How to Sell a Short Sale to the Seller

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Why would a Homeowner even consider a short sale? What's in it for them?



We know that one of the conditions of short sale approval, a nonnegotiable provision, is that the Seller receive ZERO PROCEEDS from the sale. So if the Seller gets nothing, why would they agree to do it? Why would they go through all that trouble when it would be just as easy to file bankruptcy and walk away, or, deed back the house to the bank and walk away, or simply walk away, closing the book on that portion of their lives....



[Kurt and Joanna (from Chapter One: Just what is a short sale?) already were resigned to the fact that they couldn't keep the house, had a mindset that they wanted to sell, and their situation just fell into place and into the laps of the broker and the Investor. Kurt and Joanna knew that they had lost their down payment, and wouldn't see a nickel (they would, but I'll get to that later on). But, they were cautiously optimistic that a Short Sale was in their best interest.]



Most homeowners in distress have to be identified, solicited, informed, and persuaded before they agree to participate in a short sale. It's a tough sell because you really can't promise them anything tangible... yet have to warn them about the possibility that their lender would pursue a deficiency (difference between what was owed, and what was repaid) or, if the lender forgave the deficiency, the lender would likely report the forgiven debt as income to the IRS, and issue the Seller an IRS form 1099, exposing them to possible liability to pay income tax on the amount of the forgiven debt....



What could motivate the Seller to work toward a goal that would result in no monetary reward? It would have to something worth more than money. So, the question is, "What's worth more than money?"



Losing a home to mortgage or tax foreclosure is a process that includes a series of emotional, financial, and legal setbacks. Losing a job or experiencing a dramatic life altering reduction of income is a setback. The realization that the inability to earn enough money to pay bills on time is another setback. Having collection clerks call and berate them for unpaid bills can be (and is designed to be) humiliating. Each setback takes it's toll upon the homeowner, stripping away his/her self confidence while raising insecurities and self-doubt. They feel embarrassed, ashamed, and hopeful that their friends, neighbors and family don't find out.



When I meet with a distressed homeowner for the first time, we cover a lot of ground in a short time. While sipping coffee (I always accept coffee, tea, a glass of water, or, better yet, a bottle of unopened anything) and listening carefully to their highly personal, emotionally charged story, I review their mortgage/foreclosure/bankruptcy documents, marking them with yellow highlighter, and making notes in the margins... As the meeting draws to a close, I am frequently asked, "Can you keep this (the foreclosure/Sheriff's Sale) from the newspaper? I would just die if my mother/father/sister/brother/neighbor/co-worker found out!"



Getting back to what would be the homeowners' motivation to voluntarily participate in a short sale. What's in it for them? To a family that's in a heightened emotional state, what's really important? Self Respect? Dignity? Integrity? Reputation? Pride?



Are these feelings worth more than money? Yes, you bet they are!



But how can the Investor help restore their self respect, or their dignity?



He/she can begin by gaining their trust. How can the Investor, a total stranger who wants to purchase their property and give them nothing in return, gain the homeowners' trust? Empathy is a good start. Empathy is defined as understanding, or being on the same wavelength as another. In this case, the Investor must try to empathize with the Seller about the series of events leading to the mortgage foreclosure, and their pain. Whether that be loss of job, loss of a spouse or child, a divorce, a predatory mortgage loan, or whatever the reason. "My cousin lost his job/health and couldn't pay the bills either. He faced losing his house and it almost cost him his marriage. It was rough." You get the idea. And make sure that you let the homeowner know that you know your stuff... If you've got credentials... use them. If you've got experience... let them know. Whatever is your particular area of expertise... use that as a footing to establish your credibility.... and be able to link your credibility and expertise to the ability to help resolve the homeowners' problem.



The distressed Homeowner must be told that their choices include allowing their home to be auctioned off at a public sale, a sale anyone could learn about, attend, and possibly become the winning bidder... then endure further humiliation by being subject to a forcible eviction.... Or, the homeowners can act responsibly, participate in a mutually beneficial, proactive process to mitigate potential damages, and maintain some degree of control by moving on their own terms.



After accurately painting a worst case scenario (public auction/forcible eviction/financial consequences) the Investor must articulate to the homeowners that he/she is confident that a successful short sale will protect their future creditworthiness, and imply that by acting responsibly and participating in a viable solution...they will experience a renewed feeling of self worth.



What's worth more than money? Self respect.

Comments(10)

  • woodchuk13th April, 2004

    Ironically, I'm heading out the door in an hour...to lay out the options for a potential seller.



    I am willing to take the home L/O or subject-to. But, for whatever reason, they seem to be drawn toward a shortsale (a realtor is pushing them on it.)



    I promised to bring info & pros/cons on each scenario. I believe that I'll print your article out for them as well.



    Good job.

  • jackman13th April, 2004

    ... which is why they call you the short sale pro! nice piece!

  • tiggerjason13th April, 2004

    Very good article. Just have a couple of questions that maybe you can answer. If one does get the deficiency judgement waived, but the seller still gets the 1099 at the end of the year, that creates even more hardship for them, correct? My business partner and I are working on one where the potential deficiency could be $50k. That's a heck of a lot of money to have to pay taxes on. Then, she'll have to declare bankruptcy to get rid of that... in that case, why not just foreclose?

