Should You Buy a Short Sale Property? December 13, 2007
The current market is making me feel older than dirt. Mostly because there are fewer and fewer agents around who have sold real estate in a previous bad market. I find myself explaining what is going to happen next, to many who have never been through a short sale from beginning to end. Even if you take classes about what may happen, it doesn’t replace the experience of living through what actually does happen.
Everyone wants a bargain, especially in this market. But the truth is that many bargains go to investors and people inside the industry, because they can handle all the hiccups better than owners who plan to occupy the property. Whether it’s a short sale, a foreclosure, an estate sale or other “discounted” property, often it’s like buying yesterday’s donut. You can expect something to go sideways in a short sale, and often you can’t get it to go perfectly straight.
1) The closing date may be delayed. In fact you can pretty much count on it. For someone who is trying to coordinate a move, this can wreak havoc on their life. If you are trying to link together the sale of your house with the purchase of a short sale, well good luck with that one. If you are trying to give notice to your landlord and be able to move into the short sale property on a firm given date, not always a reasonable expectation. Most often short sales involve a series of extentions strung together until it closes. If someone is not planning to live in the house, such as an investor, not a huge big deal. But for someone trying to move into it, it can be a nightmare of uncertainties.
2) The bank does not approve the sale price. One of the hardest things to understand about a short sale is that the buyer and seller agree to a price, but the bank is the one calling the shots. Even when you get the HOORAY OK from the bank, the road can be very bumpy to the end.
Say you are buying a house for $820,000 and the payoffs on the seller side are $860,000 including a first and second mortgage and seller’s closing costs including exise taxes. The 1st mortgage is going to be paid in full, so it is the second mortgage lender who is agreeing to whatever is left after other costs are paid. You send them an estimate that they are going to get $60,000 of the $120,000 owed to them. They say OK. Now during the time you waited for them to say OK, guess what happened. Yup. ALL THE COSTS INCREASED! The first mortgage payoff got a lot higher than expected. The utility bills went into arrears and the utilities may even have been shut off. The arrearages grew and grew and now the 2nd lender who agreed to take $60,000 is only getting $50,000.
You can see how this can turn into a big yo-yo affect with the buyer feeling like someone is not telling the truth. Yes the 2nd approved the short sale. No the 2nd isn’t letting it close now. You must remember that the 2nd mortgage never approves the sale price of $820,000 in the example above. They approve the amount that they are going to be “short” on their payoff.
The buyer thinks the bank approved the sale price of $820,000 when we got the first Hooray OK, when in fact what they approved was receiving $60,000. Now when you do the final closing statement and the payoff is $50,000…you are back to square 3. You are not back to square 1. You have made progress. But not as much as you thought and the closing date is again delayed and the sale, again, may not happen at all.
3) Now you get to the final stage. The bank approves the $50,000 or the buyer agrees to come up with an additional $10,000. Somehow the gap between the $60,000 approved and the $50,000 left to pay the 2nd mortgage has to be bridged. Possibly with a little give and take on everyone’s part, including the agents. The buyer who is now being asked to give a bit more than agreed to at a sale price of $820,000 doesn’t understand why. “I thought the bank agreed to the price of $820,000?” Remember, the “shorted” lien holder never appoves a sale price. They approve the “short payoff” which is a moving target! It can get very frustrating and difficult to comprehend and follow.
4) Now the buyer wants to walk through the property the day of signing. Uh-oh…the utilities are shut off. Anyone who can’t make their mortgage payment and who is not living in the house, is not likely to keep the utility bills current during this long approval process. Yes it is reasonable for a buyer…normally…to want the utilities on for the final walk through or for the inspection. But getting them turned on is easier said than done. Whose name do they get turned on in? If it is closing in the buyer’s name in 3 days, they likely don’t want the utilities in their name yet. In fact the utility companies may not even let a non owner/non-tenant put the utilities in their name. It clearly is not something a lawyer would advise a buyer to do prior to closing.
The seller isn’t forking out any money to get the utilities turned on, they have no proceeds and are not putting any money into the house. Same goes for repairs. You walk through and see something wrong with the house and want the seller to get it fixed. No way Jose. Seller is walking off with his tail between his legs licking his wounds. He’s often depressed and disgusted and beat up by life. He’s not coming over with a licensed contractor to make repairs.
4) The Buyer Agent often agrees to a short commission. So if you have arranged with your Buyer Agent to recieve a portion of the commission, don’t be surprised if that amount changes at the end.
Lots of headaches. Lots of uncertainties. The truth is that investors foresee most of this. They don’t care as much about the mundane things like what date it will close or making repairs. They are going to gut it anyway.
So the next time you wonder why investors and insiders always seem to get the best deals, ask yourself this. Who else would put up with all of this nonsense? Looking for a bargain? Great. Just remember this. It’s often like buying yesterday’s donut instead of a warm Krispy Kreme straight from the oven. The taste left in your mouth after all’s said and done…may be a little stale.
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Article Tags>> short-sale
- Posted in : Purchase Information
- Author : ARDELL
Comments»
Ignoring the headaches, I don’t think there’s any reason that a short sale situation would get you a better price. If you want a good price, look for vacant property where the owner has a decent amount of equity.
Kary,
While it is true that a short sale does not always or necessarily translate into a “better price”, it certainly can be a better “value”.
One has to know how to value the property properly. But here in the Seattle area if the property is selling for less than the current owner paid for it, without any cash out refinances, it is likely a good value. Unless the original buyer overpaid for it. So you have to know how to value property, and not rely on appraisal values, to be certain of whether or not it is a bargain.
But it clearly can be a bargain and often is. Just not a guarantee. Most agents, even me, pull our hair out and don’t necessarily look for the “opportunity” to sell a short sale. But that is no reason to pooh-pooh the bargain quality the short sale may have for potential buyers.
For agents it’s a whole lot more work for less commission. So I’m not running for Short Sale Maven for sure. But if it’s the best house and the best value for one of my clients, I’ll take the hard knocks once in a while.
Great post Ardell…Have seen this stuff in years past, and here we are again. The buying public reads a book on “Get Rich Quick In Real Estate”; or might go to someones seminar on buying property cheap in “today’s market”, and feel they can make the numbers work.
Usually this does not work out with these expectations in mind.Just too many unknowns for most to sort out.
ARDELL-
Maybe you feel older than “dirt” because YOU SPEND SO MUCH TIME ON YOUR KNEES PLANTING THINGS IN IT!
ARDELL
I went back and read the post, thoroughly. Wow–good job.
I’m gonna link to it!
I was not on my knees. I was in my work clothes. But yes, you guessed it. The photo in the Seattle Times a few weeks back was me planting St. Joseph at a short sale.
Ardell, I don’t buy it. Having to convince two entities to accept a price (seller and bank) isn’t going to make it more likely that the price accepted will be a good price than if it’s one entity you need to convince. And I’d guess over half the short sales have nothing to do with what the owner paid, but instead are the result of refinancing activity.
I would agree short sale listings are not something an agent is likely to eagarly want to obtain. They’re a PITA because of the dealings you have to have with the various bank personnel, much of which you described.
Just my opinion: The short sales our office have handled and also in having conversations with others in the the business lead me to believe the short sales might be the result a lot of fibbing on financing the property and 100% nothing down programs. But you certainly cannot discount that the price one pays for the home— plays a large role. The larger caveat is that the short sale homeowners probably don’t anticipate market swings when they bought or maybe did not head the advice of a seasoned agent that discloses market health/risk. The other side of the coin is that some distress sales are created by catastrophic financial situations brought on by devastating illness, accidents or other things.
Having a couple of short sale listings that we got “volunteered” into, we came across a problem for all MLS participants regarding the coop fee. As a listing MLS broker, we have to offer unconditional cooperation. If we take a short sale listing without reducing the offer of cooperation, we are setting ourselves up to be liable for the full coop fee regardless of what the bank agrees to. We cannot force a buyer’s agent to accept less than we offer because “the bank would only allow x%”. So, we have to guess an amount that the bank will allow in our offer of cooperation and I assure you that it is less than competing listings are offering.
The next hurdle is where there are 2 liens in the sale due to piggy bank financing. It seems that the 2nd lien holders do not understand the meaning of 2nd lien position. In plain English: if this baby forecloses you lose everything: principal, interest, penalties and prepay penalties. It is just a waiting game for 1st lien holder, on a normal 80/20 purchase money deal less than 3 years old in our market, 1st lien loses nothing and 2nd lien gets wiped out. You’d think that the 2nd lien holder would be diligent in getting the short sale closed before it gets close to the county courthouse, but no, do they even return phone calls, or for that matter give their workout specialists a phone number the homeowner can call?
My gut tells me that this issue must be bigger than loan workouts, and by ignoring the non-performing loans as we march to ARM-egaddon, there are threats to the financial viability of these institutions and perhaps the whole financial system. Oops- there I go sounding like a bubble blogger…
Thomas, yes there is that risk on the commission (actually you understate the risk). That’s why it should be approved by the bank in advance.
