Short Sales

  Short Sale Facts

Lots of people in today’s economic crisis and depreciating housing market are not sure which way to turn for help. Many have been given options, but don’t know which option to choose. The “Short Sale” option is usually placed on the table, but many people are confused as to what it is or how it works.

A “Short Sale” is a sale of real property in which the outstanding obligations (loan balances) are greater than the amount that the property can be sold for. This is typically the case when home prices are falling, and the seller has financial distress from either a reduction in income or an increase in monthly loan payments such a re-casting of the existing rate. Successfully completing a short sale may have a far less negative impact on the seller’s credit and tax circumstances than a foreclosure would. A foreclosure will severely damage the borrower’s credit score for the next 7-10 years, and rates on any future loans they apply for during that time will have interest payments based on about 3 times what prevailing interest rates are.

A short sale is typically done during the foreclosure process, after a Notice of Default” has been filed. A short sale will stop the Trustee Sale, which concludes the foreclosure process.

At this point, you may be thinking to yourself, “Why in the world would a bank agree to a short sale?” The answer is fairly simple:

Banks are in the business of lending money and not owning real estate. If a home is in foreclosure because the borrower is in default, that’s called a non-performing loan. Federal Reserve guidelines state that the bank must put aside two to eight times the amount of the non-performing loan to cover the bad debt. If this money is sitting in reserve, it obviously can’t be loaned out to new customers to make the bank more money. As a matter of fact, there are strict federal guidelines as to how many bad loans a bank can even have on their books at any given time. If a certain percentage of their outstanding loans are considered bad debt, they can be fined, sanctioned and even federally regulated. So you see, they are quite eager to get rid of a property before they have to take it all the way to a Trustee Sale and possibly take it back as an REO (which by the way stands for Real Estate Owned.) Not to mention the fact that the foreclosure process is long and expensive for the lender involved.

A short sale is accomplished by sending the lender a “Short Sale Package” which includes many documents supporting the fact that the borrower can no longer pay their mortgage and must sell the property at a loss to the lender, and the only other alternative is foreclosure. Things included in the short sale package include: financial statements, pay stubs, medical bills, divorce decree, etc. Also included will be a detailed letter from the homeowner, called the “Hardship Letter,” explaining why they can’t make their mortgage payments anymore. The most important part of the package will be… <drum roll please> an offer! True, the lender will most likely not even look at a short sale package if it does not have an actual written offer from an interested buyer.

A short sale is an often complicated process, and can be lengthy, sometimes taking upwards of 3-4 months to get the whole thing done, especially if the real estate agent doesn’t know what they’re doing. Therefore, much of the success or failure in accomplishing a short sale depends on the real estate agent involved. I specialize in foreclosures and short sales and have many unique methods for getting short sales approved quickly. I also work with a large number of homebuyers and investors who are ready to make offers on properties immediately.

I know that being in the middle of the foreclosure process can be very stressful and frightening, and that understanding the process and what your options are can shed some light on the situation and help you feel better about it. My goal is to truly help people get out of this terrible predicament and move on with their lives.

Top 5 Short Sale Myths

Short Sale Myth #1:
Short Sales Take 12 to 18 Months to Close

The average time for a lender to Approve a Short Sale is between 60 and 90 days. The fastest I have been able to close any of my Short Sale listings has been in 27 days. The longest I have ever had a buyer and seller wait for a Lender to grant the written Approval of a Short Sale is 108 days. Every property, every contract, every offer, and every lender will make the difference. No person can project an exact time, but there should always be an agreed upon time for such a Short Sale Approval stated on the Contract For Sale and Purchase.