    • TheShortSalePro14th April, 2004 Reply

      Yes, the IRS views forgiven debt as taxable income. However, in the majority of short sale situations that result in the issuance of an IRS form 1099, the 'income' is exempt from tax. The IRS imposes a 'test' to determine the taxpayer's insolvency. If the taxpayer is insolvent at the time the debt is forgiven (most are) the income is not subject to tax. In all cases, it's best to direct the Seller to a CPA whose practice includes the "weath challenged" who would be able to predict the tax implications in that specific scenario.



      If you need to have a Seller consult with a CPA on this matter, PM me. I'm not a CPA, but I married one.

      • Lufos16th April, 2004 Reply

        Now thats an interesting way to lower the overhead, married a CPA, what an interesting matrimonial situation.



        I have a client who receied a 1099 as to the short sale. It is my position that the Seller is insolvent. Was insolvent, is working hard at maintaining this status. Indeed is being supported by a rather lovely CPA feminine who is happy with the situation. The client has promised not to write any more really bad movies for at least a year. At which time he will spring forth like a newly hatched chickelet. We all hope that the new flick will not lay another rather large egg.



        I asked the well qualified lady if she was happy with this situation and her reply is that it was none of my business. But as a Certified Numbers Cruncher, She was enjoying the experience of nursemaid to the Charming but numericaly challenged producer. They are getting married this weekend. Does it all change afterwards?



        Only in LaLa land. Lucius

    • beckycrabtree21st September, 2004 Reply

      This is a great point. I want to know, at what point would the seller be too far upside down to even consider a short sale? Could I get some help?



      Thanks

  • Lufos15th April, 2004

    Wow. I am impressed. Now that is PsyWar at its finest. I have another idea. Works a little better in the real world and swings the Seller onto your side. Good for future business and the many persons with which the Seller will meet in his temporary downward path. My god I used to get an awful lot of business from those that I assisted.



    True you cannot give money. But I arrange their moving because most of them are paralized and not at cause. I gather a crew and I move them. I also, and this is really important, arrange their new living space which may be greatly reduced in size and neighborhood goodies, but it is a roof and the utilities are on and the kids stay in their school with as little dislocation as possible.



    I pay for all this, not much, but enough to give at least a six months ride while the Seller repairs his economic condition. Sometimes they come to work for me and help frame, or dig ditches. Nothing like a little no thinking manuel labor to straighten out the mind of a white collar person who is paralized. You can still dig while your mind is paralized. So thats what I do. I set them up in a new dumpy place to live. Of course it may be a place that I own or have a color of ownership. .



    So I moved them, I settled them in and I ride herd on their attitude and try by being supportive to change them and bring them back to cause and once more dear friends into the fray.



    Of course I bring current the loan. I may make all kind of deals with the lender. Add payments on the back, five pay plan for taxes etc. etc. etc. If the market spikes I have a refinance done and take advantage. etc. etc.



    So tell me dear John, am I wrong to once more skirt the edge of the capitalistic system and give an edge to the newly stricken? Helped them get off their knees, stop genuflecting and try another run of lances.



    Now thats the essence of it all. Also I make a profit on the property. Oh dear almost forgot that factor. Sometimes I can even clean up the payment record with the lenders loan service department and it looks like it never happened. Or I can story board it to the level that on any future enquiry, the Seller looks like he was a lamb among wolves and did his best and is entitled to forgiveness. Shylock has always been a villian and Portia is always the savoir. So let it be in these occasions. Do you agree dear John? Or should I leave the family at the curb line staring back at the house which contains all of their possessions. The Sheriff has listed everything and given him a list So he and the kids and the wife stand there.



    As an honorary member of Phylum Mamalia I cannot do that. Every fiber of my being says this is a really biggy sin and at the age of 82 I do wish to enjoy the upper levels. The bottom levels have no air conditioning and are filled with members of the legal profession. I cannot go there soooo. Along with the profit, I try to help, correct and keep the family intact.



    Pox Obis Lucius


  • heyshid16th April, 2004

    what are the implications of a 1099 when the taxes are due. If an owner sold A house $20,000 short how much tax would they have to pay on that.

    • TheShortSalePro17th April, 2004 Reply

      Not sure I follow your question... but if you are asking if the marriage and supposed relief from insolvency (due to the union) would impact the tax consequences of the 1099 income... the answer is no. At issue is if the homeowner was insolvent at the time the debt was forgiven. If the insolvent Homeowner hit the lottery on the day following the short sale and debt forgiveness... that wouldn't change how much cash he had the previous day.

  • jpi21st January, 2009

    سهام بص بصة
    مروى فيديو كلب خاص
    فيديو كلب مروى اكلم صاحبك

    رقص شرقي تركي روعة
    رقص شرقى bellydance عاليا
    Alia
    Fayzan رقص شرقى فيزان

    Marwa مروي عايزة عريس

    نجلا تونسيه بتلخبط فى اسمك
    فيديو كلب
    عنك حكيولى Nivine نيفين

    نيفين قرب كمان فيديو كلب

    فيديو كليب انا هيفا
    نانسي عجرم في سيارة
    دالي يخاصمني
    لا وعيونك دالي
    التفاحة ردح عراقي علاء سعد

    البرتقالة علاء سعد

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