And yes, they don’t return your phone calls, which is why you can’t get the commission approved in advance. (And if you do get through, they might just say they don’t approve things in advance.)
It’s a Catch-22.
I understand why sellers want to do short sales. But I don’t understand why buyers or agents want to do them. Until the banks set up the personnel to do them properly, why should anyone bother with them?
Ardell,
Yup that’s pretty much the way shorts go.
There are plenty of problems currently with shorts.
Here are a few:
Most lenders won’t even open a conversation UNTIL they have an offer in front of them. Their loss departments are completely overwhelmed. When you have an offer, it may take days to get a first response. Listing agents and sellers are completely in the dark as to what the lender might take while they are marketing the property.
NWMLS requires a disclosure on the listing that the sale and the SOC are subject to underlying lien holder approval. Because of all the problems chronicled by Ardell above, the normal owner occupied buyers are avoiding shorts, and agents work 5 times harder to get paid less, or not at all. Shorts are becoming ultra distressed properties. This is forcing the prices so far down on shorts to the point that the lenders may not agree to the eventual sales price.
Some lenders will release their security position on a short to allow it to close, but won’t disolve the debt. Sellers need to make sure that if the lender agrees to sell short, the debt is also disolved.
Sellers may also be liable for taxes on debt relief.
I’m at the point that I won’t represent a seller selling short UNLESS he has a consultation with a real estate attorney experienced in the short sale process.
Kary asks:
“I don’t understand why buyers or agents want to do them. Until the banks set up the personnel to do them properly, why should anyone bother with them?”
To that I ask a question in return:
What if you were the agent who sold the homeowner that home?
Ardell says: “The current market is making me feel older than dirt.”
Ardell, I have students in my mortgage LO classes these days who have been originating for 7 to 9 years and have never heard of an adverse action form because they’ve never had a loan declined.
Glad you popped in Jillayne. Was starting to worry about you. Hope all is well.
Isn’t it better for oh…maybe the Country somehow, if foreclosures were prevented via short selling? Who does it benefit for the home to not go into foreclosure looking at the biggest picture?
Hi Ardell,
All is well; I’m just super busy this month.
I think it’s wise to look at short sales from lots of different angles.
First we must start with the homeowner. Does the homeowner HAVE TO sell? If the answer is yes, then selling is preferable over foreclosure for many obvious reasons, right? Not so fast. Since homeowners will be asked to pay back the difference (the shorted amount), some homeowners who are not willing or able to pay back the difference might not want to sign a new, unsecured note at closing. If for some reason the homeowner gets the debt forgiven by the lender (don’t count on this) then the homeowner is going to get taxed for the difference and some homeowners may not like those consequences.
Depending on the types of underlying liens (first? second? purchase money mortgage? cashout refi? tax liens?) during the foreclosure process, if the first mortgage lender is foreclosing, do all those liens just go away? Maybe, maybe not. Kary did a post over on the SREP blog about a recent state supreme court opinion on this topic, which is why it is always CRUCIAL for a homeowner to receive legal counsel on all short sales.
Some homeowners, when faced with the reality that they’ll be asked to pay the bank back, and there are no questions about junior liens, may decide to just go through foreclosure rather than pay back the shortfall.
Each of these short sale (or foreclosure) homeowners are individuals with individual stories and circumstances.
It may or may not be better for an individual to go with a short sale rather than just let the home foreclose.
One crucial detail: Short sales are reserved for homeowners who are in financial distress. if the homeowner actually has the money to pay back the difference, then there is no short sale transation. Instead, it’s called a “seller brings cash in at closing” transaction. Sometimes when homeowners are told that they will have to PROVE to the bank that they are financially insolvent, they decide that they don’t want to do the short sale after all and will just let it foreclose and save their money for first/last month’s rent on a new place.
If they don’t have to sell there are other options. Could they rent the home for enough to cover most of the payment? If they don’t want to sell and their financial crisis is only temporary, would they be willing to take on a tenant to tide them over?
I believe it’s important for individuals to consider all their options. If Realtors don’t know all the options, send the homeowner to a HUD-approved Housing Counseling Agency that offers default counseling.
HUD.gov and then click on “talk to a housing counselor.”
So is it better for the country somehow?
If we give too much weight to the needs of the homeowners, we’re going to be out of balance with what the lenders need. The reason we should care about lender losses is because this will effect our future retail residential lending interest rates and fees. We need to try and maximize good consequences for the most number of people, and minimize negative consequences for the most number of people.
It’s a balancing act and nobody’s going to come out a winner in this market. Well, except for the attorneys.
Jillayne wrote: “What if you were the agent who sold the homeowner that home?”
I still wouldn’t do it. I’d refer it out to someone who does a lot of short sales.
BTW, a question posed on another site was: “Is it fair to ask for a referral fee on a short sale?” Given the risks and extra work involved, a good argument can be made for no.
Ardell wrote: “Isn’t it better for oh…maybe the Country somehow, if foreclosures were prevented via short selling? Who does it benefit for the home to not go into foreclosure looking at the biggest picture? ”
Clearly (I don’t think you even need to look at the “big picture”–even the “little picture” is better). But unfortunately the banks haven’t gotten that message. It the banks were responsive, prompt, reasonable (or just the first two) I wouldn’t have a problem doing short sales. The banks make something that should be routine damn close to impossible as they can. And that’s not in anyone’s interest, especially the bank’s interest.
Jillayne wrote: ” If for some reason the homeowner gets the debt forgiven by the lender (don’t count on this) then the homeowner is going to get taxed for the difference and some homeowners may not like those consequences.”
I’m pretty sure there’s still an insolvency exception to discharge of indebtedness income. The seller would still get a 1099, but they could claim no tax owing (or less tax) if insolvent if I’m right (consult your tax advisor). If so, however, the question might be what does the IRS consider insolvent? I’d guess this is something your average tax preparer wouldn’t know about off the top of their head.
And as you note, unless you are in financial distress, it’s not really a short sale. So unless the IRS has unreasonable definitions of what constitutes insolvency, they’d probably get at least partial relief (assuming the exception still exists).
Finally there is one big benefit to an owner getting foreclosed. They basically got to live in the house rent free for 6 months (under WA law). I don’t think that benefit outweighs the negatives, but I did think it should be mentioned that it’s not all bad.
I just did a quick look, and it’s apparently Form 982 you file if you have discharge of indebtedness income and are insolvent (or bankrupt, etc.). It’s not entirely a free ride though because certain tax attributes do need to be adjusted to account for the exception–but most people probably don’t have much to be adjusted.
BTW, most my tax information is rather old, which is why I talk about not being sure whether these things are the case. I went to law school in part because taxes were the most interesting part of my undergraduate major studies (accounting). But I discovered while taxes might be exciting compared to accounting generally, they’re rather dull compared to most areas of the law. That and they change too damn often. Caused me to lose interest.
As I shared in post #11, and Jillaye shared in post #15, there are many, many landmines in the short sale process. Sellers and agents who think the best option is a short sale are well served to have the SELLER get counsel through either HUD counseling agency or an attorney.
I don’t want to come close to a position of advising on the tax consequences. At this point I think my job is pointing the seller to the correct advisers or counsellors.
And Kary, I agree. No referral fee for a short sale. Whoever handles the transaction works their rear off and earns every penny.
I was just looking at a listing, which is apparently an undisclosed short sale. It’s listed apparently below the amount owing on the first (based both on the original loan amount from last year and the foreclosure starting bid amount), there’s a second (also apparently in foreclosure), and a lis pendens related to drug activity in the house (which is why the listing is so cheap) where the county is presumably trying to forfeit the owner’s interest. None of this is mentioned in the listing (nor any mention of a short sale at all).
My guess is that whoever is a successful bidder on this property will not be a successful buyer. I don’t think the seller can sell. My guess is the agents don’t have a clue what is going on ( I won’t even describe the three phone calls I’ve made). That said, maybe it’s me who doesn’t have a clue, and this might actually be a short sale that’s a bargain (it’s probably priced about 66% of value once you restore the electrical system and patch the walls and floors where the ventilation system was installed.)
Anyway, since all of this is undisclosed, I guess any listing can be a risky venture, right?
Any listing can be a bad value…that’s for sure. My guess is it will sell for the price it should sell for…and not necessarily what they are asking.
What’s the asking price vs. assessed value? How much of the assessed value is the land and how much the improvements?
Ardell, are you talking about my post 21? My point wasn’t that it wasn’t a good value at that price, but that I don’t think they’ll be able to sell at any price that’s even close to reasonable (well above what the list price is).
Was it you that in another thread had an incredible story about a short sale success? I seem to recall someone had a good one, but I don’t recall it being so good that the second and the King County Sheriff agreed to accept nothing so that they could sell the house used for the manufacture of drugs! That would take some serious persuasive abilities! Whoever can do that should be sent immediately to the Middle East to negotiate peace!
