if a firm is trying to add a fee on after the fact then YES, I would run away, but if BEFORE a contract is even executed and a listing agent has CLEARLY disclosed this fee is included in the purchase of the property, then isn’t it up to the BUYERS to make the decision whether or not to pay it? It’s NOT up to the agents…REO lenders make buyers use a particular mortgage company when they submit pre approvals…I don’t see anyone screaming about that?

    It’s a distressed sale so how is ANYONE OVERPAYING for a house in THIS MARKET??? REALLY? That is ridiculous. Do you think buyers are that stupid? If there are 3 of the same houses up for sale right next to each other and one is priced a lot higher do you think a buyer is going to run right over and submit an offer…NOOOO he is going to buy the same exact CHEAPER distressed property. So if the fee was disclosed UP FRONT RIGHT IN THE LISTING and the FEE WAS charged to the BUYER ON THE HUD (cash at closing) would you STILL have an issue?

    C’mon!?!?!? Not every company is out to rip everyone off. And guess what, HISTORICALLY REALTORS DIDN’T NEGOTIATE SHORT SALES!! Only when the market tanked did realtors have to LEARN how to do them in order to get their listings sold. Lawyers, mortgage brokers, debt negotiators, and all the other THIRD PARTIES were the people that negotiated short sales. Realtors have only realistically been doing it in the last 4-5 years.

    These guys are “fast talkers and smooth charmers” – WOW you really seem to be discriminating against an entire group of people for maybe the actions of a small few and that is what is scary.

    I’m sorry but I happened to close two houses this year with two buyers who paid negotiation fees and they were thrilled to get the property at such a great price, and *I* was so impressed with the 3rd party that did the negotiations after, that I called them and asked if I could work with them and you know what?!?! They are EXCELLENT.

  16. Hi William

    Historically the listing broker was the one who negotiated the short payoff as part of his/her real estate commission.

    The biggest mistake a buyer could make when purchasing a short sale is to OVERPAY for a home with all these added fees hitched on to the purchase price in a declining market.

    Lenders want fair market value for short sales. Lenders aren’t going to approve “fire sale” type prices for short sales if their BPO shows that a buyer would pay more.

    Many buyers don’t get hit with the 3rd party short sale negotiator fee until the very end of the transaction when the lender refuses to pay.

    We are seeing rampant fraud going on in the 3rd party short sale negotiator world.

    Glad to hear that you had an excellent experience w/your third party negotiator. Your one excellent experience sounds like an outlier….irrelevant.

    And, wow, all I can say about your comments on the following blog post is that you’re advocating what is now described as short sale fraud:

    You might want to re-think your position on that blog post and re-post some more up-to-date comments.

  17. Jillayne,

    Again, you’d be hard pressed to find listing agents 10+ years ago negotiating short sales. Negotiating short sales is NEW within the last 5-6 years for agents. They HAD to learn how to negotiate to get their listings sold. Many listing agents had NO training for this..they learned as they went along. It was other “third parties” mainly lawyers, debt negotiators, title companies that negotiated short sales up until the market tanked, NOT REALTORS.

    Buyers in reality CAN’T overpay for a distressed property i.e., short sale, because by their very nature are properties with a liquidated value. Short sales are GREAT DEALS for buyers. The dictionary of real estate appraisal shows liquidated value on property where the homeowner has a “compulsion to sell” and “not enough marketing time” – unlike their traditional sale counterparts who can put a home on the market and wait for a buyer, take it off the market, etc. Who in this market is going to OVERPAY for a house? NO ONE. Half the homes nationwide are in a distressed category. Have you read ANYWHERE in the news lately that someone is suing someone because they overpaid for a house? If the market is “declining” the VALUES ARE FALLING. People aren’t overpaying for homes like in 2002-2006.

    Lenders want “market value” that’s right. So, a house’s market value is $400,000 and the lender is wiling to take 80-92% of THAT value, so realistically a buyer at 80% could get that home for $320,000…where did they overpay? They got a DEAL. The lender is getting the NET they want. The negotiator gets their fee…whatever it is, the agent gets a commission, the homeowner gets a deficiency release because the lender got their net…where is the FRAUD?

    Tell me where the fraud is if a buyer knowingly wants to see a property that CLEARLY has a negotiation fee in the description of the listing, agrees to buy the above house for $320,000 or $380,000 or whatever the price they agreed to was, agrees to pay the negotiation fee, septic inspection fees, fire inspection fees, blah blah and the fee is PUT ON THE HUD, WHERE is the fraud committed?

