Why do banks take so long to approve a short sale? August 4, 2008
This question comes up over and over again from Realtors, homeowners and homebuyers everywhere I go. A one sentence answer doesn’t exist for this question. If you truly want to know the answer to the question, “why” continue reading. This means you will have to take a step back from your particular emotional situation enough to really listen to what’s being said because everyone wants their deal approved NOW.
Banks are under no obligation to approve your short sale. I know what you’re thinking, reader. You’re thinking, “Well if the G.D. bank would just approve my short sale faster, they wouldn’t be losing so much money!”
Let’s start at the beginning. A homeowner is said to be in a short sale situation when he or she owes more than what the home is currently worth, is in default and must sell. Traditionally, homeowners agreed to pay back the difference between what was owed and the sales price. The short sale seller signed a new, unsecured note at closing and promised to pay back the difference in regular monthly installments. The only cases where the debt was “forgiven” was for true financial hardship cases where there was absolutely no way the homeowner could ever repay the difference. An example would be the untimely death of one of the breadwinners. But that was then.
In today’s politically charged, loan modifications for all, HoHo, let’s-dump-everything-into-FHA environment, homeowners in a short sale situation today are receiving debt forgivness and even temporary tax exemptions on top of that. Don’t worry, the rest of us tax payers will pick that up for you.
The first step in figuring out why your short sale is taking so long to be approved is to inquire about whether the homeowner is asking the bank to forgive the difference or if the homeowner is gainfully employed and able to pay back the difference. This all must be proven and documented to the lender’s satisfaction. If the homeowner is asking for debt forgiveness, the short sale will take longer to approve if the bank does not have all the required documentation.
Thought question: Why would any lender approve a short sale, especially one that requires debt forgiveness, unless there is proof that foreclosure is imminent? Answer: They won’t. Lenders have to weigh the costs associated with the short sale proposal against the cost of foreclosure. If a homeowner has not yet defaulted on their loan, the bank has little motivation to approve the short sale. Why not wait for a better offer to come along? (Note, homeowners reading this article should always consult with an attorney if you are selling short, in default, or will be in default on your mortgage loan(s).)
All loan servicing departments have processes in place for dealing with short sale approvals. They may not have fancy computer systems so that everything is automated but maybe that’s a good thing. Look where automated underwriting got us.
Next step: Homeowners must prove that they do not have the money to make up the shortfall. This means sending in copies of all bank statements, tax returns, w-2s, and other supporting documents to verify that the homeowners is financially insolvent. Short sales are reserved for people with NO MONEY.
Gentle reminder: The new sale must be an arms-length transaction. Another common problem that lenders must watch for is when the real estate agent on the transaction happens to be the “assigned” buyer on the purchase and sales agreement. The lender is not going to be thrilled in paying a real estate commission on that kind of transaction. Further, there are plenty of foreclosure rescue scams happening nationwide. Lenders scrutinize short sale offers to look for signs of fraud. Tanta reminds us:
Is it the job of the Loss Mitigation Department to care about clearing your local RE market? No. Is it their job to care about keeping your buyer wiggling on the hook long enough to get papers signed? No. Is a short sale supposed to be a painless alternative to foreclosure for anyone involved? No. There are no painless alternatives. There shouldn’t be. There cannot be.
Next, everyone who is patiently waiting for the bank to approve the short sale must now realize that once the bank says “okay” to the short sale, there very may be a long list of investors who own pieces of this mortgage loan. Each and every investor will have to give their approval for the short sale. We enjoyed many years of growth in the real estate industry and the overall economy thanks to the invention of Residential Mortgage Backed Securities. RMBS made millions of dollars for many people. The downside to securitizing mortgage loans and then selling off slices of each mortgage to different investors is that when it comes time to tell the investor “you’re going to have to take a haircut” that investor gets to have a say in the matter.
Calling loan servicing and yelling at them over the phone will get you nowhere.
I would like to be first to predict that the next meltdown will be loan servicing. But perhaps my prediction is so obvious as to not be much of a prediction at all. How much longer can they sustain this level of stress and pressure, with their current staffing levels, while the banks are facing enormous losses? Of course when that meltdown happens, I predict our government will step in and mandate harsher regulations on servicers, which will be passed on to the consumer in the form of higher interest rates.
