Florida Real Estate Agents Trained in Short Sales

Horizon Realty, with offices in Bradenton, Sarasota, Venice and Port Charlotte, has decided it knows the recipe for turning housing market-driven lemons into lemonade.

Thus far, the firm has trained 150 of its 450 agents in the fine art of the short sale.

“We’ve been doing these deals with banks, so we are doing the training from experience,” said Matthew Augustyniak, president of Horizon Group, the parent company for the real estate firm as well as a Florida mortgage subsidiary, a title company unit and an insurance unit.

Here is the general idea: The agent gets a sales listing on a property where the seller is behind on payments, which means the property could end up in foreclosure. The agent is working purely for the commission on a potential sale, not for a finder’s fee, and does not ask for a power of attorney.

Second, the agent asks the seller’s permission to negotiate a deal with the Florida mortgage lender on the seller’s behalf.

Frequently, the agent can get the bank’s foreclosure department to agree to a negotiated sales price that is 75 percent to 80 percent of the amount owed. Under the deal that Horizon structures with its clients, the lender must agree to eat the difference, leaving the client with his already dinged-up credit rating but no additional liability, Augustyniak said.

“When we close on a short sale, we make sure our seller isn’t going to be stuck with a deficiency judgment.”

Naturally, the bank is not generally thrilled to do a short sale, because it means taking a 20 percent haircut on cash that it has already have lent out.

“Some banks are harder to work with than others,” Augustyniak conceded. “But we are dealing with the foreclosure department or the loss mitigation department, and they don’t want to foreclose, because foreclosure costs them a lot of money.”

A rule of thumb, he said, is that a foreclosure costs the bank 30 percent of the Florida home loan value.

It is important for the homeowner who is in trouble not to agree to any additional encumbrances, Augustyniak maintains, because these can have the effect of giving the bank less wiggle room for agreeing to the short sale.

“We only get paid when we do the deal,” he said.

Augustyniak refers to entrepreneurs who charge a fee with the promise of negotiating a short sale as “predators.” “When you add on $8,000 or $10,000 from somebody else who has their hand in the pot, it will typically destroy the deal, because there is not enough money there.”

The state had 19,179 Florida mortgage loan defaults in July, the second highest total in the nation, according to RealtyTrac, a research firm that tracks the data.

Within Florida, Sarasota County ranked No. 16 out of 67 Florida counties in foreclosures for July, while Manatee and Charlotte counties ranked No. 21 and No. 24, respectively.

Frequently, foreclosures happen on speculations gone bad, where the home or condominium that is now inching toward foreclosure has never been occupied. Often, a no-down or low-down payment loan combined with normal real estate commissions and closing costs means that the seller has nothing to gain even if the property is sold.

Sometimes, people with real estate lemons on their hands tend to passively sit back and wait for foreclosure to happen.

That is not smart, Augustyniak says. Even though the owner may not make a cent from the short sale, it will help him resuscitate his credit rating much more quickly than if he simply waits for a court-ordered foreclosure.

The foreclosure lasts as a black mark for seven years. In comparison, if the client handles his future rent, mortgage and other payments properly after the short sale is completed, he can repair his credit rating in roughly a year, Augustyniak said.

In developing a niche business in short sales, Horizon is following in the footsteps of entrepreneurs who have been making a living from negotiating a short sale in order to buy the house as an investment.

When Jim Willig of Sarasota’s Sire Properties talks about buying opportunities in real estate, he is not talking about paying list price on something in the Multiple Listing Service.

Instead, Willig - president of the Sarasota Real Estate Investors Association - is looking to negotiate a deal between a seller who is underwater on his payments, and the bank that is on the hook for the loan, or a short sale.

He gave this hypothetical example, which he says is realistic in today’s Florida real estate market.

“A guy bought at the peak and he encumbered the house for $400,000. The property today is worth $300,000. We can go in and buy it from the bank at a number that is probably closer to $200,000. So there is a great buying opportunity.”

SOURCE: The Herald Tribune