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Short Sale Negotiation

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Posted On: 10/02/2013

Question:

We're interested in buying a local short sale because of the possible discounts. We know that we must reach an agreement with the owner and that the deal must be approved by the lender. Does the broker representing the seller negotiate with the lender to get the best deal?

Answer:

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It is possible that the answer to your question is no, the broker cannot negotiate with the lender. However, this issue currently is in transition and may depend on where you live. Let me explain:

In a short sale, we have an owner who wants to sell, but the market value of the property is less than the outstanding mortgage balance.

One solution to this problem would be for the owner to pay any shortage with cash at closing. However, most owners do not have such money and therefore must ask the lender to approve the sale. The lender, in reality, is being asked to accept a loss on the loan.

Because of the recent economic downturn, there has been an emergence of scammers who claim they can negotiate with lenders to stop foreclosures and get the best possible deal for short sellers, if only the owners will pay a fee up front. There are numerous cases of owners not receiving promised services – so many that in 2010, the Federal Trade Commission announced the Mortgage Assistance Relief Services (MARS) rule. It bans false claims and up-front charges are generally prohibited, except for attorneys.

The FTC made another exception: In 2011 it said it would not enforce some parts of the MARS rule with real estate brokers.

But what about state regulators? In Maryland, as an example, real estate brokers are not allowed to negotiate with lenders unless they also comply with the state MARS rule.

The bottom line is this: Brokers can readily help short sale buyers and sellers and they can transmit offers to lenders. However, negotiations with lenders may be restricted to attorneys and licensed mortgage assistance relief providers.

For specifics, speak with brokers and attorneys in your jurisdiction.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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