I once handled a case for a bankruptcy trustee where the debtor withdrew money from his pension and used it to make his first drug buy–from the cops. They arrested him, then he filed bankruptcy. We had a hard time convincing them to give that money back for the benefit of his creditors (with any leftover going back to them). They were convinced it was evil money even though it came straight from Boeing!
Maybe the owner was somehow unaware of all of this. I don’t know. But I just don’t see this sale happening even if you made an offer 10% for the asking price.
Should have been: “10% over the asking price.”
Kary,
You seem to be saying that buyers should steer clear of short sales because it’s a lot of work for the agents and the agent may not get paid. That it may not be able to be sold seems to be the justification for your refusing to do them. Clearly your prerogative to not include short sales in your biz model. As I said, I don’t go looking for them either.
But when the best house for my client is a FSBO or a Short Sale, well there’s not much I can do about that. I have to pursue the best house for my client, and if that happens to be a short sale, I can’t put anything else into that equation.
As to the house being used for drugs, I don’t run into those scenarios. Seems to me though, that a vacant house of a former drug dealer being bought by a buyer who will occupy it to good purpose, is in everyone’s best interest. Just because the seller was a drug dealer doesn’t mean the buyer is. You lost me on that one.
Yes, I did have an incredible story about a short sale from the past. Today I have a not so incredible, simply a mundane story, of a short sale. Truth is, it is just the best house for my clients. So let’s just hope for the best. It’s the best house on market for them and they have been willing to put up with the mess so far. I think we’re all hoping there will be a better house for them, but after many months the right one just happens to be a pre-foreclosure. Sometimes it just turns out that way. Que sera, sera.
Not quite that extreme. I was looking at the listing for a client that was specifically interested in that house because of it’s location.
I’ve told him we can write an offer, but prepare to be disappointed. So it’s not like I’d refuse to write an offer on a short sale property, but I will fully advise the client what they’re up against. Here, however, because of no information coming back from the agents involved, all I can tell my client is I suspect the worst.
I mainly wrote about it here because of the apparent undisclosed short sale situation. Putting unsuspecting buyers (or their agents) to that risk isn’t right. I hope I’m somehow wrong on my facts, but the documents I’m relying on have all been either recorded fairly recently, or I have Internet sources with updated information (e.g. the status of the first).
BTW, this has been one of the best topic here for a while. Nice choice.
I coach agents to blog TO their clients in generic fashion. This post was written for my actual client, though the specifics were changed a bit for confidentiality reasons. I usually do that on my blog and not here on RCG. But I figured if my client needs to hear this, maybe lots of other people do too.
“But I figured if my client needs to hear this, maybe lots of other people do too.”
Including probably a lot of agents!
I had no idea there was so much involved in buying a short sale.
Banks don’t “go quietly into that goodnight”. But that is no reason for someone to overpay either. You have to have a very, very good idea of the value AND you deserve a discount for the inconvenience on top of that.
Sharon wrote: “I had no idea there was so much involved in buying a short sale.”
That’s why this is such a great piece. Most people just think it means it’s a bargain–something that Ardell and I can disagree about. It’s a lot of work and a lot of risk, especially if the listing agent doesn’t know what they’re doing.
We can’t disagree as to whether or not “IT’s a bargain”, because that’s a house to house issue, same as every other purchase. Some are good values; many more aren’t.
Many, many people have overpaid for houses that are not short sales. They are no different, if you value the property incorrectly.
Sharon,
They can get very complex, depending on the number of lien holders. I sold one year’s ago where the guy owed five years of condo fees, was in arrears on two mortgages AND had judgements against the property from other debts.
The number of debtors you have to negotiate with, increases the complexity. Once in awhile, I debtor comes in out of nowhere at the last second.
Still, if it’s the right house and a really good price, it’s worth the hassle.
Ardell,
Great post again… or should I say as usual. And, I too will be linking to it. There seems to be a lot of sentiment in the comments above suggesting agents and buyers avoid short sales. In a perfect world, that would be great. In the world I live in (Fredericksburg, Virginia) that is simply, almost impossible.
I recently had a buyer looking to purchase a home in the $250,000 range. That is at the lower end of our price spectrum, but, my initial search netted approximately 95 homes in the communities in which she wanted to live. After eliminating short sales and REOs we were down to 8 properties to look at. In every search I do in our market, I see that 1 out of every 2 to 3 properties are either a short sale or REO.
[...] Ardell DellaLoggia a Real Estate Broker who contributes on the Rain City Guide blog recently wrote a great article about short sales. I have linked to Ardell’s posts before, as she often provides great information. If you are buying a home in Fredericksburg, I would recommend you read this article. The market is different than ours, but the issues are the same. [...]
Jeff,
Only 8 out of 95 homes for sale not short sales or REOs in Fredericksburg? I find that hard to imagine. Is your area that transient that everyone bought their homes during the upswing? Or do you attribute this to cash out refinances and home equity loans?
I remember in the bad market of 1990 in Jersey, everyone was on a pulpit yelling about the evils of home equity loans. “Don’t suck out the equity in your home to buy a car or go on vacation.”
Lots of writings about loose money for purchases, but a lot of the short sales here are debt piled on top of debt via home equity lines of credit and cash-out REFIs.
Thomas from comment #9.
Having worked at a Bank for 19.6 years prior to selling real estate, I can add a bit of advice for agents who are frustrated with how the banks are acting. The Bank is not meeting your expectation because there is a minor falacy in your expectation.
You said: ” If we take a short sale listing without reducing the offer of cooperation, we are setting ourselves up to be liable for the full coop fee regardless of what the bank agrees to. We cannot force a buyer’s agent to accept less than we offer because “the bank would only allow x%”. So, we have to guess an amount that the bank will allow in our offer of cooperation and I assure you that it is less than competing listings are offering.”
Everyone knows the bank won’t allow a commission bonus or a “full commission”. Most common scenario is that they will only allow a total of 5%. Short sales should be better values and priced under market. You have to discount the co-op from the getgo and compensate with price. The draw is the lower price, not the co-op/BA offering.
You said: “You’d think that the 2nd lien holder would be diligent in getting the short sale closed before it gets close to the county courthouse, but no, do they even return phone calls, or for that matter give their workout specialists a phone number the homeowner can call.”
The “workout specialist” is not trying to “work out” what you are trying to “work out”. Think of it from the Bank’s side so you know with whom you are dealing. “The Bank” is a series of employees and departments. You can’t “work out” a short sale if the file is in the hands of the “wrong person”.
For instance, if the home owner is paying their mortgage on time and trying to sell it short before it affects their credit, the Bank is not viewing the loan as a bad debt. The person you call has ZERO incentive to work on a short sale, if the owner is paying their mortgage. You might as well beat your head against a wall.
Until the payments are behind by a certain amount (this timeframe is different in different States, but generally 90 days), the file is in the “Delinquency” Department and not the “Charge Off” Department. You want them to Charge-Off the loan when they are still trying to get the Delinquent Homeowner to catch up on the payments. The Bank employee you are speaking with has no authority to do a Charge-Off at this point.
Year end, such as now, offers some hope of speeding up the process and moving the file along outside of the Bank’s normal timeframe, because they would rather close out the bad debts at year end. This helps them get their 2008 figures up, theoretically. but if this were July or August, you would have a more difficult time. They have months to prevent a delinquent from going to charge off before year end.
Expecting the Bank to do what you want them to do depends on how close your expectations line up with THEIR objective, not yours. Expecting a Bank to trade in a “good loan” that is not behind for a short sale makes no sense from their perspective. Sure the homeowner is doing the right thing by keeping their payments up for as long as possible, and trying to sell it before they are behind in their payments. But to the Bank that says the homeowner CAN make the payment.
The Bank is trying to force the homeowner to hold on to the property and meet their commitment on the loan. The agents are trying to let the homeowner sell and force the Bank to take much less than what is owed. Competing objectives until the loan is past the point of no hope from the Bank’s perspective.
P.S. to the comment above. Consider the Active vs. Passive “charge-off”.
If the Bank Employee does nothing, the Passive event is that the charge-off was caused by Foreclosure. If the employee actively participates in debt forgiveness, they could be fired for being too lenient too often. One Employee with many charge-offs by active means is not as good for that bank employee, as many charge-offs caused by the passive events of Foreclosure.
Any active movement on the part of the employee better be backed up by an extensive file justifying their actions. That includes it getting within a hair of the Courthouse steps. If they give up too easily, would you respect that choice? Will their employers?
As with any negotiation, you have to see the other side of the table very, very clearly, to be successful.
Ardell,
Yes, the area is very transient with several military bases and the federal government being a huge employer in the area. The specific area where this occurred is about 20 miles south of the city. It was the cheapest place to purchase a home during the upswing, thus was the hottest selling area. So, most of the short sales and REOs are from purchases in 2004 and 2005. Some of them, obviously are cash out REFIs, but that is a smaller percentage.