    I’m not saying in your scenario SOMETHING wasn’t wrong, maybe it was, maybe it wasn’t but to write a blog like this and say that all 3rd party negotiators have to go, is irresponsible.

    Sorry, you sound like an ex girlfriend that has to bring up past arguments that you have to go run and find other posts I’ve made on the internet to detract from the topic at hand. Did you even read what I wrote? No where on that blog or your current blog here have you shown me the law that is being broken. Fraud is INTENTIONAL misrepresentation and nothing I’ve written outlines ANY INTENTIONAL misrepresentation. I love everyone who JUMPS on the fraud bandwagon, including freddie mac, who is covering their own AS$#S. Now they are generating a new addendum that we all have to sign that even if someone ELSE in the transaction commits fraud and WE as agents don’t know about it, WE are liable. C’mon, when is the B.S. from Freddie Fannie, and the lenders going to end?

    • “Buyers in reality CAN’T overpay for a distressed property i.e., short sale, because by their very nature are properties with a liquidated value.”

      that statement is false. buyer’s can and do overpay. every financially distressed transaction does not equate to a ‘good deal’ or a good investment decision. BPOs and appraisals are routinely get blown for the lien holders and the buyers.

  18. There have always been short sales. There are agents who have always dealt with bank owned properties. I can name three that I’ve done business with for twenty years or more. Short sales used to be pretty common. Jillyane is from the old school.

    Now the problem is all the agents, and Real Estate professionals who started “in the business” within the past fifteen years, and growing. They are the hangers on, like the attorneys, who have long looked for a way to insinuate themselves into Real Estate transaction for a fee.

    There is no “negotiation.” The bank has a number. You hit the number or walk. That’s it. That’s hardly worth $6K, or $7K. That’s just the start.

    The second thing is most “negotiators” are more than willing to over pay in order to close a deal. They have no interest in the client one way or the other, they get paid to close a file for a fee.

    Now let’s talk about those smokin’ hot deals that you are selling to the public. How smokin’ hot are they? $320K? Come on, today’s $320K will be $225K in five years, maybe less. How’s that a bargain? Second we are in a period of NO appreciation in Real Estate prices. Every sale you make today is another loss for your client.

    Don’t blame me, blame the banks. We have zero correction to the market place, globally, while banks continue to collect as much as they can, for as long as they can. If you aren’t watching the macro economy, you’re lost.

    • David,

      I disagree. I negotiate and beat up the bank on the bank’s valuation on a regular basis. it is easy to supply quantitative data indicating the bank valuation is flat wrong and discredit the BPO agent or appraiser as incompetent and unable to meet the minimum standards to perform. I have done it with Fannie, Freddie, HUD/FHA, Deutsche Bank, and other notoriously difficult note holders.

  19. All it takes is documentation in the file. That doesn’t change the fact you are only using sales data. Sales data only reflects what the last guy was willing to pay. It’s not predictive, or analytical. It is “fair market value.”

    You’re right in your comment above, that doesn’t make a short sale, or bank owned, a”deal.”

  20. Another point is that banks got involved when the bank, and lenders began adding addendums that were more complex than normal closing documents. You should have an attorney review of a short sale, and maybe a bank owned. The attorney review is much less than a 1% fee.

    • It is rare that I come across bank addendums to the purchase and sale agreement for a short sale. I have been involved with short sales for residential, investment, commercial paper for quite a while.

      when negotiating a non commercial short sale as a licensed RE agent I have an attorney on my team representing the seller at no cost to the seller, buyer, or buyer’s agent.

      I also negotiate SS as an employee of a law firm when the seller is not my client.

  21. I use regresssion analysis and other statistical techniques beyond the skill set of the vast majority of BPO agents and apprasisers. I am a professional number cruncher. it is analytical. it can be predictive. depending on the sample size, errors, confidence interval, significance, etc.

  22. You are one guy, who does work with a law firm.

    What you are saying makes sense, and sounds good. Banks would also like to have a deal, and as long as all bases are covered they have no problem releasing properties at a discount. It makes sense, and I agree.

    Then we have all of the other people who are just looking for a fee.

    Last week end I went through the active listings in a pretty broad area. About 25%, very possible more were short sales. “Not a short sale” is a new marketing comment, I guess. Then you look at the listing and you have all these disclaimers, and 1% negotiation comments. Law firms are negotiating those short sales for you “professionally.”

