Short Sale Course: Typical Seller Objections

Anybody who does short sales knows that there are always questions and objections.  It’s just the nature of business life.  Here are some standard seller objections that I encounter and what you can say to overcome them. I would strongly urge you to memorize these replies and repeat them over and over until you can say them thoughtlessly.  That practice can be worth millions to you, so do it.  Use a tape recorder, a bathroom mirror, live people…just practice and perfect your replies.

“I’m not sure if I should deed you my house” or “I will not deed you my house.”

You then have an option to buy their house or just get their house into contract.  In a practical sense they’re the same thing except that you don’t have 100% control. They’re refusing to deed it to you but you can still do a short sale. However you run the risk of them being able to take the deal to someone else if they choose to because you don’t have 100% control.

I don’t do options and I wouldn’t suggest you do them either, at least at the beginning. If you don’t get their deed, move on. I need 100% control. I’ve been at the place where I’ve negotiated deals and gotten down to the wire, needing that money badly and having the homeowner walk away from the deal.

“I want my attorney to look at the paperwork.”

I’m not going to give you my documents to take to an attorney that doesn’t understand what I do. Is he going to give you a place to stay when he says no? When attorneys don’t understand things, what do they say? They say no. Like any other confused mind. A confused mind always says no and lawyers are really confused. This is true. Keep in mind as well that attorneys are trained to find problems, even when problems don’t exist.  It’s how they get paid.  They are the ultimate deal killers.

“My house is listed with a realtor.”

How long has it been listed? Can you get out of the contract? If they will be out of the contract soon enough, then you can wait it out. If not, and they can’t get out of the contract, then this is not a deal for you.

“I want all my equity.”

If you have $40,000 in equity and there’s $30,000 in repairs, there’s your equity. So, either I have to spend the money to fix up the house to sell it, or you do. Do you have the money? Apparently not because you called me. You can’t make the payments.

So we fix that for them by letting them know that’s where their equity is. Your equity is in the 11 year old kitchen that needs to be replaced, not just upgraded. Another portion of the equity is in the bath that needs to be replaced. And in the new carpet and the paint and the new fixtures. And the new furnace that needs to be replaced along with the A/C. Those are things you need to point out to them. Somebody’s got to spend the money and that’s where the equity is.

“I’m going to refinance.”

In order to refinance, you are going to have to show that you are more credit worthy than when you got the first mortgage. If that were true, then you wouldn’t be in this predicament now.

“My wife won’t sign.”

I’ve heard this one a number of times. There’s a divorce and he says she’s a real you- know-what and she won’t cooperate. “Well, let me talk to her and let me see.” And when I talk to her and explain everything to her, she’s saying what an SOB he is and I’m just nodding my head. “Yeah I can understand that. Sign right here.” And typically they will work with you.

Now there are some cases where one spouse could care less what happens. Or they do care, but as long as they’re “sticking it” to the other spouse they don’t care what happens to their credit.

“I don’t want to be responsible for the difference.”

The difference they’re referring to is the difference between the discount you get and the balance they owe. So let’s say you have a $100,000 house and you’re able to negotiate a short sale for $60,000. The bank says we’ll take the $60,000 in full. There’s a $40,000 difference. That $40,000 difference is known as a “deficiency.” That’s the amount of money the bank is losing by accepting your $60,000 deal.

At this point, the bank has the right to do one of two things. The first thing they can do is sue the homeowner for that $40,000 difference. They take them to court and sue them. If they win, it now becomes a Deficiency Judgment against the homeowner. It is unsecured debt but the homeowner has to pay them $40,000.

The other alternative is that the lender can send a 1099 for that $40,000 difference. It now becomes earned income to the homeowner. It becomes phantom income. In other words the homeowner can expect to pay taxes on an additional $40,000 above and beyond what they made. Now that could put them in a different tax bracket but typically it doesn’t since they are typically without a job or not making much income – thus the situation they find themselves in. If the homeowner can show a “negative net worth,” the taxes they would have owed on the $40,000 can be forgiven by the IRS.

The prevailing method is that the lenders are submitting 1099s to the homeowners rather than going after them in court. And here’s why: most lenders have adopted a policy that if they’re voluntarily taking a discount, how can they go into court and sue the homeowner for the balance? They’ve said they would voluntarily take the $60,000.

Now if the house goes to sale on the courthouse steps, that defensive thinking no longer needs to apply, and they can sue the homeowner for the difference. It ends up being an incentive for the homeowner to work with you rather than to let it go to sale on the courthouse steps.

You need to explain that to the homeowner and let them know. Even if they can’t get out of paying the taxes, they would much rather have to pay taxes on $40,000 than to owe somebody $40,000.  Sometimes they still say no.  You can never tell.  Just keep making offers.

If they agree to a short sale buyout they need to give you a signed release allowing you to talk to the bank about their situation.  A bank will not discuss the specifics of this mortgage without that written authorization.  I use the standard authorization to release information form but you may find that some banks use their own authorization form.  What I have found works best is calling the lender on the spot, asking them what forms they require, and having them fax them in immediately if needed.  It’s also helpful to have the homeowner give me the last four digits of their social security number.

Once this written authorization is completed, the fun begins!