In comment 37 Ardell says: “For instance, if the home owner is paying their mortgage on time and trying to sell it short before it affects their credit, the Bank is not viewing the loan as a bad debt. The person you call has ZERO incentive to work on a short sale, if the owner is paying their mortgage. You might as well beat your head against a wall.”
I can think of several examples where the bank was motivated to work with the homeowners.
Short sales happen when:
1) the homeowner MUST sell, and;
2) the homeowner is financially insolvent.
Reasons for having to sell and reasons for insolvency could take up an entire second post, but sometimes a homeowner is in a situation of being forced to transfer to another city due to employment circumstances. They could have been paying “as agreed” and now they have found that values are lower than their mortgage balance(s).
The second test must also be positive: In that case the homeowners must also be financially insolvent.
Jillayne,
Start looking for beefed up transfer packages where employers suck up the “shortfall”, vs. the banks.
Also, insolvent today may not be insolvent for long if they are moving “for employment purposes”. Banks would be better off to sign off, but continue to follow the bad debtor to their new place of employment, and get a judgement to attach to their future earnings and assets.
Hi Ardell,
Right you are. If the homeowner has the ability to repay the shortfall, often the homeowner is asked to sign a new unsecured note at escrow, at the time the home is being sold, promising to pay back the shortfall in regular monthly installments.
Many, many homeowners are surprised to hear that the bank will ask them to pay back the difference.
Being asked to sign the note has one advantage–you don’t need to worry about the discharge of indebtedness income issue we discussed above! They are not forgiving the debt, so there’d be no income from that source. The may be from other parts of the transaction though because you are still selling property. So again, consult a tax advisor.
Oh, and if you plan on filing a bankruptcy, I’d let the attorney know the precise nature of that debt. I’m not so sure it would be wise to do a short sale, sign a note and then immediately file bankruptcy. But again, that’s something to discuss with your professional advisor.
BTW, I’d suggest any agent considering doing a short sale listing read Legal Bulletin 169 from the NWMLS, and then read the original piece again, and then think long and hard about whether you really want to do it.
We had someone into our office today talking about short sales. I’ve only attempted one, and the net result was the sale of several shares of Citibank stock when I realized how screwed up that bank was. The banks really need to get their act together on this front and realize that the agents are doing them a favor and help the agents out–a lot! Being slow, otherwise non-responsive, and then asking an agent to cut fees for doing more work than would be necessary if the bank was doing it’s job right–that’s just not right.
I referred a client to this blog where our offer turned the situation into a short sale situation. She said something like: “It was very off-putting.” Anyway, no interest in pursuing it as a short sale.
The banks really need to learn that not returning phone calls, taking forever to make a decision, and trying to screw agents doesn’t make them any money.
Kary,
At the end of the day there is no “bank”, just employees who go home and make the same amount every day whether the bank makes money or not. Maybe those who think agents should be salaried employees should think twice and look at the banking model before thinking the Future of Real Estate is in salaried agents.
Glad to be of help to your clients. Better to buy into it knowing what may be coming down the pike, then to be into it up to your neck only to find that there’s more to it than you thought when you started into it.
Ardell, I’m not going to blame the employees. Personally I think the banks need to increase staffing in this area (and perhaps increase pay to make the staffing more stable). They need to be better able to determine those situations where they’re better off not proceeding to foreclosure, and then do what they can to achieve that result.
I think doing that would have as much of an impact on the market than freezing the teaser rates.
Kary,
When you say that the bank doesn’t return calls, you’d have to agree that is a human function more than a corporate function. The reality is that the person the agent wants to call them back may not be returning the calls because they have no authority to provide the answer desired. Kind of like barking up the wrong tree.
The person who can approve a short sale is usually not involved until the loan is severely delinquent and in default stage. To speed up the process to make it easier for short sales to happen, may not be in anyone’s best interest except the agent who is trying to close a sale.
Or it could be the person isn’t returning phone calls because they’re overworked.
I’d disagree that the situation changes because the loan is more delinquent or closer to foreclosure. That’s bank-think and that’s what’s wrong with the system. Unless the owner’s financial situation significantly changes, or the market significantly changes, the situation is just as bad six months before foreclosure as on the eve of foreclosure. The only difference would be unpaid interest, and the last time I checked, banks don’t make a lot of money off of unpaid interest.
So, as a potential buyer of a short sale, if it (the price) sounds too good to be true, it probably is? Would that be correct? I’m looking at making an offer on a property at about 3% less than the asking price. The asking price is 20% below the county accessed price and 31% below the original purchase price of less than two years ago (when it was built). So it seems from what I am reading that the purchase price is somehow just dreamed up by the seller and their agent without any knowledge of what the bank may or may not accept. Would this be a correct assmption?
In the above scenario the difference from the original sales price to the asking price is about 250k for what that may be worth…
Where is this dump? I am interested in this property too.
this is in northern virginia. not a dump either, actually it rocks, even still smells new, excellent condition, beautiful inside… all high end fixtures, appliances, etc…
Pretty much right there, Rick. You start into it and don’t get vested in the outcome and hope for the best and stick to it through thick and thin. If and when you get out the other side you say Woohoo!
Thanks, that is what I intend to do. We are actually in no hurry, so we can wait and follow the process through. If it happens we make out great, if not there will be plenty of other houses coming on the market. I am beginning to look forward to it so I am trying not to get too vested in the outcome in case it doesn’t happen.
Rick,
You said: “So it seems from what I am reading that the purchase price is somehow just dreamed up by the seller and their agent without any knowledge of what the bank may or may not accept. Would this be a correct assmption?”
Coincidentally, I was helping someone yesterday who was helping to “dream up” a price on a very similar house here in Bellevue. Built in 2006, sold in 2007 and now a pre-foreclosure/short-sale.
I didn’t spend one minute thinking about what the bank might take. The person asked what a 30 day price would be vs. a 60 day price. From the potential buyer’s perspective, I need to figure out what it is really worth and not what the bank may take. While the market did not come down by the amount it needs to be discounted, the original sale price was way over fair market value, and the assessed value is too high as well.
If I compare it to other newer houses and discount it for distress issues, it would be $1.2M or so. It originally sold for $1.5 in early 2007, which was way over the value at that time. Because the comparable newer homes are not real close to the house, you have to then check that price with the realities of everything you can see from the house. Since building is curtailed, the new house will more than likely remain in the middle of other “tear downs” in a beat up old neighborhood. Given that reality, the house may only be worth $980,000.
Moral of the story, just because it is 31% under what it last sold for and less than assessed value, does not in and of itself make it a bargain. In this case a fair price, and not a bargain price, is in that range of discount.
The “dreamed up price” is what someone “should” pay for it. Whether or not the bank will agree to take that amount, is not part of the valuation process.
I understand, it just seems that the current asking price is a minimum of 100k under the fmv when recent comparables in the neighborhood are taken into account and in some case it is 140k under comparables from last spring. There are actually carriage homes (3000 sq ft) across the street in the same price range of this house (which is 5600 finished sq feet) and the same age, same builder, and greater quality. But who know, we have nothing to lose and may just get lucky. Or maybe 6 months from now our price will be the norm…lol. With the current market, who knows.
LOL! All too true! Keep us posted from time to time if you can. The one I’m working on now should close by year end, and we started the process on 10/23. Just to give you a rough idea of timeframe.
What you may be experiencing with your purchase is to some extent like trying to sell a new car for what you paid for it. It only gets the “new car” premium until the wheels leave the showroom lot. In an up market many don’t notice that effect. In a flat to down market, new depreciates a lot faster than old.
Funny how perception and reality all mix up in real estate. My fiance and I put a bid on a short sale back in the beginning of Nov. We were told through the sellers agent that the bank would approve it, and we would hear back by mid Decemeber. We still have not heard to this date if the offer we put in is approaved. Only 25k less than the asking price.
Unfortunately, we are now on a time line, and the carrot and the stick game seems like we are finally close. Yet, we are beginning to doubt if we are going to get the carrot at all. Especially since the stick is being held by Countrywide.
Would you suggest at this point to forget the process and just go to a property where there is an actual seller who wants to work with us, than rather get a better value or savings in a short sale? That even if the bank gives a green light that we may still be in it for another few months trying to close? (By the way both mortgages on the property are owned by the same lender)
Frustrated in LA - Jonny
Just because both mortgages are held by the same lender doesn’t mean that each loss mitigation department manager cooperates with the other. Is the seller short on paying off the second mortgage or both the first AND the second mortgage?
You must find out if the seller is willing to pay back the shortfall. If the seller IS willing to do this, the deal will close. If the seller is not willing to pay back the difference, then there has to be some sort of process that happens in which the bank decides whether or not there’s enough evidence there to forgive the seller’s debt.
