Tough issue. There is a legal side and a financial side. From a legal perspective, we need to advise our clients (the seller...not the lender) by giving our best informed advise as to which offers are acceptable given the circumstances. The buyer can instruct us not to bring any other offers and to move forward with the one we think will work out best for the seller. In that case, we cannot accept other offers.
From a financial viewpoint, we have a fiduciary duty to protect our client. If the highest offer would result in a lower amount of taxable income to the seller (given that the mortgage debt relief act WILL NOT exist), we owe it to the seller to mitigate their losses. Likewise, if we witheld an offer that would result in a lender taking less of a loss, we are in effect the cause of that additional loss. This is where the FBI is, I believe, investigating in fraud. Those agents that obtain short sale listings and then sell them to friends, relatives, etc while disregarding real offers that could be higher.
I make it a point to have a short sale buyer put some cash at risk if they (the buyer) backs out of the deal for no reason and, I require the inspection period to be short and at offer acceptance and not short sale acceptance. This secures the buyer, insures that he/she is in it for the duration and will weed out those that are making offers on 12 homes to see if one will stick.
As a former banker, I would not be happy if I found out that we could have saved $10k or more on each of my short sales which could really add up to big bucks.
Qualify sellers and super qualify buyers. The highest and best is the one that gets the deal done smoothly.
The best offer for the seller may not be the one that is highest to the bank, never forget that. We owe no Fiduciary duty to the bank whatsoever. If I can get my client (seller) a full release or engineer a deficiency buyout with a contribution from the buyer, I'm going to recommend that deal over one that is simply higher to lender (unless that deal too offers a full release)
I completely agree with Joseph! I have been doing short sales for over 8 years now (even when the market was good). When it comes to the offer to submit to the bank it is ultimately the seller's choice...but I always go over the details with the seller and let them know what the consequences of each offer may be (ie, possible deficiency). In the past 8 years I have had less than a handful of deals where the seller had a deficiency. In those cases the lender may have been a local bank/credit union who refused to work out a settlement during the short sale (but in all cases they worked out a settlement directly with the seller after the short sale was complete).
Getting the short sale done and avoiding a foreclosure is our number one priority. Number two is to get the deficiency waived for our client. Number three is getting the highest offer possible to avoid tax consequences. At no point in time do I worry about what kind of loss the bank is taking...they have attorneys, asset managers, and hundreds of bank negotiators looking out for their interests (and the government who will bail them out). In the short sale transaction I may be the ONLY person looking out for the seller's interest.
** I recently had a bank send over an affidavit for all parties to sign. In it, it said that "this offer is the highest offer the seller received". We actually had a buyer who offered more but was going FHA and had no funds to help secure a release for the 2nd. The extra funds to the 2nd were clearly disclosed on the HUD and the negotiator at the first mortgage knew what was going on because we had emails disclosing the situation as well as the HUDs. The seller simply put an * next to that statement and added "The current offer being approved is the BEST offer we have received that will allow us to sell the home and avoid a foreclosure". The bank accepted the affidavit and issued the approval letter. When in doubt, disclose!