    It’s a joke. Look at the comment above, it’s a joke. I call it the idiot agent syndrome. I’ll also throw the attorneys under the bus. Anything to make a sale. Any nonsense to make a sale. Any lies, falsehoods, or misrepresentation is getting to be alright again so we can make those commissions, and fees. I’m thinking it’s worse today than it was in 2006, 2007.

  23. I do all the negotiation whether as a RE licensee or as an employee of the firm. for me the law firm is there so the seller has consulted an attorney to confirm the seller should do a SS. the ‘law’ part is rarely rarely ever used to complete the SS unless I need to threaten bankruptcy to the bank which is very rare. ALL of my financially distressed clients that closed recieved approval letters waiving the deficiency for all loan types and all proeprty types because of my skill. very few negotiators can make that claim including law firms. the law firm had nothing to do with it. being an attorney can be a disadvantage when negotiating. billable hours means time spent on a file is finite. one law firm is nothing more than an overpaid fax service with a goal of a release of lien. waiver of deficiency costs extra. I have also run into many incompetent RE agent SS negotiators. I have been hired to take on files botched by other negotiators. those are hard to fix.

    banks don’t really agree to a short sale at a discount. the ‘discount’ is really a tolerance to account for errors, bad valuations, and continued market decline.

    distressed properties make up about 50% of the transactions. SS, REO, BK.

    the negotiation calls to the the banks are recorded. the bank files are audited by various Federal and State regulatory agencies for compliance. I will do anything as long as it is legal, moral, and ethical to get my client a waiver of deficiency. I will fake cry on the phone if I have to. I will NOT work with any agent that chases a commission check because it is not in the best interest of the distressed seller.

  24. So, you can see the problem as Jillayne has presented it.

    Even with your expertise you may be unaware that in 2008 Bank of America began adding the addendums stating they would pursue a deficiency judgment after closing. You were aware of that, weren’t you? Of course they abandoned that strategy after a few months, but the threat is still out there.

    You have eloquently stated what it takes to get a short sale closed correctly. You’ll be one in a thousand. I agree about the attorneys, they are useless, but, for a fee, they should be recommended.

    I honestly don’t see short sales as a viable option in most cases. People were out, and out swindled, and they should deal with that. Short selling will be a burden for years to come. In some cases it would have been better just to pay the property off. Only time will tell.

  25. the SS negotiation does have some fraudelent operators doing stuff off the HUD in violation of RESPA and Federal and State bank regulations.

    Regarding BoA, the deficiency language has always been in the SS approval letters serviced by BoA for non GSE loans. I make it go away with magic. about one year ago, BoA began to routinely issue SS approval letters waiving the deficiency for clear hardship situations for non GSE loans. the approval letter is not an addendum to the purchase and sale agreement. I have never seen a BoA addendum to the P&SA that stated pursuing a deficiency. Also, it is a Fannie Mae policy not to waive the deficiency and to issue approval letters that say they may pursue the deficiency. Fannie is about 50% of all loans. All my Fannie approval letters include a specifc waiver of deficiency. I smooth talk the loan servicer into giving me what I want for Fannie SS approval. It is my job to take factual information in the SS packet of the borrower documents and paint a picture to make the bank give me what I want based on what I specifically say, don’t say, and the specific choice of words I use. the bank may ask if the property is owner occupied. my response is always the property is a primary residence which the banks usually equate to ‘yes’, but I didn’t say yes. it may be a vacant primary residence. I use the Internal Revenue Code definition for primary residence. word games.

    I don’t think the attorneys are useless just as I think some licensed RE SS negotiators are useless. there is incompetence everywhere. I have met RE attorneys that negotiate SS and did NOT know about the Foreclosure Fairness Act…..malpractice. some SS approval letters waive the deficiency in long drawn out cryptic language. in those cases having an attorney review the letter is a good thing. when I recieve a straight forward SS approval letter waiving teh defiency I still have the attorney review it as risk mitigation. there are attorneys that are going to make a business of suing the incompetent RE agent SS negotiators.

    it is better for the economy for the distressed proeprty to sell earlier in the chain of credit distress than later…short sale, foreclsoure, REO, auction. A SS will generally fetch a higher price. teh property is in much better condition.

  26. In your last paragraph you outlined the biggest short sale problem that I see.

    People are paying way too much for residential housing units. Short sales are selling for premium prices.