Here is the time frame for a written Approval on an average Short Sale when the loan is held by a cooperative bank (excluding former Countrywide loans):

  • 3 to 10 business days for the lender to acknowledge receipt of the complete Short Sale package, which consists of the required personal seller documents and related real estate items, including the buyer’s Short Sale offer.
  • A negotiator is then assigned. An additional 20 to 45 days for a BPO or appraisal valuation on the subject property to be completed by the assigned negotiator.
  • Another 2 to 3 weeks for the lender’s upper management (loss mitigation department) and lender’s investor(s) to review and compare values and statistics. Soon thereafter, a written Short Sale Approval is granted to the seller or seller’s representative.
  • Closing of property usually occurs within 30 days from the written Short Sale Approval.

Short Sale Myth #2:
Short Sale Buyers Pay Too Much

In some areas, listing agents may deliberately price a Short Sale below market value. It’s a tactic Short Sale agents use to attract multiple offers.

Most of the time, a listed price on a Short Sale is obtained by a comparison market analysis from the listing agent. The agent performs this analysis because there is no way to know exactly how much a bank will accept until the offer is submitted and reviewed by the loss mitigation department. Most banks will consider a lower than market value list price, so long as the list price does not exceed below 90% of today’s market value. The # 1 reason that banks reject Short Sales is because the offers from the buyers are unreasonable. Due to the lender losing money on any Short Sale transaction, the lender will always feel that the BPO value is a fair offer. Any offer lower than the BPO value must be defined by the condition of the home.

Short Sale Myth #3:
Short Sale Banks Won’t Accept a Severely Discounted Payoff

Sellers are often astonished to discover that in markets where prices have fallen over a 5-year-period, a home might be worth 50%, or less, of its original value when the seller bought it. Banks understand declining markets.

Reiterating the term “BPO value”, banks will conduct their own research about value and come to a conclusion. The value of the home is not based on the amount of the mortgage; it’s ALWAYS based on recent comparable sales and comparable active listings.

Short Sale Myth #4:
Short Sale Sellers Must Be in Default Before the Bank Will Approve a Short Sale

Banks approve a Short Sale based on the seller’s hardship and the value of the home. Some sellers may struggle to make the monthly mortgage payment, yet have not fallen behind in their payments.

While it is true that sellers in default receive immediate attention, a seller can also pay a mortgage payment on time each and every month and still qualify for a Short Sale. An added benefit for being current on the mortgage is a seller may qualify under Fannie Mae guidelines to immediately buy another home.

Short Sale Myth #5:
Agents Get Paid a Lower Commission

When I first started adding Short Sale listings into my listing portfolio, banks were treating Short Sale commissions abominably, often reducing the agent’s commission to peanuts.

In today’s banking world, most banks pay a traditional or near-traditional commission to agents. On top of which, Congress and Fannie Mae established a compensation policy on February 24, 2009, to pay the amount of commission agreed to between the listing agent and the seller, providing the fee does not exceed 6%.

A short sale is accomplished by sending the lender a “Short Sale Package” which includes many documents supporting the fact that the borrower can no longer pay their mortgage and must sell the property at a loss to the lender, and the only other alternative is foreclosure. Things included in the short sale package include: financial statements, pay stubs, medical bills, divorce decree, etc. Also included will be a detailed letter from the homeowner, called the “Hardship Letter,” explaining why they can’t make their mortgage payments anymore. The most important part of the package will be… <drum roll please> an offer! True, the lender will most likely not even look at a short sale package if it does not have an actual written offer from an interested buyer.

A short sale is an often complicated process, and can be lengthy, sometimes taking upwards of 3-4 months to get the whole thing done, especially if the real estate agent doesn’t know what they’re doing. Therefore, much of the success or failure in accomplishing a short sale depends on the real estate agent involved. I specialize in foreclosures and short sales and have many unique methods for getting short sales approved quickly. I also work with a large number of homebuyers and investors who are ready to make offers on properties immediately.

I know that being in the middle of the foreclosure process can be very stressful and frightening, and that understanding the process and what your options are can shed some light on the situation and help you feel better about it. My goal is to truly help people get out of this terrible predicament and move on with their lives.

Please contact me anytime. I am always available to help.