Exp[erienced Short Sale Realtor


Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.  So here is what you can expect in a short sale. 

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3rd  party that controls the fate of the deal:  And that’s the lender.  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

  1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
  2. Is the price offered consistent with comparable sales in the area?  Obviously the bank wants to re-coup as much of their investment as possible.
  3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Before taking a short sale listing it is the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – It’s all about the Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include:

  1. A statement of general information
  2. Financial worksheet
  3. Handwritten letter explaining their hardship
  4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
  5. 2 months bank statements
  6. Tax returns for the last 2 years
  7. Most current statements for all retirement accounts or other assets
  8. Authorization form to allow the Realtor or negotiator to speak with the lender.

Step #3  – Selling the Property

The house is listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine it and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the listing is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer and often paperwork disappears and duplicates must be supplied.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (as in a 1st  and 2nd  mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may push for a bigger contribution from the 1st  lien holder as in California they can no longer request that the sellers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2nd  mortgage holders won’t even begin the review process until the 1st  lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional two or more weeks.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming, and some of the items noted above may vary depending on the state you live in.  In any case, making sure you’re working with an experienced short sale Realtor is the best way to protect your interests. 

 

With short sales accounting for over 17% of all sales in July, and thousands of homeowners upside down on their mortgages, the California Association of Realtors believes that short sales will be a part of the real estate market place for years to come.  Economic growth just isn’t happening quickly enough to keep pace with the number of homeowners who are sinking closer to foreclosure with each passing month.  For many, opting to sell their home in a short sale is the best option because of the less damaging impact on their credit.  But agreeing to list a short sale can be the start of an uphill battle for the Realtors involved. 

One of the biggest issues facing short sale transactions is the time involved for even a preliminary review of the offer and submitted documentation.  This step alone can often take one to three months before the lender even assigns a negotiator to the file.  Another annoying reality is lost or misplaced documentation.  With many lenders one feels that there must be a trash can on the other end of the fax machine as requests for the same documentation are made over and over.  All of this takes time…and the buyer is often out there still looking for something they can buy more quickly, with less hassle.

The California Association of Realtors has recently sent urgent requests to the heads of all the major lenders, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo with recommendations about how the whole process can be streamlined.  A few of the items requested include:

  • Realistic timelines
  • A thorough explanation for short sales that are denied
  • Up front disclosure about who really owns the loan and can make a decision
  • Pre-approval of the short sale and price prior to marketing the property
  • Increased pay-off to the junior lien holder

As a dues paying member of  C.A.R. and a Realtor in the short sale trenches I’d be thrilled to see even one or two of these recommendations become part of lender procedure.  In the meantime, I’ll just be the one on the phone politely nudging them along, every step of the way.

 

 

In the world of real estate, being an effective representative for your client means staying on top of sales numbers and making sure that you have a clear picture of the market place.  So I spent some time today researching short sale numbers in San Diego County and found two interesting statistics: 

  1. There has been little change in the number of short sales that have closed escrow this year as compared to the same period last year.

                                      Detached Homes                Attached Homes

            2011                2172                                        1508

            2010                2074                                        1578

  1. The number of short sale listings that did NOT sell in the same period is much higher than I believe most people would expect. 

                                     Detached Homes                 Attached Homes

            2011                2371                                        1462

            2010                1769                                        1227

This means that roughly half of all short sale listings this year did not become successful sales transactions.  So what happened to these homes and their owners?  We can hope that some of them received permanent loan modifications or in some manner managed to reinstate their loans and keep their homes.  But it is likely that the majority became foreclosure statistics.

And why does the short sale listing failure rate seem to have increased this year over last?  Is it just because there were more attempted?  Are the bank requirements becoming more stringent?  Are there more inexperienced agents trying to handle the negotiations?

The answer is probably, “All of the above.”  But whatever the reason, don’t let your short sale become one of the failed statistics.  Make sure that you work with an experienced short sale Realtor who will pre-qualify you and your home and knowledgably guide your negotiations to a successful conclusion.