In order to get your question answered, have your real estate agent find out from the seller’s real estate agent how MOTIVATED the seller is to pay back the shortfall.
You need to figure out how long you’re willing to wait for THIS home. Then, let your agent know that end-date so that information can be passed on to the shorted lender.
Good luck!
LOL… Looks like I’m in the same boat. I guess I’m in for a long wait as the mortgage holder in my case is Countrywide and I have now been told by the sellers agent that Countrywide says at least 15-30 more days (originally I was told 10 days, which have passed…). I would surmise that after 15-30 days I will hear the same thing. Good thing I’m in no hurry. It actually gives me time to take a vacation and look at homes in other areas. Maybe I’ll end up in Orlando or Charleston, SC….
My short sale (I had the buyer client) closed yesterday. WooHoo!! Thank you Lynlee!!
We started escrow on October 23 and wrote the offer on October 19. The buyer said yesterday that I told her about 90 days, so she said YAY…we closed 9 days early! LOL
We never stopped looking at other homes, but this one always turned up the best house for them, regardless of the value issue. I stretched the closing date a bit at a time so they would have an out if they found a better house before it closed. They didn’t…and it closed.
The value issue alone can’t be the only reason. It has to be the right house too with no other being as good.
We had a crazy glitch at the end where the property went back to Active on the MLS because “the Broker took a class and was told to do that” just days before it closed. I was holding my breath.
Did you teach that class and tell agents to do that, Jillayne? They said the MLS agreed, but I think it was supposed to go to Pending BU and NOT Active!
I’ll be checking on that next week and doing a post on it. The buyers nearly freaked out to see it Active in the MLS after they had waited in escrow at pending since October 23rd.
P.S.
It is my understanding that the seller was not going for forgiveness of the debt, as Jillayne says. I didn’t have the
buyerseller side, but that’s what I was told by the seller.[...] This is actually a little over a month old, but it’s worthwhile info and advice no matter when you read it. [...]
On 1/28/08 I made a “full price” offer on a short-sale home around Bakersfield, CA. It will be my first home. My mother is a broker and her commissoin will be going back into the down payment. (Total 20% down), but she’s not real familiar with short-sales (despite being a broker since ‘82 - she’s more into her horses) We feel very comfortable at this price as far a value. It would be great for someone to come up with a checklist for buyers who intend to reside in the house. There’s a of “get rich” info for investors on these deals (poor dads?), but not much for regular buyers. Does anyone know of any additional resources, perhaps more specific for California? It’s just so hard to get my mind around the fact that even a “full price” offer means a chance of closure (by my uneducated estimates) of less than 50%. Thank you!
Alden,
Unfortunately for you, the “chance of closure” lies more in the seller’s hands than yours. This post was written specifically to help buyers who intend to reside in the house, set realistic expectations.
The only red flag I see up there is to make sure that YOUR lender knows about the “gift” toward the downpayment and approves the method in advance. Also, often your Mom’s commission will be cut in the short sale to not more than 2.5% of the purchase price, sometimes less and pretty much NEVER more. So don’t be counting on the wrong amount and don’t have your lender finding out on the HUD 1 and not beforehand.
I just received written confirmation and have signed the contract for a short sale home that i will be residing in for 3-5 years. The price was appropriate for sales in the last 3 months for the neighborhood. Total cost i paid was 253k, but the house was originally purchased for 380k (in the booming market of course). After reading some of the posts, i’m starting to feel a little nervous about whether or not I made the right decision. In understand that many factors will figure into the resale of this home 3-5 years down the road. My closing date is set for the 25th (Feb), maybe I’m just looking for piece of mind.
PS- I wrote the offer on friday, February 1st, so i thought the process went well. My agent said the chances weren’t good at getting it and the wait could be a while for an answer, but here it is, 12 days later and the bank wants to close the 25th, am I missing something, or was this just unusual? See why i’m nervous?! Also, just FYI, the property is in VA.
Tom,
Peace of Mind, like real estate, is often local. We can’t be back seat driver’s on your decision, but we do wish you luck and hope you will keep us posted.
The closing date here is set between the buyer and the seller, not the bank. Then if everything is in order on that date, it closes or extends.
I don’t want to say anything to make you more nervous. Let’s all hope for the best. No two situations are alike.
We placed an offer to a house listed as short sale. 2 weeks had passed and we asked for an update from the sellers agent. According to my agent, the sellers agent has not even submitted our offer along with 2 other offers because she is still waiting for the lender to get back/respond back to her from the first offer that she submitted 3-4 months ago for a short sale. So basically, the house is not yet approved for a short sale while she posted the house in the mls and taking in offers. I understand it takes a while for the bank to respond but what I don’t get is why cant she give the bank the new offers if it was better than the first one she sent to them. She said the lender won’t take it. Not until they finish reviewing the first offer given. Are we suppose to be a back up offers here? Few days after we gave the offer she removed the mls listing and placed it in inactive status. Said that she has several offers on hand and did not need anymore. I guess its just one big guessing game at this point if the lender is gonna allow a short sale or foreclose the house. My question remains why cant the sellers agent submit to the lender better offers if she has it on hand? Thank you. Lots of good info here to piece out how this long process of short sale goes.
Jose,
What State are you in? There may be different answers depending on your State.
In our area short sales only close 5% of the time. I call them “Fake Listings” and they are messing with the marketplace and artificially driving prices down.
Hi Frank! Long time no hear.
There are a lot of new polices going into place around here by the mls and Brokers that are going to make them impossible to close. Too many cooks in the kitchen and none of the them the seller or the buyer. Once the CYA people get in gear, no one wins. Still I haven’t had one in 17 years that hasn’t closed…so I’m still hopeful.
[...] Ardell DellaLoggia a Real Estate Broker who contributes on the Rain City Guide blog recently wrote a great article about short sales. I have linked to Ardell’s posts before, as she often provides great information. If you are buying a home in Fredericksburg, I would recommend you read this article. The market is different than ours, but the issues are the same. [...]
Hello! I found these posts very helpful. Currently I have an offer in on a home in Maryland that is a short sale. We jumped on thehome sinceit was in our price range and in good shape. We made a full price offer of 201k which is 41k less than the seller bought it for 15 months ago. Our closing date is set for April 30th. We are told that the offer has been submitted to the bank and could take 30-45 days. We live in an apartment and can go month to month on our rent. Should we consider getting the seller/seller’s agent to provide us with written documentation of when the information was recieved by the bank? I am not sure if they have one or two mortgages on the home all I know is that it was bought as an investment and is currently rented until the 31 of March. I am weary of the process and my agent has taken classes on short sales but never actually sold a short sale (now she has two). We were planning on using a CDA mortgage but have now secured a back up plan if we can’t. We don’t want to pay application fees, appraisal fees and home inspection fees before even finding out whether they will sell the home. Can buyers request an extended closing date to get the financing, appraisal and inspections done after the bankhas approved? Any advice?
Hi Stephanie,
“Should we consider getting the seller/seller’s agent to provide us with written documentation of when the information was recieved by the bank?”
The servicing departments at lending institutions are going to be pretty darn busy for the next decade or so. I’m personally not confident that they would give this request top priority. The seller’s agent may be able to provide you with proof that all the necessary information needed BY the bank so the bank can make a decision, was sent to the bank on a specific day. This information may be in the form of a checklist that the bank would have given the homeowner. Sometimes this is referred to as the “short sale package” or “preforeclosure workout package.” This package of information has a checklist. Ask for confirmation that the seller has provided the lender with ALL REQUIRED DOCUMENTATION needed for bank approval.
You might also think about having your offer to purchase the home expire in a certain number of days. That way you’re not waiting around 30, 40,45,50,55,60,65,70…days.
Stephanie,
The lien holders, and there may be many, are actually approving payoffs which are “good through” x date. So if you extend past those dates, the interest and penalties go up and the “bank approval” is no longer any good. It’s better to get your docs into escrow and then have them up dated when the payoffs are approved, than wait on your loan until the lienholders are ready.
I did the one above in short extensions of 10 days to two weeks past the first 30 days, so that the buyers always had an out if something better came on the market while they were waiting for a final go ahead.
Ardell,
This is the best Short Sale post I’ve seen! I work alot of short sales and I always seem to end up with the buyer’s agent who calls daily wanting an update, or who’s buyer is trying to time the closing perfectly, as you mention in your post. I’ll be linking to your post and also directing all buyer’s agents to it in hopes that it can help set tir expectations. Thanks for such a thorough explanation!
Christopher,
Do you process the sale in escrow with both the buyer and seller having signed the contract first? Lately everyone seems to be waiting for the lender to approve the contract vs. a payoff and telling the seller not to sign the contract until after the lender approves it.
Also they are leaving the property on market and taking offers up to the last day of closing. How is that fair to the buyer that is “hanging in there” only to be booted out after processing and waiting for 90 days?