    Foreclosure are expected to peak some time in 2013. All those “negotiaited” short sales will be under water. Then what? Who shall we sue? The banks? Fannie Mae? The government? or the professional Short Sale expert who was actually doing the banks bidding in the process.

    Why did a buyer or seller pay them to do that?

  27. define paying too much? if buyer is paying FMV, then it is not too much. I don’t see that SS are selling for premium prices. if there was a premium, then it would require all cash to close. banks will not underwrite more than the appraised value for the buyer.

    I don’t do the bidding of the bank. the distressed borrower/seller my client. I beat up the bank so the seller walks away. foreclosures may peak earlier in WA because of the Foreclosure Fairness Act, but SS will continue for longer than 2013.

    “Why did a buyer or seller pay them to do that?” who is them? what did them do?

  28. Negotiators. Who does the negotiator work for? How does a Short Sale benefit a seller? and should the seller first, and foremost consider a bankruptcy? Do you offer those alternatives?

    Let’s be clear, the Short Sale benefits the bank, in today’s market place. Policy, and Procedure for the bank hasn’t changed, as far as I can tell. It is still a distressed sale with the seller having a hardship.

    You’ve outlined some scenarios where that hardship may be that the home isn’t worth what the home needs to sell for so the seller can come out without paying anything out of pocket. Are you representing that the seller also has no money to cover the defeciency? Are you representing that the seller has no means to cover the defeciency in say the next five, to seven years?

    Do you also counsel people to bite the bullet, and pay the loan down, or off? And in these “negotiations” where you are beating up the bank, are you hitting the lowest number the seller, or the bank, can live with?

    You are working in the banks best interest because, as you have outlined, the best interest of the seller is yet to be determined.

  29. I’m a RE investor and have come across many questionable SS’s with “negotiators.” In one SS, the “negotiator” was a recent graduate and was demanding a $3k negotiation fee. In another SS for a property under $100k, the negotiation fee is a whooping $3.5K. In that case, the seller/negotiator suggested that I reduced the offer price by $3.5k. With normal commission and the additional “negotiator fee”, the transaction will easily cost the bank 10%. Now you wonder why so many SS’s fail to close. In the bank will only accept the offer price + $3.5k, the deal is off because the negotiator will be the one holding up the sale. IMHO, banks are being held hostage. SS buyers are never going to pay FMVs so I don’t blame the banks not to accept such questionable “negotiated” deals. The banks are the owners so why must the banks pay ransoms to the negotiators? They never hire them in the first place! If I am the owner, and a seller bring along a “negotiator” for the deal, am I supposed to pay him for his service?

  30. most SS don’t fail because of the third party fees. most SS fail because the person negotiating is incompetent. If the fees are disclosed on the HUD from the beginning, then there is a chance they will be paid especially for legal fees. in many cases the RE agents end up paying the fees to get the SS closed.

    I firmly believe it is immoral and unethical to hold a sale hostage to get fees paid. it is a recipe for foreclosure for the distressed seller. I work on files that have turned pro bono, but that doesn’t stop me from providing the same level of service as the big payday files. it comes down to karma and doing the right thing.

    the banks are not the owners unless the property is an REO. the banks are not paying anything. the banks are not a party to the purchase and sale agreement. the bank is a third party approver of the P&SA because of the deed of trust. the bank is negotiating/ammending the terms of the original note which is a contract with the seller to accept less than the total outstanding indetedeness.

    how the negotiator gets paid depends. a licensed RE agent cannot be paid anything more than the commission. A third party SS negotiation fee can be charged by an attorney or a licensed loan originator. When I negotiate as a licensed RE agent I am paid the RE commission. my negotiation services are in addtion to the expected RE brokerage services. when I negotiate as an employee of the law firm, then the legal fees are an item on the HUD the same as RE commissions, excise tax, escrow, title, etc. When the bank will not allow the legal fees on the HUD the listing agent pays the set legal fee. we never hold the SS hostage……ever.

    some transactions are structured so the buyer or buyer’s agent pays SS negotiation fee. some times the fee is split by the listing agent and selling agent..

    • How do you tell a good negotiator from bad? Is there a competency test? Also, what is a reasonable negotiator fee?

      I am involved in so many SS’s and would now avoid most sales with negotiators. Yes, there are good negotiators with reasonable fees but many are there just for the (easy) money. They basically tell the buyer if you want this (great) deal, you have no choice but to work with them. Similarly, they tell the bank to either pay the fee or foreclose on the property. I had a deal that fell through because the bank refused to pay the 1.5% fee. The negotiator went after me for the fee after failing to “negotiate

      • You should read this thread.

