A short sale negotiator is someone who negotiates with a lender on a seller's behalf to secure approval for a real estate sale where the sale proceeds would fall short of the mortgage balance.
Understand the role and responsibilities of a negotiator in a short sale as well as the different types of negotiators to decide whether you could benefit from one.
What Is a Short Sale Negotiator?
A short sale negotiator works on behalf of a seller to reach a short sale approval with a bank or other lender. The individual's job is to persuade the lender to agree to accept less than the debt owed on the mortgage in order to allow the short sale to occur.
Such negotiators are often sought by sellers, typically homeowners who are underwater on their mortgages and can't keep their homes, to broker the short sale in exchange for charging short sale fees. Some negotiators also have the expertise and legal authority to aid in debt negotiations between the lender and seller, allowing sellers to eliminate or reduce debt arising from the deficiency between the proceeds and mortgage balance in a short sale transaction.
- Alternate name: Short sale processor
Anyone involved in the short sale can pay the short sale fee, or it can be split between the parties to the transaction, but a negotiator should inform all parties of who will be responsible for that fee.
How a Short Sale Negotiator Works
In an ordinary real estate sale where the proceeds on the sale of a property are sufficient for the lender to release the lien on the property and cover other transaction costs, buyers and sellers can enter into contractual agreements and carry out the transfer of property without outside help save for a garden-variety real estate agent.
When it comes to a short sale wherein the sale price would fall short of what the homeowner owes on their mortgage, the lender must first issue a formal approval indicating that they agree to accept the short loan payoff in exchange for releasing the lien on the property.
The short sale negotiator helps the seller secure that coveted approval so that the seller can dispose of their property and the buyer can obtain it. To that end, the negotiator will facilitate a short sale in several ways depending on their specific expertise:
- Approach the lender to gauge its willingness to consider a short sale proposal
- Advise the seller on appropriate listing prices and terms that are likely to satisfy the lender
- Help the seller market the listed property
- Help the seller solicit, review, and accept offers from buyers
- Submit offers to the lender along with a short sale package including the signed offer contract
- Supply the lender with any documentation they require
- Negotiate the forgiveness or reduction of debt and advise on the resulting legal, tax, and credit impacts, or, if the individual isn't an attorney, advise the seller to consult one to discuss these impacts
- Use their knowledge of short sales to answer the seller's questions and supply necessary disclosures throughout the process
Types of Short Sale Negotiators
There are three main types of professionals you can work with to negotiate a short sale:
- Real estate brokers or agents: Listing brokers and agents can serve as short sale negotiators who directly represent the seller, but in certain states, they can only do so if they are real estate licensees who do the negotiations with no special fees beyond the real estate commission. They may require debt-management company registration or a mortgage loan originator license with the state if they charge fees beyond the commission, and may not be able to charge up-front fees. Moreover, their real estate licenses don't qualify them to advise on the legal and tax impacts of a short sale typically. That's why a real estate professional acting as a short sale negotiator will advise clients to obtain that advice from an attorney.
- Attorneys: Real estate attorneys have the knowledge to navigate the short sale process as well as negotiate debt forgiveness or reduction and advise on the legal and tax consequences. Working with one can minimize the financial and legal liabilities stemming from a short sale. Although a lawyer may charge an up-front fee for a short sale negotiation, many only charge when they secure approval with the lender.
- Third-party short sale negotiators: These negotiators don't represent the seller, which can put the seller at a disadvantage. However, they do afford some flexibility, as the person could be another agent (even the buyer's agent) or an independent short sale negotiator. Regardless, homeowners should only choose from among third-party negotiators with debt-management company registration, a mortgage loan originator license, or a real estate license to ensure they're working with a qualified professional and to avoid scam artists. As in the case of lawyers, ethical third-party negotiators tend to work on a contingency basis and only charge sellers if they obtain the lender's approval.
Only choose from among short sale negotiators who are legally qualified to negotiate short sales in your state. Depending on where you live, short sale negotiators must have a real estate license, mortgage originator loan license, debt-management company registration, or a license to practice law.
Do I Need a Short Sale Negotiator?
As homeowners have an ownership interest in their home, they can negotiate a short sale directly with the lender. But many prefer to navigate the fraught process with the aid of a knowledgeable professional to increase the likelihood of approval, which isn't a guaranteed outcome in a short sale. Even if the lender does approve of the short sale, it may not agree to the price and terms that benefit the seller because the lender isn't on the seller's side. Its objective is to maximize its return and minimizes its losses.
To add to the risks, when lenders agree to release the lien, they may or may not also release the seller from the obligation to repay the outstanding debt. Lenders can use deficiency judgments or other forms of legal recourse to recoup what they are owed.
That's why the short sale negotiator proves valuable in a short sale. This individual has the expertise needed to navigate the complex short sale process with less risk and uncertainty while keeping the seller's best interests at heart. With a short sale negotiator by the seller's side, the seller is more likely to achieve the ideal outcome: an approved short sale with total forgiveness of debt and minimal personal and tax liabilities and hassles.
- A short sale negotiator works on a seller's behalf to secure lender approval of a short sale.
- Real estate agents and brokers, attorneys, and third parties can act as negotiators.
- Depending on their qualifications, negotiators can advise on everything from the sale price to debts and the consequent legal and tax implications.
- Short sale negotiators aren't required, but their specialized knowledge can increase the likelihood of short sale approval at terms that are favorable to the seller.