What buyer would agree to wait without seller approval subject to short sale on the contract? What buyer would go through all this with the bank free to take offers up to recording? These new policies are contrary to everything I know to be successful means of closing short sale properties.
My daughter lives in Las Vegas where the housing marketing is crazy. She had jumped at the chance to purchse a home as she is a school teacher and had previously been priced out of the market.
She made an offer on a foreclosed home, and found out that she lost that one because someone came in an offered 50K more than the asking price. She then fould (with her friend/agent) a home that she was told was a HUD home. The home was listed at 175K and had an estimated appraisal at that time of $236K she made an offer of $180K. Now, she has found out that the house only appriased at $172K - so my first question is, if she decides against this home does she get her earnest money back.
Now, today she has found out that the home is a short sell. Her friend/agent is new, we know nothing about short sells. I have been trying to read up on them to see if this is worth the effort. She loves the home (emotional attachment!) and wants to still try to get it.
My second question would be: She wants to make an offer of the $172K with closing costs - would they accept paying closing costs?
Next question: Could she end up paying more than she offered? And also, it looks like the agents take less, would that also apply to the buyers agent?
I guess I am looking for reasons to tell her to walk away! She is afraid that she will loose her earnst money if she does, which for a school teacher - was hard to put away!
Any preliminary advice before she gets mixed up in this would be much appreciated.
Part of what you are saying sounds like she is already in contract at a price of $180,000. Other parts sound like she is still free to “make an offer”. Can’t tell which it is.
If she is already in contract, instead of asking us, call her “new” agent’s broker fast. She does not have much of a timeframe as to legal outs. Maybe a conference call with agent and broker and you and your daughter.
Short sales are not usually a surprise.
I have enjoyed reading all of the postings in this blog and I’m hoping maybe someone can give me some advice. My wife and I are first time home buyers and have been approved for 85k on a FHA 203k loan. The house we really like is listed as a short sale at 98,000. After going through the house we and the realtor noticed that it needed a ton of work, approx 20,000-30,000 worth of it which is not a problem with a 203k loan. The realtor said we could easily get this house for 85k with closing costs included, but after reading all of these listings, how could he really know? I know every home buyer wants to get there house as cheap as they can and usually it doesnt work this way, but how would you know what to offer. The comparible comps in the area are listed at 120k for move in condition. I do not know what is the “actual” amount owed is but it would seem to me that you should be able to get the house closer to 70k with all that needs repaired. The house is vacant and utilities have been turned off. Foreclosures are poping up all around due to a large manufacturing plant going out of business. I have no problem playing the “waiting” game with the bank if necessary since we are on a month to month contract with our apt. Maybe you can give me some advice.
Jonathon,
Give it a try, what do you have to lose? More important than whether or not the bank will accept $70,000 is whether or not someone else will offer more. Generally banks can accept a higher offer, even if that offer comes in two months after you have been waiting for an answer.
It ain’t over till it’s over, so don’t get excited until it closes.
Thank you for responding, I never thought house hunting with my wife would be so frustrating. I have been told that it is best to have a contractor (which we have as a family friend) to go through the house and est. the cost of repair, is this the case? I have also been told that if he does the inspection to have him inflate the costs a little bit. Is this the best way to show why I am offering what I am?
Generally you would need an appraisal (which your will need for your lender). Submitting accurate, and not inflated costs to repair defective items is helpful, but not for remodling or other improvements.
Remember they appraised it when they did the loan that is now in arrears. Having a more recent one would be of value and something ou need to do anyway, but you have to get into contract first and apply for your loan. The repair costs should be for things that became defective after they made the original loan.
I would never suggest asking the contractor to lie and inflate the costs. If they catch you then they won’t believe anything you are saying. Better to be honest.
Hello,
Just stumbled across this great site and have a question please. We are looking to buy a condo in San Diego for our sons who go to college there, since it would cost more to rent them an apartment. We have found one we all like, which was listed at $249,000 since October and then dropped several weeks ago to $174,000 in a short sale. My agent tells me there is already an offer of $174,000 on it, but sellers agent suggests submitting lower offer as the first offer is perhaps not a well qualified buyer. Condo in same complex sold for $174,000 this week and $166,000 two weeks ago. What would be a good first offer on this property? We are cash buyers. Does that make a difference? Also, if we put the offer in this week, what is the likelihood of our sons being able to occupy the property when they start school in September? Could it take that long?
Thank you so much for all the good information.
Seems to me in a short sale situation if you offer more for it the bank is pretty much obligated to take the higher and stronger offer. Make sure the offer makes it to the bank. Sounds better than being in backup.
Those are my thoughts. Allow 90 days or so.
I have a question regarding buying a short sale and will really appreciate if someone can help me with it…..though all the info in this blog is very helpful….
there is one property in our area and i decided to go thorught the sellers agent and made an offer for that property ..the seller signed it and me and my husband signed it too …now should the agent make that listing even thought the bank has to approve it or it remail active because my concern is the agent is collecting all the offers and we are hanging without even knowing where our offer stands
Eileen, if other units in that complex are selling for at or below the list price of the short sale, why would you want to mess with the short sale? I’d suggest seeing if your agent can find a vacant unit in that complex where the owners have a lot of equity. Your cash will mean more to them than the bank, because it will mean a faster sale.
mansh, that would depend on the rules of your local MLS.
I have made an offer on a short sale, two loans on the property, but both loans are with the same bank. Is that a benefit? Offer submitted to lender (after being approved by the tenants) on 5/13/08, I got a “negotiator” assigned 5/30, it was appraised 6/2 and we *cross your fingers* should hear from the bank by 6/13. Is it a benefit that the 1st and 2nd are both with Chase? If we actually do hear back by the 6/13 deadline given can I stop cringing as much becuase they are sticking to their deadlines, so far?
My husband and I made an offer on a short sale in Manassas, VA. The house originally sold for $370k back on 9/2005 and now is listed at $199K. We made the offer for the full asking price. The house was only on the market for 3 days There are similar townhomes for sale in the complex and most of them are short sales. In fact most of the homes in the Manassas area are short sales. As first time home buyers we are very frustrated. We have looked at over 30 places and ALL of them are either foreclosures or short sales. We are willing to go through the processes but we feel like the fate of our future lies in the hands of the bank. I don’t understand why the banks would delay the process if by waiting the way they do would only give them less in the end. We are scared but there is really no other way to buy a home in our price range in VA. Any advice? Thank you.
Andrea,
There really is no way to speed up the process. There is not single entity to answer you. I worked in a bank for many years and quick decisions are hard to come by in a Bank. There are files to be built up and committees to review the file and bosses of bosses of bosses to be consulted. It’s just not a fast paced, quick decision environment.
Remember that the Bank is making a decision to walk away from a lot of money. The fast answer is no, the slow answer is yes. That’s true for most things in life.
Why do you fear the process or the length of time? The asking price sounds kind of bogus though. Have others sold that low recently? Is anything selling at all?
Thanks Ardell. I have looked at others in the complex/area and all of them are in the $180k range to $220k range and most of them sold for $350k or more two or three years age. Price William County in VA is the most “distressed” area in the country right now. The reason they are like this is because mostly Latino familes (legal and illegal) bought in the area and they were all taken out with no money down piggy back loans. With the major recent crackdown (it has made national headlines) of illegal immigrants they are FLEEING the county left and right and abandoning their homes. Many can’t get work as day laborors cause they are afraid to go out and therefore the 15 of the living in the home together can’t pay the mortgage. This is the reality here. Prices have plummeted and now people like myself and my husband are buying them up like crazy. My realtor said sales are up but 90% of them are foreclosures and short sales. He has currently over 25 of them he is working on. It’s just a mess here. The banks should realize that this entire area here on Manassas/Northen VA is like this and by people like us buying these distressed homes would only benefit the market and area.
I mean 25 short sales alone!
I will repost, looks like the two Andreas got mine overlooked :(. Also, my post is for Nor Cal.
I have made an offer on a short sale, two loans on the property, but both loans are with the same bank. Is that a benefit? Offer submitted to lender (after being approved by the tenants) on 5/13/08, I got a “negotiator” assigned 5/30, it was appraised 6/2 and we *cross your fingers* should hear from the bank by 6/13. Is it a benefit that the 1st and 2nd are both with Chase? If we actually do hear back by the 6/13 deadline given can I stop cringing as much becuase they are sticking to their deadlines, so far?
#88 - remember the bank only cares about mitigating their losses and anyone can make an offer at anytime, nothing to stop them. All offers must be presented to the seller by law. Not sure what their obligation is to present higher offers to the lender.
Back when you asked this question, most were leaving them Active an that was a “blip” until it got straightened out by a new addendum. Whether it goes pending or stays active on market is something you have to negotiate in the contract terms.
Still a higher offer could get in there and the bank is more interested in how much they are losing than how much you are paying.