Loan servicing use to offer what it said: “service.” It was treated as a cost center on a bank’s balance sheet. Over the past 15 years, servicing became a “profit center” and the highest expense, namely labor, was cut to achieve profit goals. This is one more lesson in underpricing. The cost of “good” loan servicing in which phones are answered and files processed smoothly, would have cost us all way, way, way more on the retail end, than what we paid.
Let’s say we could create instant loss mitigation nirvana today. All phones are answered on the first ring, all short sales are approved with no questions asked, no documentation required, no proof of hardship necessary, no proof of financial insolvency needed, and all Realtors receive their full 6% commission.
The consequences of not performing due diligence at the loss mit stage are disaster for all of us. Compare this to the current nirvana we just left behind: A world where anyone could get a mortgage loan with no verification of ability to repay, with massive fraud still being uncovered. We need to do it right this time, and it takes TIME to do proper short sale loss mitigation.
Check out these related posts:
- What do Governor Gregoire’s actions mean for local Countrywide employees and short selling homeowners?
- Predatory Upfront Loan Modification Fees
Article Tags>> loss mitigation | short-sales
- Posted in : foreclosure, housing-crisis, short-sales
- Author : Jillayne Schlicke
Comments»
I have been reading this blog for almost a year and have never posted a comment. This is one of the best articles written for the current real estate market and situation with short sales I have read in the last 6 months. I have advised buyers that short sales can take some time, but have not been able to articulate in depth all reasons why it takes so long. I am sending a link to this article to my broker because of the great info and great way it has been presented along with a link from my newly designed website due to be posted in 2 weeks.
Thank you for all the Rain City Guide authors for the great information that helps us in Arizona.
Jillayne wrote: “I would like to be first to predict that the next meltdown will be loan servicing. But perhaps my prediction is so obvious as to not be much of a prediction at all.”
First, thank for writing this piece.
Second, as to the quote, I really think this is the root evil of the problem. Last year, pre-August, I was dealing with two lenders and it was obvious they had staffing issues then. It was so obvious it caused me to have my mom sell her Citigroup stock (above $50, thank you).
That said, I don’t agree with all your conclusions. The problem with banks is that they start this entire process too late–when an offer comes in. There should be a process where the distressed homeowner can submit all their information to the bank prior to listing the property, along with comps for the property. The bank should have a method of verifying comps and then be able to approve the list price. Banks need to be more proactive, not reactive. The borrower should pay something for this (which is problematic).
But that connects up to the staffing issues. They’re so used to spending as little as possible to service loans, that being proactive isn’t in their DNA.
The one thing you’ve mentioned is the mortgage backed securities approval issue. I’d always assumed that there were some guidelines rather than actually requiring approval. If there aren’t there should be.
Finally, I really think the issue of liability after the short sale is a non-issue. If homeowners are anything like my potential debtors for bankruptcy, less than 5% would accept paying more than $20,000 to avoid a bankruptcy or a foreclosure.
In my dealings with the Workout Department (oh yeah — feel the burn!), I have observed that they are better suited to short sales arranged by real estate “investors” rather than genuine arms-length transactions. When an “investor” is involved, the buyer (i.e. the investor), has plenty of time to work with the bank to identify an acceptable sale price. If it takes the Workout Dept. four weeks to simply appraise the property and assign a negotiator — no problem! The buyer is not going anywhere and will work with the lender.
In contrast, a bona fide buyer is looking for a new home. They don’t want to hang around for 6-8 weeks before the sale is — hopefully — approved by the lender. They want to know promptly whether or not the sale will go through so they can get an inspection and move forward with the deal.
Now here is the irony: the “investor” makes money by squeezing the lender to accept as little as possible, and then immediately re-selling the property for its market value. The investor’s profit is the difference between the short sale price and the market price. In other words, the investor makes money by taking equity that should go to the lender towards satisfaction of the debt. By having procedures in place that work well with investors — but not bona fide buyers — lenders are costing themselves money.
It’s not the sort of cost (or loss) that shows up on a financial statement, but it certainly does impact the lender’s bottom line.
Jillayne does a great job of explaining many of the reasons that short sales can be drawn-out, and problematic. However, I think there are a couple other factors to consider.
