ANATOMY OF A SHORT SALE

Contributed by Rosemary Langkawel from Naples FL. 

These days a Short Sale is a fact of life for many people. The question most often asked of me is – What is a Short Sale? and How much do I offer? 

Basically a short sale is when a person must sell a property for less then they owe the bank.

Here are a few myths some Buyers and Sellers have had in reference to a Short Sale.

Buyers Myths: I can talk directly to the Bank and avoid the Realtors and cut this deal myself because they have to……

Truth: Banks do not want to talk to you and if you are in the middle of negotiating a deal, your calling the Bank will do nothing, The Bank wants to only speak to the Realtor or the Mitigator. You do not have the authority or authorization to speak about this account. Banks get calls from people like you all the time. They do not want to talk to you.

Seller’s Myth: I will negotiate the transaction with the Bank myself. I do not need any help. I will control the situation.

Truth: Banks do not want to talk to you either. The Bank will only speak to you when you tell them you are going to pay the balance owed or you are going to refinance. If you think you are going to talk to the Bank and negotiate the transaction yourself you are wasting your time and that of your Real Estate Professional. The Banks do not have time for all of the emotion that goes into this process. They do not care how smart you think you are. These Negotiators are getting as many as 100 calls an hour and do not care about the sweat equity you put into the home. Unfortunately, your property is just a number on a sheet to them.

How does a short sale work?

  • Process varies widely from bank to bank.
  • You as the Buyer or Seller cannot profit in any way from the sale of or purchase of the property in Short Sale.

Short Sale procedure:

  • What compels you to sell?  If you can hang on to it do so. Any deficiency type action will have a negative impact on your credit for years. If you cannot afford your payments because of an ARM (adjustable rate mortgage) or because of some hardship that is out of your control, then consider this process very carefully. Remember this is your home not an investment. You have chosen to make a life here. It may not be worth what it was when you bought it but, neither is your car. If you love your home and you can afford the payments. Enjoy it. The Real Estate Market goes up and down all the time.

If you determine that you must short sell your home, there’s a few guidelines to follow:

1. Identify your Realtor. Sign the listing agreement & disclosures for him/her.  Your Realtor will advise a specific attorney – take the referral.  The attorney recommended by a Realtor is a professional and knows how to get the job done, otherwise he/she would not be referred by the agent.  The agent’s job is to close the deal – he/she is only going to work with professionals who are like minded and have a proven track record. 

2. If the Bank calls, let the Bank know that you are going on the market and offer the Bank employee your agents contact information.

3. Gather your current financial documents. 

4. Here are some items that could be requested:

a. Letter of third party authorization giving your Realtor permission to speak to the Bank on your behalf, Your current bank statements, Last two months pay stubs, Tax returns for the last two years, Hardship letter-this is the letter to the Bank explaining why you have to sell your house: Loss of job, Marriage, Pregnancy, Divorce, Death, hange in hours worked or wages, Job change, etc.  If self-employed, you might need a P&L statement showing the slowdown in work.

5. Supply copies of all of this to your real estate attorney, to be included with the packet when an offer comes in.

6. Keep your home in showing condition. I know this can be inconvenient, but, Buyers still want to buy the best home available.

7. Be available to sign Modifications to the Listing Agreement forms, to adjust pricing every few weeks to show the Bank the efforts we are making to attract Buyers. If it is not selling you are moving closer to foreclosure.

8. When an offer comes in and your Realtor tells you to sign it, Sign it. Your Realtor should have done their homework and they have an idea of what the Bank will take. This is not personal. It is a transaction. I know your home is special but not to the Bank.

9. Your Realtor will continue to show your property and will let you know that you will be accepting and getting back up offers. (It has been my experience that the first offer rarely goes through and having a second offer gives you piece of mind.)

10. Be prepared to wait. I have seen some of these deals take 4-6 months for approval once it is in the short sale department of the Bank. I just got off the phone with a major lending institution and they told me to prepare my Buyer for a 4-6 month approval process. This is ridiculous I know but, this particular institution is not very organized. On the other hand, another major lending institution approved one short sale in 14 days. Yes we are all aware that the property may not be worth the value of the original, but this is what is happening.

11. Answer all the calls from the Bank when they call. Remind them that you are attempting to short sell your home. Be polite. Ask them to check the system and have them make a notation while you are on the phone. Again Be Polite. The person on the phone is just calling a list and can with the stroke of a key move you to the next level toward foreclosure. Be Polite. I know this is annoying and you prefer not to be repeatedly interrupted but remember the old saying about flies and sugar…It really matters in this case.

12. When the approval for your offers comes from the Bank, be ready to move fast they will want to close in 30-60 days. They want this asset off their books and may be under the gun for quarterly balance sheets. Be packed and ready to go. Delaying the process due to your inconvenience is not the concern of the Bank and could put a monkey wrench in the whole transaction causing it to go to Foreclosure after all of this work.

Does all of this sound like insanity? Well it is. My Team has jokingly referred to this as Psycho-Selling, because none of this makes any sense.  Every Bank is different and in the end a short sale takes about 2-3x the work hours as a regular sale. 

Buyers:

After all of this is said, there are some really great deals out there. BUT, when you make an offer as a Buyer, be prepared to wait. It could be a while but it is worth it. Calling the Realtor every day or week does not help the process. They will give you an update when there is activity on the property. I know you think you will get a property for $.25 or $.50 cents on the dollar, however; Banks do not have to do a Short Sale. This is one of several options for them. They really have to do nothing. They have a specific process and we must all follow it. They have appraisals on every property and know its value. They will accept a low offer, but they can also turn it down too. Your Realtor will have an idea of what will be approved. If the property is the lowest in the community buy several percentage points, the Seller has already lowered the price to below market value and that 25%-50% saving is already reflected. Have your Realtor do a Competitive Market Analysis (CMA) of the property to give you an idea of what has sold there in the last 6 months. This will give you an idea of the property’s value. Remember the Seller does not have to sign the contract. If the Sellers Realtor does not feel that this offer will be accepted by the Bank, they may be advised to not take the offer.

Why do we Realtors go though this?

These Buyers and Sellers are still our clients. As a professional I will do whatever it takes to get the job done. Once we get these challenged properties out of the supply, the market will start to come back and the Sellers will then be Buyers again. Also like many of my Clients, they have become my friends and I will use my professional expertise to help them through these difficult times. If I walked away from them now, I would be a very bad friend.

Is there an end in sight?

Yes there is. However, before its over, a lot of families will get hurt in the process. Just be patient. There is always hope. The end will come when the ARMS and  interest-only loans become a minority in our market place, and buyers buy within their means. Million dollar buyers are asking for homes that are in the $600-700 range.  Smart.   None of us like the dramatic housing situation we are in. But as in any situation, we work with the hand of cards we are dealt.

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