Short Sale Tips: Negotiating with the Bank

First, always remember that it is in the best interest of the bank to avoid entanglements with the actual property and pay off the loan.  Even if this means taking a loss. Sometimes a smart loss is very smart.  To go through with the foreclosure means the bank would have to spend money on legal costs, foreclosure expenses, advertising the foreclosure sale, trustee’s fees, and all sorts of insurance and miscellaneous expenses.  The total could easily be over $4000 for any house. This doesn’t even include holding costs, repairs and fix up, and maintenance which can easily at another $6,000. And if they must rely on a realtor to make the sale there is always a hefty commission to be paid. Banks would like to sell someone the house, even if it’s at a discount.

Second, remember that the bank’s negotiating position changes on whether or not the loan is insured. Various governmental and private companies back mortgages and insure the banks against default.  These private mortgage insurance (PMI) entities include the FHA, VA, Fannie Mae, Freddie Mac and others.  When banks lend money and create mortgages they technically takeout insurance to cover the difference between what they can sell the house for and what’s still owed at the time of the foreclosure.  In short this means that banks don’t lose any money if they give you a discount on insured loans. How do you find out if the mortgage is insured?  You ask.  You ask nicely.

Third, don’t ever bother negotiating with a bankruptcy attorney.  Just take my word for it: you’re wasting your time.  As important as they are in the general scheme of debt repair, bankruptcy attorneys can rarely be of much value in getting a short sale done.

Fourth, get to know the loss mitigator. A loss mitigator is a specialist at the bank, trained to negotiate bad debts and hold the bank’s losses to an absolute minimum.  In short sales you will always negotiate with the loss mitigator, and they have the final say on the disposition of your proposal. They are assigned to you when you submit your short sale package.

It’s easy to imagine a loss mitigator being an intimidating, larger-than-life character within the bank. After all, they have the power to make deals on behalf of the bank.  The reality is quite different than this. It might surprise you to know that loss mitigators sit in cramped, isolated rows of cubicles and talk for 8-10 hours a day to people just like you.

Loss mitigation is not a high paying profession and they are extremely overworked. Politeness, consideration and professionalism go a long way with these folks.  Since they hold all the cards in the disposition of your offer, they can easily put you to the bottom of the list or sabotage your good efforts if they grow to dislike you for some reason. How can you avoid that?  Keep it simple and treat them like you would like to be treated. Be kind and you won’t have any problems at all.