Andrea Guzman,
It ain’t over till you own it. 30 days from start to finish is not the norm. Close as soon as you can. Get everything you need to do totally done so bank approval equals CLOSED within hours or days. Don’t give them a chance to change their mind or for the payoff to decrease by costs of carrying the property increasing.
Same bank being both the 1st and 2nd is good…how about utilities? Are they turned off? Taxes? Are they falling behind. The higher the costs the lower the payoff to the bank.
If you get this done from start to finish in less than 45 days, let us know. The norm is 90 or so.
Sorry for the delay. Yes, I may have thought the two Andreas (my daughter’s name BTW) were the same…but the bigger problem is I am not getting emails when someone leaves a comment. So if you drop off the sidebar I may miss it. We’re trying to fix that.
Has anyone delt with EMC? I just found out that the 2 loans on the property for the short sale are both with them. Thanks.
Utilities are on. Not sure about taxes, who would disclose this information to us?
Andrea, as the buyer you are mostly on the waiting side. These issues as to what is due by the seller are between the lienholder, and the seller via the closing agent.
I ask that you read the post again, several times if needed. The bank does not approve a price. They approve a short payoff. The closing agent is trying to get those costs together and project them to day of closing. But if the closing is delayed 60 days from now, those costs continue to increase and the payoff continues to decrease.
That is why you should be on top of your being able to close within the shortest period of time once the seller side is ready. Did you do your inspections? Are your loan docs at escrow or ready to go to escrow? Loan docs expire, so even if docs go to escrow and you sign, they could expire before everything is in place from the seller’s side to close. If your side takes 15 days after the seller’s side is ready, the costs will go up in that 15 days and cause the payoff to be incorrect and you are back to square 3. So get all of your ducks in a row and keep them there as the docs expire. I don’t know if you said you were a cash buyer. If you are a cash buyer, then these issues don’t matter.
I don’t think anyone can keep you in the loop, as you don’t have a vested right to every detail of the seller’s info, even though you are impacted by the outcome. Nor does the seller have a vested right to know every detail of your ability to get a loan or your credit history…even though that can impact your ability to close.
The issues are on the seller’s side and I doubt anyone has the written permission of the seller to disclose all detail to all parties in the transaction. If you ask escrow they may tell you, but I doubt they will be willing to put it in writing. In CA and WA buyers only get their side of the HUD 1 as a Buyer’s Closing Statement and they don’t see the seller side. Same goes for the seller. In some parts of the Country all parties get the full HUD 1 showing all costs and payoffs of delinquent loans and delinquent taxes. Not so on the West Coast.
As to taxes, likely the taxes are paid through June 30. If it closes on Jul 23rd, it could fall into 23 days of taxes due. I believe CA like WA is a 6 month payment of taxes and the period ends on June 30. so today all taxes may be and are likely OK if the lender was paying the tax bill and not the owner. After June 30 that could change for the tax bill for June 30 to year end. In fact that bill is not likely due to be paid until the fall, so there will be an additional deduction from the lender’s payoff come July 1 and thereafter, most likely.
You can’t track every dollar that is moving on the seller side. Just be sure you are ready to close within 48 to 72 hours of their side being pulled together, or it will go sideways during the time you are preparing your loan docs and signing, etc and “kick out” for a new approval of the shorter payoff.
I just made an offer on a short sale in Southern California that was accepted by the owners and has now gone to the lenders. I asked both my realtor and the listing agent what they expected the time frame to be and pretty much got a range of 2 weeks to 2 months before hearing anything from the lenders. I was under the impression once we enter escrow it will be the traditional 30 days. Is this not the case?
Not usually Bill. It depends how far behind the seller is with his payments and what stage of default he is in. 30 day escrows are very rare in short sales. If yours makes it within 30 we’d love to hear about it.
On mine, I enter escrow as soon as the buyer and seller sign and before the bank is involved so escrow can assist with the short sale package between the seller and the lienholder and so escrow can do a mock closing statement to submit with that package.
We are financing, we have been approved for the loan I think approve is the right word, we were pre approved and now we are actually approved (so the money is being held for us). We have not done our inspections yet, we have 17 days to do inspections from the point the bank accepts our offer, and we plan to get them within 2 days to move things along. Escrow is not open yet, our agent says to wait until the offer is accepted before opening escrow.
As far as I know we are ready to open escrow now…..
And hopefully inspections go smoothly, otherwise we could be adding on another 2 months if the don’t go smoothly…..
Andrea, you may want to see if you’re locked and if not, what is the ceiling on the rate you’re approved for.
For example, if you’re approved right now based on a loan amount of x, this means you have a monthly payment of y. The payment (debt ratios) is what determines how much you’re approved for.
There is a limit to how much monthly payment you are approved for so if the interest rates continue to rise, so will your payment (if you’re not locked, which you may not be since the closing may take a while).
Just my 2 cents!
We are approved for much more than we would ever care to buy! Our rate is not locked at this point, but I believe our loan person will lock for 60 days once lender approves the offer becuase short sales do take a long time.
Thank you for all the great information!
Well of course, we were supposed to get an answer on our offer on 6/13, we heard on 6/13 but we heard “30 more days”:(. I was thinking of withdrawing our offer, waiting 5 days and resubmitting $10,000 less. Any thoughts on this?
Andrea G.
I can only refer you back to the post itself and my previous response to you. Any other response would likely be unkind.
Yes, The taste left in my mouth….. a little stale. Thanks for all the info!
Still waiting to hear about a short sale offer I made in Vegas about two months ago. I haven’t even had a chance to deal with issue like the ones described in this article. Oh boy…
I have one going now that I’m hoping will be much quicker, as we stopped the auction an hour beforehand. Still…not as quick or as easy as I hoped. While the 2nd would have been knocked out at the auction, they are being less than reasonable so far. I’m hoping the 1st will give them a little room.
Do you have an 80% loan to purchase,G.K.? Sounds like you are a little out of the loop if you are “waiting for 2 months”. Hopefully someoene’s keeping you posted about what is happening.
We’ve been working on a SS for about a month and a half now. We’re the buyer, and our agent warned us it would be a slow, annoying, frustrating, irritating, and possibly fruitless process… But we’re moving through it. We’re not investors, this is our dream home. We’ve seen other REOs that would be sure things and close in a predictable manner, but the 2 homes we’re bidding SS have a lot of add-ons that really do add value…
Country Wide seems to really suck at this. The most irritating thing so far is that the interest rates have gone up a whole point since we put the offers in…
Doobers,
Had you read this post first, you would have been prepared for it to take 90 days
If the one I’m doing now goes faster than that, I’ll let everyone know with an update. But generally, expect it to take 90 days.
I’m in a 10 day waiting period for the 2nd to perform a BPO. I think it’s important to know what is happening in each step. Then the waiting doesn’t feel like a long waiting period. Short waiting periods with a purpose to each helps you understand why the process takes so long. We’re lining up a response from the first to the 2nd so that when the BPO comes in, the 1st is ready for round two.
We are close to the 70 day mark and holding on by a thread. Your post is as real as a seller/ seller agent could see it. However, the buyer is totally blind to this and therefore, restless. Thank you from the insight from a buyer who has had to do all kinds of searches to figure out the situation.
We placed and offer on a short sale two months ago; we offered full price minus closing costs - the seller countered and asked us to close within 14 days - we received the letter from the bank approving the SHORT PAYOFF to the seller (investor who was selling the property to us after the short sale was approved). So our transaction is dependent upon the approval of the short sale to the investor.
Apparently, the investor did not like the SHORT PAYOFF the bank approved as he later found out that there were liens and back taxes that werent accounted for in the preliminary HUD (title search done after bank approval - mistake 1!). So now the investor, who cares more about his money than the sale of the property and/or the credit of the actual mortgagee wants to renegotiate the banks bottom line putting us on hold for as long as they need in order to get their money.
What do you recommend I do in this case? How long does it take after they have submitted the second HUD-1 with all costs from title search and a lower pay-off to the lender - and how likely do you think is that the bank accepts 10K less than their previous bottom line?
All comments are welcome. Thanks in avance
“Apparently, the investor did not like the SHORT PAYOFF the bank approved”
Seems you had a contract directly with the seller. Where does “the investor” fit into the picture?
investor? there is an investor between you and the owner? This sounds like the seller has a contract with the investor. the investor assigned his interest in the contract to you for a fee.
Isn’t the investor the lenders ‘investor’? It’s a lot like dealing with the Great Oz! I am the Great Oz, the lender and/or the investor, and I won’t talk directly to anyone!
I don’t think so, Leanne. Usually it is as Michael said. None of the ones I have personally done had an investor middleman. But in areas where short sales are in abundance, there are basically “carpetbaggers” who get in the middle and buy it from the seller for much less than the “Andrea” is willing to pay. If the middleman can convince the underlying lender to take “their” payoff, then they assign the sale to Andrea and pocket the difference.
It is the middleman that the new laws were trying to flush out. That’s why it was said that the legislature forgot to eliminate Realtors from the law. But it is too easy for them to simply get a license, so I think the legislature was correct in what they did.