        What Michael is saying is that he can “negotiate” to a price the bank will accept, and that he, as a listing agent, is being paid a commission, or he is paid by the law firm as legal fees on the HUD.

        A short sale is Fair Market Value. There is no distress. The bank is selling for more than it will get at auction, if it will sell at auction, which is extremely doubtful.

        A Short Sale is regular inventory that a bnk will either release or not depending on the circumstances of the seller.

      • there is no competency test. those agents with the CDPE designation tend to be better. I am unique in that I have a bunch of number crunching degrees. I spent time in corporate finance. I understand how banks think.

        negotiating a SS is not easy money. I take on the difficult files. Federal tax liens, messy divorce, botched by an incompetent SS negotiator, three lenders, etc.

        a competent listing agent does not equal competent SS negotiator.

        • Michael, we are discussing SS negotiators in general, not one particular negotiator. Again, I have had good experience with one or two negotiators but they are the rare minority. To David who claims SS are FMV, tell that to King County Assessor’s office. I have not encountered a non distressed seller willing to match SS or REO pricing. SS are rarely used as comps in appraisals. Of course, over time, SS set the new pricing norm, but definitely not at time of closing.

          • you would be making a huge mistake using property tax assessment data as something remotely close to FMV. it has zero to do with FMV in WA State. the budget is set. tax revenue is extracted from owners by changing the property valuation or the tax rate.

            SS and REOs are routinely used in appraisals when the quantity is material and impacts the neighborhood.

          • Here is from King County Assessor’s office:

            “Residential property is assessed each year at its full market value, which is defined as the amount a buyer, willing but not obligated to buy, would pay to a seller willing but not obligated to sell.”

            Of course no one buys a property based on the county assessed value (which tends to lag.) But if the assessed value is much higher than your recent purchase price, you will have much better luck appealing your property tax if it is a non-distressed sale.

            SS and REOs are NOT used in appraisals at FMVs.

          • what is printed on the website and what happens in reality aren’t the same. WA is a de facto budgetary state in reality. there is very little statistical significance between the FMV and the assessed value. many RE professionals push the assessed value in their marketing material. And in my opinion, those RE agents have very little understanding of the goverment budgetary system, assessment and valuation, and discounted cash flow analysis taught to entry level finance students.

            I think there is a latent correclation of the FMV and the tax assesed value in the same direction. I don’t believe the statistical information provides anything that is predictively useful. it is historical data and it tends to be old data which makes the date useless and humorous at best.

  31. sometime the negotiating is straight forward. sometimes I have beat up the bank with threats of bankruptcy, going to foreclosure in a non deficiency state (WA), or the Foreclosure Fairness Act which is my personal favorite because I can stop the foreclosure.

    • My agent and other competent listing agents have also used the threat of bankruptcy and other techniques to bring banks and lien holders to the table. They don’t charge extra negotiation fees over the RE commissions. As a buyer and an investor, I am way more comfortable without any negotiator involved, as long as the listing agent is on the ball. But that is just my opinion.

      • threatenting BK is one thing. following through with the BK paperwork is another and it requires an attorney to draw the docs. there are some lien holders that don’t care what threats are made….Greentree, Deutsche Bank to name a few. I find telling the bank I postponed or canceled the auction because I can without the bank’s permission under the FFA is an effective tool. it gets the banks attention.

        in WA St licensed agents are prohibited by the law from charging additional fees unless they are also hold a LO license.

  32. @Eastsider “How do you tell a good negotiator from bad? Is there a competency test? Also, what is a reasonable negotiator fee?” Ask for approvals. Anyone who is good should be able to show you a decent handful of approvals, also call the AG’s office and make sure there is no complaints against the company, look for testimonials and referrals. Do your DUE DILIGENCE. Fees are regional. I’ve seen anywhere in the range of $3500-$5000 and also the 1.5% of the purchase price.

    @David – Short sales are NOT FAIR MARKET VALUE. They are considered “liquidated” value – google it and you’ll see the difference. They have LESS marketing time and also the sellers have a COMPULSION to sell which are two of the many criteria that define it’s value. The bank wants MARKET VALUE, so if they are smart, they allow the appraiser to compare it to OTHER short sales. If two houses are exactly the same, on the same street and one is a short sale and one is a traditional sale, which one do you think is going to sell for less? The SHORT SALE of course.