1. SOME lenders are in such dire financial straits that they simply cannot afford to forgive a significant amount of non-performing loans: doing so would require the bank take immediate write-downs on their books and force them into FDIC conservatorship. I suspect this is a large reason why IndyMac was so notoriously difficult to work with on loan modifications. Of course, different lenders have differing degrees of stress and will thus have different degrees of willingness to look at debt forgiveness.
2. The people responsible for managing non-performing loans don’t want to take the blame for losses, and want to cover their behinds by letting the whole foreclosure process play out. This even extends to REOs. Instead of listing REOs at market clearing rates, many lenders resort to something more like a reverse auction, where they list the posessed homes for ridiculous prices to start with, and then slowly keep ratcheting the prices down until it sells. Trying to make low-ball offers on REOs is often fruitless, since the lenders are just unwilling to accept any big loss. Instead, to get a good REO deal you just have to wait a couple years for the price to have FINALLY been reduced enough that it is a bargain. Then point here, is that by never accepting an offer that is significantly below list, the people managing the non-performing loan portfolio can insulate themselves from ANY blame for losses and “giving” assets away.
In short, lenders can have very powerful motivations governing how they handle non-performing loans, and accrue losses, that might be in direct conflict with the concept of just minimizing losses over-all.
Before the LM (loss mitigation) department will even look at a file they will need:
1. Purchase and Sale
2. Hardship letter
3. Documentation of the borrower’s financial profile.
4. An estimated HUD worked up by escrow.
Then, the only person who can get things moving is the LM underwriter. The agent needs learn the name of the underwriter and figure out a way to have a conversation AFTER the documentation in is order. The rest of the staff’s main job is to keep everybody away from the LM underwriter. If you have an established relationship with the LM underwriter, this process gets much easier as they like to work with people who know what they are doing. LM underwriters hate incomplete files and educating people along the way.
If there is a first and second involved, this has to be done for both loans. The agent may find themselves to be conduit between two underwriters delivering settlement offers between them.
As far as commissions. Agents do not always give up commissions. This is often a “blink” test. (Whoever blinks first, loses). After everything is settled and they go after commissions, just say no (in a nice way). I preserved all commissions in my last 2 short sales.
This practice of real estate is becoming very specialised. I am considering referring out future short sale business to short sale specialists. True specialists have good relationships with the LM underwriters.
Jillayne:
You make some valid points. However, it is situations like this one here that frustrate people. My office mate has a client who is purchasing a $1 million dollar condo. The seller was a flipper caught with his pants down. We get to closing (docs and money at the table!) and find out the seller is short to close $28k because he is out of money. Closing postponed.
Because of tightening guidelines, the buyer doesn’t have great financing options. The borrower’s loan disappears because the program will be discontinued in two days. She has to close NOW.
No one can get anyone on the phone at the bank to approve a short sale of $28k on this deal. The buyer has money at the freaking closing table! We sent the wire already! But Noooooooo. The bank needs to think about this. Take a $28k loss on a $1 million mortgage and have the loan off your books less than 24 hours after agreeing VS forcing the seller into foreclosure on a $1 million dollar condo in a slow market because the banks wants to go through their “process” and you can’t find anyone to make a common sense black and white decision.
The dumbasses at the bank aren’t getting that the buyer will not be able to buy this place two days from now. It is cheaper to just suck up the $28k vs waiting another six months to a year to sell a place and hope the current owner is making payments and the home doesn’t go into foreclosure.
Sniglet, I don’t believe 1 or 2 above is correct. On number 1 the difference on the houses in foreclosure isn’t going to be that great, and in any case they’d only be delaying the results by a few months. But most importantly, it doesn’t explain why they’ve always been this way!
As to number 2 I once dealt with a debtor whose loan officer was promoted to Special Collections (or whatever it was called) at Seafirst, adn then assigned that loan. Talk about lucky, because that was a bad loan!
Kary wrote: “the difference on the houses in foreclosure isn’t going to be that great, and in any case they’d only be delaying the results by a few months”
Really? Isn’t it possible for a lender to still keep the value of a home they have foreclosed on (and become an REO) on their books at a higher than market rate price? It wouldn’t make sense for lenders to be forced to make write downs on REOs if they wind up selling them for more than the price of the original mortgage, so I find it hard to believe that they would be forced to take a write-down on REOs before they actually sell the unit.
