Active Rain August 14, 2010

Do You Want a $30,000 Problem or a $350,000 Problem? Part 2


I have blogged before that not all short sales get a seller 100% absolved of their debt. New York is not  a non- recourse state.  Sometimes, the bank wants cash at closing or proposes a small installement note after closing. It is rare, but it happens, and it is often linked to the seller’s hardship. If the seller does not have a compelling hardship, the bank might take this position. It is the lesser of two evils, because as small post closing debt is better than a foreclosure. 

SOLD by J Philip Real EstateWe had a short sale seller balk at owing any money after the closing and demanded that the agents pay part of her deficiency from their commission. This person viewed the commission as being fair game for subsidizing her. Our agent didn’t see it that way, and suggested they really deserved more for getting their own buyer after the house was listed previously for 3 years with no offers elsewhere. Some agents might cave in and kick money in the make the deal work, rationalizing that something is better than nothing after breaking their butts for 6 months.

I am not one of those agents. I am the kind of agent that knows enough math to tell this ungrateful um, person, that with an auction date in 3 weeks that I’d rather have a $30,000 loan than a $350,000 foreclosure. It is simple math. Moreover, the giveback would not have helped, except to lower the payment $15 per month while the licensee lost a chunk of their hard-earned income.

Bear in kind that this isn’t the bank putting their hands in the cookie jar. It was the seller. The choice seemed clear to me. We owe our clients advocacy, confidentiality, loyalty, and all fiduciary duties. But we don’t owe clients our grocery money or mortgage payment. With all due respect to the financial strain and stress of a short sale, my kids will not pay the bill. When the best deal a seller can get doesn’t give them a get out of jail free card, they need to choose something other than hurting their agent.

The deal did close, and the seller is now out of hot water, out of foreclosure, and has a standing offer from me personally as broker to renegotiate the note. The relationship between the agent and seller however, was strained, and while that is a shame, I cannot fathom the client begrudging that my agents have to earn a living.