    @Michael – CDPE means nothing. It means they took a weekend course and now have a designation after their name. It doesn’t mean they have ANY experience with short sales. I had a CDPE once tell me that his buyer’s offer had to be accepted by the seller or he would take the sale directly to the bank. I said, “go ahead” – as anyone who has worked in this business knows the buyer’s agent can get NO WHERE without the sellers authorization. My seller already had the property under contract with another buyer. Designations mean nothing, neither does RE licensing. EXPERIENCE means everything. I personally thing short sale negotiation should have a separate, intensive licensing, far more intensive than getting a RE license which any tom, dick and jane can get.

    • the WA St AGs office gets involved for large scale or class action consumer complaints. in WA the appropriate regulatory agencies to check for complaints would be the Department of Licensing, Department of Financial Insitutuions, and the Bar Association. you are more likely to find something with those agencies than with the AG’s office. I have handfuls of redacted approvals with the deficiency waived, no cash contribution, or prom note. for financially distressed sellers, my record is perfect in that they walk away free. That is very rare even among attorney SS negotiators. Negotiating a SS is mostly about negotiating and has very little to do with the law as there is NO Federal or State law (WA) that entitles anyone to a SS or a SS with a deficiency waiver. It happens out of the goodness of the bank’s heart or because I am really really good. I have an attorney on my team to review the file which is important when the SS approval letters contain wish washy language. I cannot guarantee any particular outcome (neither can an attorney) and someday I will likely be unlucky. I do take pro bono files to for to the karma bank account as it is the right thing to do. I NEVER bail on a file that turns pro bono.

      I would believe that most SS are FMV. Googleing the definition is a ridiculous idea to make a generalization of the value. Labeling it ‘liquidation’ means very little from an economic, finance, accounting, or taxation view. yes, I am a professional number cruncher. Someone underwater with cash to make up the deficiency is a liquidated sale, but not a distressed sale. IMO, most SS are probably as close to FMV as any type of sale in a distressed market. I have been involved in some SS that I believed the sold price was less than FMV and more than FMV. I represent the seller and I have NO obligation or duty to represent value to the bank. The bank needs to put on their big boy underwear and do their own of valuation of the property as a secured creditor. The lax licensing requirements for agents and appraisers makes it very easy for me to throw the BPO agent or appraiser under the bus based on lax licensing requirements and incompetence. The problem with the valuation of real estate is there are so many qualitative components that cannot be quantified with statistical significance. Sometimes pricing real estate is more art than science. in general, I think market forces for time, money, energy work properly to price contracts between a willing seller and a willing buyer. in a few instances it is not fair price (excluding fraud and collusion). The appraisers and BPO agents are not obligated to include distressed in their analysis until the quantity of applicable distressed sales exceeds a hurdle rate which may differ based on the identity of the note holder. The ability to crunch numbers, provide quantitative data, and statistical analysis is sometimes beneficial.

      Regarding CDPE, I have reviewed a lot of SS course material. I have met a lot of ‘SS negotiators’. In about 5 minutes of questioning, I can tell you they will be part of the solution or part of the problem. Part of the problem is providing a perfect SS packet and painting the appropriate picture to make the bank say yes based on factual information. The CDPE is better than other designations. I have met CPAs who are complete idiots and attorneys who ride the short bus. CDPE is a guide and one of the better guides, but not perfect. In your situation, the CDPE buyer’s agent was riding the short bus. I will say experience means nothing as well. I have met many experienced SS negotiators who scared the crap out me with the garbage that spewed from their mouths. As experienced SS negotiators they were ignorant about basic Treasury/HUD, Fannie, Freddie, HUD/FHA guidelines. I have met a few attorneys who didn’t know about the Foreclosure Fairness Act…..malpractice.

    • @William – Unless you know the actual success rate, the “handful of approvals” means not much. Unfortunately, such records are not readily available. My first person experience with SS negotiators has been below par. They just put themselves between the banks and the buyers. (Okay, the sellers, or likely the sellers’ agents, hire them to get off scot-free but the banks are supposed to pay for their “service”!)

      SSs are sold at FMV? This shows the credentials of these self proclaimed experts who self-promote in every paragraph.