If this is the case, then there could be a strong incentive to keep REOs listed indefinitely at far higher than market prices if that could delay the need to take write-downs in the books.
Gosh, Sniglet, I hope you don’t work in the financial industry. I’m pretty sure your suggestion runs afoul of many federal laws and required accounting methods. And people wonder how we got into this mess…
Craig wrote: “I’m pretty sure your suggestion runs afoul of many federal laws and required accounting methods”
There is a lot of grey in accounting rules. Not everything needs to be marked to market. Just look at how banks have been able to justify keeping higher values on the debt securities they hold than the actual paper is trading for in the real world. I’ve heard bank CEOs rant about how the illiquidity of the markets mean that the “market” prices aren’t truly accurate, thereby justifying their decision not to mark their assets down to the actual market.
Banks are OPENLY declaring that they aren’t marking down all their assets to market prices, so I don’t see why that same logic wouldn’t also apply to REOs on their books. The only time you are FORCED to take a write down is when you actually sell the asset (or foregive some of the principal).
Sniglet and Craig-
You are both right in some sense.
FASB has changed its position before. It recently tried to change Rule 140 essentially forcing QSPEs back on balance sheet by Jan 2009. Then it changed plans and pushed the date to 2010 after realizing it would probably put a lot of banks out of business.
I didn’t realize I should ask how the homeowner is planning to request a short sale with their lender. We just put an offer on a house but a short sale package has not yet been delivered so we don’t know what the lender is going to say. Tenants currently live in the home, so I’m not exactly sure what the financial status is of the homeowner.
Hi Susan,
Typically, your real estate agent would be keeping you aprised of the situation and the real estate agent for the seller would already have been working on putting together the package for the lender.
Since this is a non-owner occupied home, I would question whether or not you actually have a short sale going on, as short sales are reserved for people in financial distress, with no assets
If the homeowners own other real property, the underlying lender may request that the seller take on a new secured lien against their primary residence.
Now you don’t have a short sale. You have a “seller to bring cash in at closing” transaction and this might go much faster for you.
Hi Steve,
Thanks for your kind words. How’s the short sale market in Arizona?
Susan,
Hopefully the short sale was disclosed to you up front.
Be prepared for the long haul. This could take time. In post 5, I listed what needs to go to the bank before they will begin to consider even looking at the file. If there is more than one loan (1st/2nd and sometimes a 3rd) this will add more time.
Depending on the skill and knowledge of both agents involved, it could take from long to longer to get an answer from the lender(s) as to whether they will be accepting or declining your offer.
Hi Kary,
Can you do me a favor and say more about this? Thanks:
“If homeowners are anything like my potential debtors for bankruptcy, less than 5% would accept paying more than $20,000 to avoid a bankruptcy or a foreclosure.”
Do you mean from your experience, that less than 5 percent of your clients would agree to pay back the difference if it was over $20K and they’d let the home go back to the bank without trying to sell short?
Hi Craig,
How has the new Distressed Property Law affected what’s going on with loss mitigation and investor purchasers? Are you seeing any radical changes?
Jillayne, “Since this is a non-owner occupied home, I would question whether or not you actually have a short sale going on, as short sales are reserved for people in financial distress, with no assets”
Often, the seller is out and renting themselves. The seller can still show hardship if they are going backward. And you’re correct, it will definitely be something the bank will look at in the borrower’s financial profile.
Hi Sniglet. Thanks for raising some interesting observations in comment #4. Here are my thoughts:
1. SOME lenders are in such dire financial straits that they simply cannot afford to forgive a significant amount of non-performing loans.
This is one of the reasons why the short sale approval process takes so long. Hey folks, if the short-selling homeowner is willing to pay back the difference, those short sales get approved much faster. The loss mit department is weighing the reasons for and reasons against saying yes to the short sale or simply just foreclosing. Competent real estate agents who are highly knowledgeable in this process can help speed up the process by doing all this math for the bank ahead of time.
Sniglet, several months ago, when Countrywide was preparing to be purchased by BOA, I heard reports in all my short sale classes from Realtors that Countrywide was approving short sales left and right. No long wait times, no huge documentation burden. They were highly motivated to just get rid of the problem instead of burden BOA with the REOs. Let’s call it a real estate abortion.