I’m not sure if Andrea is privy to that contract, but it would seem that she could submit her offer directly to the bank.
Michael, have you ever seen the real buyer go around the middleman?
I am wondering if anyone can give me insights on a short sale I am considering? I want to place an offer before Aug. 1 because it then goes to auction if no offers are made. The home is listed at $184k and has 2 lenders, Citi, and Countrywide. My first question is: Is it better to try to buy it at auction or to go forth with my offer? I have all the patience in the world to see this through and dont need to hurry this for any reason. However, this is my first time buying a short sale and I am nervous. How do I get the information I need since I am dealing with an agent, not the listing agent but one who agreed to post a sign for the listing agent because she was out of the area. Secondly, the house is in amazing condition, used to be a model home, and I am suspicious of the listing price since I was able to find out that the actually price the home sold for was $484K??? Is this too good to be true? Our area in Phoenix, AZ has dropped significantly and seems to do so by the month. The agent told me that a package has been filled out but that it hasn’t been submitted to the bank yet, is this a red flag? The agent said its a waste of time to do so without an offer so is this a bogus listing just trying to get people to bite? I really want this home and willing to wait the process out but not sure what to ask and how to be ahead of these agents and not get taken by them wasting my time. Any help would be appreciated.
Thanks
BH
BH again,
This was a reply from the listing agents helping agent. Any response as to the truth in this would be greatly appreciated:
Yes, a majority of short-sales do have two loans involved. From what I’ve experiencing and have heard from other agents as well, is that the 2nd usually ends up bowing out gracefully; most of the time just accepting $1000 as payment in full. The 2nd knows that it,s going to lose and doesn’t put up any fight. They’re happy with a mere $1000, more than they would have received otherwise. I wouldn’t worry too much about the 2nd.
The banks generally don’t really want to foreclose, costs them at least $25k-$50k in attorney and other filing fees. They’d much rather settle on a short-sale. Less paperwork and hassles for them. Usually if there is an existing offer in escrow, they’re willing to extend the auction/sale date. Just hard to convince them to move the date if there’s been no offers. There is one other person talking about putting in an offer this week. This is good, so the listing agent can get the ball rolling. With an offer in hand, the listing agent will also be able to submit request to extend the auction/sale date. This would be good for you for it would give you more time and you can still submit your offer when you are ready. The bank will continue to accept offers up until one is selected, negotiated, and approves one. It can take many weeks just for the bank to approve an offer. Thus, this is partly why the whole process takes so long. I believe it’s because the banks have hourly wage personnel, not commissioned, and they have hundred of files on their desks. There really is no motivation for the clerks to respond quickly.
BH again,
I am posting a response from the agents helper that came to me in an email. Just curious if this is correct info?
Thanks in advance for any help anyone can provide me on the buying of a short sale:
Yes, a majority of short-sales do have two loans involved. From what I’ve experiencing and have heard from other agents as well, is that the 2nd usually ends up bowing out gracefully; most of the time just accepting $1000 as payment in full. The 2nd knows that it,s going to lose and doesn’t put up any fight. They’re happy with a mere $1000, more than they would have received otherwise. I wouldn’t worry too much about the 2nd.
The banks generally don’t really want to foreclose, costs them at least $25k-$50k in attorney and other filing fees. They’d much rather settle on a short-sale. Less paperwork and hassles for them. Usually if there is an existing offer in escrow, they’re willing to extend the auction/sale date. Just hard to convince them to move the date if there’s been no offers. There is one other person talking about putting in an offer this week. This is good, so the listing agent can get the ball rolling. With an offer in hand, the listing agent will also be able to submit request to extend the auction/sale date. This would be good for you for it would give you more time and you can still submit your offer when you are ready. The bank will continue to accept offers up until one is selected, negotiated, and approves one. It can take many weeks just for the bank to approve an offer. Thus, this is partly why the whole process takes so long. I believe it’s because the banks have hourly wage personnel, not commissioned, and they have hundred of files on their desks. There really is no motivation for the clerks to respond quickly.
Another buyer chiming in here.
I’m in the SF Bay Area where housing prices have been super-inflated for the past few years and in some areas are plummeting with a flood of REO and short sales on the market now. This has finally brought some markets here down to my price range and I put an offer on a short sale on July 13. It was signed by the seller and submitted to the bank on July 13 as well (the seller claimed it was “pre-approved” by the bank and had the distress package ready to go though I haven’t physically seen anything and don’t really expect too).
The house was purchased in April 2007 for $580K for what is legally listed as a 2 bed, 1.5 bath. The short sale list price is $259,500, less than half of what it was purchased for a year ago. Now, the house was owned by a licensed contractor before it sold in 2007 and actually has 4 bedrooms and 3.5 baths. Compared to other 2 bd/2 ba comps in the area, the $260 is right on the mark — and in fact, some are going for much less since it’s an “up-and-coming” neighborhood.
The offer we put in was for the full short sale list price with a 17 day contingency for inspection, a 3% earnest deposit (though the copy of the check was sent with the offer, it hasn’t yet been deposited into the escrow account), and with the pre-approval for our loan with 20% downpayment.
The current owner does have two loans for the house but both are with the same bank. According to the county records dept, he received a notice of default for his late 2007 or early 2008 property taxes, amounting to something like $10K. I don’t know if there are any HELOC or other liens on the property.
Here are my questions:
1. How likely do you think it is that a bank would accept our payoff, being that it’s a substantial loss from what was paid last year (and we believe the owner had zero down).
2. Should we still hold off on having our agent put our earnest deposit into the escrow account? (she recommends waiting until the bank accepts the offer)
3. Should we spend the money to do the inspection before the bank accepts or should we hold off until the bank accepts (if they ever do)?
We really, really like this house and have been looking for more than a year already. We offered on a previous regular property but were outbid. Since then, we’ve not seen any other property we like as much and have been touring open houses and seeing properties with our agent once a week for the past four months since then. Should we hold out, or is this a lost cause?
BTW, no word yet from the bank on assigning a mitigator. We’re told that’ll happen sometime in the next week.
Buying a short-sale is one thing. Listing them is a nightmare. I’ve had some very good (and some very bad) offers on some of my listings. On numerous occasions the buyers have backed out of the contracts because the lenders are taking soooooo looooooooong to make a decision on the short sale offer.
If you are going to be involved in short sales, at least on the buyer’s side you don’t have to deal with the lenders.
For those thinking about putting an offer on a short sale: My husband and I put an offer on a house May 12. July 21 we finally heard from the lender and we were negotiating purchase price and credits, escrow was supposed to open August 4 (today). August 1 I get a call from my real estate agent that the people in the house have filed for bankruptcy, the house has to come off the market and might come back on the market as an REO in 6 months! Believe every horror story you hear for short sales and then be prepared for even worse. At least we had not paid for inspections, etc, before these people decided to be honest! Bet the lender is kicking himself in the butt now!!!
Becky W., I tried to buy a short sale in the North Bay (Santa Rosa) same situation, 2 loans, one lender (thought it would help). If you can keep the offer in and forget about it for 3 months then do it, for me it was so so stressfull to hear on just another week, just another week, then you hear a negotiator got assinged, and it seems like that may get the ball rolling, then another month goes by and the investor still has not been assigned, investor gets assigned after the negotiator makes his reccomendations.
I would not spend the $ on inspections now (the pest inspection would probably expire before you hear a peep from the lender!), and our real estate agent kept our earnest deposit becuase escrow should not open until you have an accepted offer (from the lender)! I wish you luck!
Andrea,
It doesn’t sound right that you should lose your Earnest Money if the seller was not able to perform. How could “your” agent do that? If it didn’t close on the contract date because of the seller and not you, how could you lose your Earnest Money? What was the explanation given? The seller isn’t supposed to get any money in a short sale, so who got the Earnest Money?
Sorry, I meant my agent kept the physical check in her office, we had to write the check but it did not get cashed becuase we never even had the chance to open escrow. So I was saying that to open escrow before the bank(s) ok the short sale is risky becuase if you wait too long and want to withdraw your offer and offer on a new house your $ is tied up where it should not be.
It depends. If you want the property to come off the public sites, which my buyer clients do, then you have to open escrow and yes, the Earnest Money is deposited.
Each time the closing date comes you either extend the closing date OR get the earnest money back based on the fact that the seller couldn’t perform by the closing date.
Any way you slice it you reall DO have to proceed as if it will close…otherwise it won’t, as yours did not. If you had started with the idea that it would take 3 months, you wouldn’t have been so stressed at 3 months.
No one should start something they don’t intend to finish, as lots of people did a lot of work for 3 months. After three months or if something else happens, like the seller files for bankruptcy, then you can rethink things. But you really don’t have anything going if your Earnest Money is not deposited. That is just verbal maybe if, not a contract.
Well even though it would not have made a dif