      • @Eastsider. Agree, it is hard to quantify a success rate. I am constantly asked how many SS have I completed. I stopped counting a long time ago. I have been negotiating commercial, investment, and residential SS for about five years. I remember every client that went to foreclosure. five Fannie and 1 Freddie. each one had a blown bank valuation inside of the 90 day NTS window. the valuations expire in 90 days which is after the auction date. today, that would not happen with the Foreclosure Fairness Act. the seller or listing agent will hire a SS negotiator because they realize they don’t have skill necessary to perform the job. the RE license law is clear that the agent is not to work outside the scope of their knowledge, skill, etc. unfortuantely, they sometimes hire incompetent SS negotiators. Some are very good. Most SS negotiators are licensed RE agents as I am. they are paid a portion of the listing commission. there is no third party fee. third party fees are charged by law firms or licensed loan originators in WA. the banks don’t pay. they are not a party to the transaction. they are a third party approver because of the deed of trust. the bank is approving the short pay off of the note. two different transactions taking place.

        saying SS are not FMV or close to FMV means that you believe the market forces of a capitalist system are not working. I believe they are for most part. I have undergraduate degrees in finance, economics, accouting, a graduate degree in finance. I have taught finance in non matriculated classes. I have over 20 years of experience in public accounting, corporate accounting, finanical analysis, RE. I’d be happy to debate your opinion that SS are not FMV.

  33. Wow!

    Well William, and the Eastsider, all I can tell you, and I won’t bother trying to tell you much, is that what Michael is saying is pretty much the way it is.

    Banks need a completed package, and they need to cover their asses.

    The part about Fair Market Value is to tell you short sales are a part of the every day Real Estate market place. They are so common that in some areas they are the Real Estate market place that compete with REOS.

    There’s no bargain there.

    • a complete package is important. the bank negotiator has 200-400 files. I want to keep my SS packet at the top, remove reasons to deny, a and make it easy to approve. Some SS negotiators fail because they do not have a solid process to create a complete file. secondly, they fail understand what they can and cannot threaten because they don’t understand the laws in WA. I hear from SS negotiators on a regular basis that tell me WA is non deficiency state for non judicilal foreclosures for all loans. that is not true. the RCW statute cleary states that is true for the foreclosing lien holder. it is silent on non foreclosing junior lien holders. A State Supreme Court case determined the debt of non foreclosing junior lien holders can be pursued following a non judicial foreclosure. I have met attorneys that didn’t know about the Foreclosure Faireness Act.

  34. Michael, debate away. Short sales will ALWAYS sell less than a traditional sale because the seller is under duress. They have a compulsion to sell, 90% of the time, they don’t get $$ at closing. So let me ask you, as a consumer, you see two houses that are EXACTLY the same, next to each other on the same street. One house is owned by someone who just received a foreclosure notice and the bank intends to take their home in 4 weeks at auction, and the second house, the homeowners are gainfully employed, are looking to move, and have all the time in the world to sell their home…WHICH HOME IS GOING TO SELL FOR LESS MONEY?!?!? It doesn’t take your degrees to tell you which home sells for less. Short sales sell for LESS MONEY. I’m sorry to school you on this but it’s a fact. Ask any licensed appraiser if a short sale sells for less than a traditional sale and the resounding absolute answer will be YES. They are NOT FAIR market value. They are liquidated value or “market value” in comparison to other distressed property.

    As far as a complete package, you are preaching to the choir. I have gotten 100% approvals on all sales I’ve negotiated and I agree a full packet is the best thing you can offer. Of the 100+ sales I’ve done over the last 3 years, only TWO had deficiency rights retained, and one we were able to offer more $$ to get it removed. We always have the homeowner talk to an attorney before accepting any lender terms.

    CDPE is a joke. EXPERIENCE is what counts. If you’ve negotiated 100 sales, but aren’t CDPE certified or you have done one short sale but have a weekend course CDPE certification again, which person would you hire to negotiate your sale?

    I think short sales licensing should be far harder than getting your RE license. It should take a year or two of schooling and be completely separate than a RE license or CDPE designation. If I were regulating short sale negotiation, that is what I’d propose.

    • yes, I feel schooled. you are obviously a genius.

      saying “always” is a factual mistatement right out of the gate. absolutes would not be true. if the capital market is working correctly then assets sell for the FMV based on time value of money. there is a small amount of arbitrage. many non distressed sellers are overpriced on market for +6 months before they reduce the price to a value the market responds to. that value is close to what was needed in the first place to sell withing the historical average days on market. those sellers have additional oppurturnity cost for failing to price correctly to be begin with.

      if the seller just recieved a foreclosure notice then the auction date is +90 days out. I talk to appraisers on a regular basis. it is part my job. I am not hearing what you are hearing from appraisers.