Sniglet says: “2. The people responsible for managing non-performing loans don’t want to take the blame for losses, and want to cover their behinds”
Often, the person responsible for originating the toxic crap and the person responsible for managing the disposition of it, are two different people.
However, at a corporation that holds onto its servicing portfolio, that person is ultimately the people at the very top.
The loss mit manager is compensated in many different ways. An example would be a bonus for getting rid of a certain percentage of REOs in inventory, by the end of a quarter, or a bonus for holding short sale payoffs to a certain percentage of the loan balance. They are motivated externally by money to make goals, however, this is all in context of making sure all state and federal laws are followed, as well as loss mitigation “best practices” which just basically means sound underwriting at the loss mit stage.
Jillayne — this is a prettty small part of my practice right now so I don’t have much insight on the impact of the Distressed Property Law. Sorry about that.
Hi Greg,
Regarding your comment number 5, I have received two calls in two days from real estate agents who want my opinion as to my recommendation of a good short sale agent.
One was from a former student whose broker will not allow him to list short sales and the other from an agent who does not feel competent in this area and believes his borrower will be best served with someone of a higher caliber. Oh my gosh here’s a new email from a third agent.
Maybe there can be some GOOD that will come out of the new Distressed Property Law in that agents will refer out on these transactions. Some agents will chose to specialize.
Do you think this will be good for home sellers/buyers or am I just dreaming again?
Hi Russ,
Great story from comment #6
“We get to closing…and find out the seller is short to close $28k because he is out of money. Closing postponed.”
The loss mit department doesn’t care about the new buyer and their loss of loan options. It’s totally not their job to take a macro approach. You’ll drive yourself insane if you believe that they’ll care.
Jillayne,
Fewer and fewer agents and brokers want to engage in Distressed Properties because of the law. The short sale procedure has not changed as a resultof the law. No good at all comes from this law. it is BAD, BAD, BAD for the consumers in this state. As I wrote a long time ago, our AG agrees and has vowed to repair this sad piece of legislation.
Re:comment 5. The underwriters are so swamped that they LOVE agents who know what to do. There are agents across the country that are specialising in short sales, and their files generally get pushed up the ladder, as they have existing relationships with the LM underwriters.
This is intensive work (and stress) for RE agents, especially when more than one mortgage is attached to the house.
Email me and I’ll pass along some referral ideas to you. At this point I do not want to publicly proclaim anyone as competent until I feel comfortable enough to put my name to them.
FWIW, everyone is frustrated with the process. The process is much different than it was 1-2 years ago. We used to be able to talk with LM during the listing phase. Now, they won’t engage unless they have P/S, hardship letter, financials and HUD. LM depts. are simply swamped. What I have found is that when they have everything in front of them, they are reasonable and work hard to come to a fair conclusion. I’ll tell you that I would not have their job (and the stress that goes with it) for any amount of money.
This is truly the dirty side of real estate from every direction. I, for one won’t throw rocks at LM departments. While it can be argued the banks have it coming, their poor employees never bargained for this mess.
Jillayne
I am always the first to admit when I have a weakness in an area, and short sales fall into that area. I have not got involved in any short sales and hope not to have to. I most likely would refer it out to another agent that has the knowledge to get the job done right. REO’s are a different story since the bank now owns the property.
For Russ,
First of all, your office mate should have picked up on the possible shortfall on from the title report. We need to be reading these in these times with possible shortfalls in mind.
Suggest to him they extend for 2/3 weeks and quickly send the items I suggest in comment 5 to the lien holders. DO NOT OMIT THE ESCROW PREPARED HUD. They may push a transaction up the ladder if there is a buyer ready to close. The agent representing the seller will have to be very forceful about being heard and getting to the LM underwriter. The lock will go out the window, but if the terms are still close and the buyer wants the house it’s worth the shot. There is higher odds of succes than you would think in this scenario.
Jillayne wrote: “Do you mean from your experience, that less than 5 percent of your clients would agree to pay back the difference if it was over $20K and they’d let the home go back to the bank without trying to sell short?”