  35. Short sales are not regular sales. Buyers of SS have very little recourse against sellers once the transactions close. In many cases, SSs are sold “as-is.” In addition, the fail rate and uncertainties in a SS is significantly higher. (e.g. buyers waiting for months only to find out that the banks want more money.) Further, banks are unlikelyl to pay for any inspection repairs.

    You are entitiled to your opinion that SSs are sold at FMV. But I think you are misguided despite your credentials.

    • It is FMV when the market is dominated by distressed transactions. that is the market. the additional oppurtunity cost, headaches, time etc, are part of the value of the transaction. an appraiser cannot ignore the distressed transaction.

      there are a couple states in which there is very very little SS or foreclsoure. in those cases I would agree the SS is not likely FMV. appraisers are suppossed to ignore the distressed distractions.

    • Usually a Bank-Owned sells for less than Fair Market Value, and a Short Sale sells for less than a Bank Owned Property. The buyer’s lender generally will disregard them, as long as there are enough comps without them.

      • Sorry, but from what I have looked at, short sales, and REOs are a staggering amount of the market place, and getting worse as time goes on.

        All of those sales are establishing a debt amount for property that will be with us for decades to come. It takes 15 years to see significant amortization.

        So those people aren’t going to be “churning” the market place with higher prices, they may well be more likely to need to Short Sale if they need to move, want to move, or are tired of paying for a nonappreciating asset.

        As an investor you should pay attention to the nonperforming asset portion of my comment.

  36. I’m late to the table but just came across your post and couldn’t help but comment. First of all I appreciate your position and understand your frustration, as we see some of the same buffoonery. But not all negotiation companies / negotiators are created equal, therefore should not be put in the same bucket (per a “ban” on all third party negotiators) Even though it’s a “regulated” industry, not all real estate agents are created equal. Just because an agent has a 3 or 4 letter designation does not make them an expert either, nor does it mean they can handle all of the details of negotiating complex short sale. Agree, everyone should research anyone they are working with, including agents, attorneys and third party negotiators. Just don’t stereo type all third party negotiators…as some negotiation companies train and educate agents, lawyers and even other third part negotiators.

    • Karl, you absolutely had the best answer here… if we called for all real estate agents to be banned due to the mess ups of a few of them, or if we called for all loan brokers to be banned due to the unethical behavior of many, then we can call for the ban of attorneys, accountants and other professionals as well.

  37. I have to agree with Karl, but I believe regardless of who is negotiating the short sale, the seller should be represented by competent counsel. I work with a number of agents and third party negotiators that have the foresight to make the seller seek out legal counsel before they proceed with the process. That way, if the agent is not experienced or the negotiator hits a wall with the lender, the seller’s attorney can step in and help close the deal. I also receive more complaints about attorneys who negotiate short sales than third party negotiators and the attorneys charge up-front fees to the sellers. The buyers are the ones with the money, and they can simply adjust their offer to take into consideration the short sale fee.

    WSBA #32052

  38. Anyone who says that SS Negotiators charge what they charge for the “easy money” is not being fully forthcoming with the state of SS. SS are time consuming and redundant. How many times do files need to be faxed and refaxed and refaxed? Follow up phone calls, escalations, etc. It’s a full-time job.

    If you are doing high volume real estate, how do you find time to concentrate on Short Sales? As a SS Negotiator, I cannot tell you how many agents have come to us after MONTHS of getting nowhere with the lender only to find out it was because they didn’t follow up…because they were busy selling houses.

    SS should not be a “one stop shop” with a Realtor. Our negotiation company works with Realtors and Attorneys. The Attorneys go over all of the paperwork and handle the legal aspects of the sale…the Realtors do all of the comps/contracts/etc. We deal with the lenders.

    I do not believe that there should be a ban on ALL 3rd Party Negotiators…but I do believe that there should be a license.

  39. I agree with Angel. There should be licensing above and beyond a real estate license to perform short sale negotiation. Just because you have a real estate license you don’t know how to negotiate a short sale. It should be a specific license with at least a year of study under someone’s belt.

    The important thing to remember when hiring a short sale negotiator is to INTERVIEW them, whether they are an agent, 3rd party, lawyer, title co etc. Ask for approvals. I wouldn’t hire anyone with less than 30 approals.

  40. Pingback: 3rd Party Short Sale Negotiators | Rates for CPA Services for SMB

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