What I was actually referencing was the percentage of people that would opt for Chapter 13, where they’d repay part of their debt, compared to opting for Chapter 7 where they’d walk away from all of it. Not that many people want to pay back their debt when push comes to shove.
Now you will see a lot of people go to extreme lengths to avoid foreclosure. The the context of this piece is walking away, so I’d think that the percentage that wanted to walk away and then pay would be about the same that would want to file a bankruptcy and then pay.
Jillayne wrote: “Do you think this will be good for home sellers/buyers or am I just dreaming again?”
That fewer agents do them is probably good (specialization). But the problem is the ones dropping out are not necessarily the bad agents. In fact, I’d probably go so far to say that the ones doing them are probably either ignorant of the risks, or have grossly underestimated the risks. Doing short sales is not a wise decision, IMHO, but I’m very risk adverse.
The other problem is the buyer side. Because of the 20 day rule, many buyers would be leery of short sales, even if their purchase isn’t within 20 days of any foreclosure sale. Given how long a short sale takes, it’s very possible that the sale might be approved at a point where the 20 day rule was applicable–creating quite a problem for the buyer. Even worse, some buyers might equate any distressed property with the 20 day rule, which clearly isn’t the case. But that won’t help a distressed homeowner one bit.
I don’t keep current on what banks have to report, but don’t they have to report the number of non-performing loans that they have? And if so, would simply foreclosing remove it from that statistic?
Hi Kary,
Banks have to report delinquencies. They also report the number of loan modifications made, and then they follow that up with the percentage of homeowners who were granted a loan mod that ended up delinquent again anyways. So the loan is still reported as a performing asset.
Only when the foreclosure process is finalized, and there was no bidder at the auction does the bank move that over to the “non-performing asset” column.
Jillayne:
Thanks for writing this, I look forward to hearing more in your class.
It makes sense that investors are better suited as short sale buyers, because there is simply no predictable timetable for closing them.
The one I just finished took 105 days, from offer to closing.
The second good idea presented here is to discuss with my client the prospect of turning it around for a quick resale.
I’ll be sending this link to several folks that may benefit.
Jillayne, any idea how they have to account for it after the sale? I’d be surprised if they could use the bid price, but maybe they can.
As to short sales making more sense for investors (which I agree with), the banks need to realize that it’s not in their interest to practically exclude a much larger class of buyer just because they’ve been arrogant for years and want to continue to be arrogant.
[...] Now it is time that we examine the final stage in the short sale process. There is n doubt it is the most overlooked piece in the short sale and can be the most devestating to the seller. I am talking about the deficiency judgement! [...]
According to this Times story, citing a Redfin analysis, a “bank being involved” only makes the property 46% more like to be sold at a significant discount. That’s the lowest category of the ones they mention. The most likely is property owned by someone in excess of 20 years.
http://seattletimes.nwsource.com/html/realestate/2008097106_homesales07.html
Now part of that might be a lower initial asking price, but ignoring that, this fits with what I’ve always said in that if you’re a buyer there are better places to look than short sales. And those other places don’t have the risks that short sales have.
Hi Kary,
In the Times story “bank being involved” also included REOs, homes that had already been deeded back to the bank and were on the market again.
Deep discounts on REOs should be expected, however, it takes time for the banks to lower the price. At the Connect conference a few weeks ago, the agents from Florida were telling me that the banks are only now starting offer deep discounts on their REOs in order to move their inventory.
We must also not discount Q-Diddy and Sniglets questions about the banks wanting to hold back before having to come clean with investors and regulators. This may be the biggest motivator of them all.
[...] Why Do Banks Take So Long To Approve a Short Sale? /*@cc_on @*/ /*@if (@_win32) document.write(”"); var script = document.getElementById(’__ie_onload’); script.onreadystatechange = function() { if (this.readyState == ‘complete’) {} }; /*@end @*/ if (document.addEventListener) {}SHARETHIS.addEntry({ title: “A Deeper Understanding of the “Short Sale””, url: “http://maxsell.net/a-deeper-understanding-of-the-short-sale/” }); [...]
[...] Nix of Maxsell Real Estate posted a link to a very informative post by Jillayne Schlicke describing what Buyers can expect in a short sale transaction, and why short sales can take so [...]
I made an offer on a home that has been sitting on the market since 02/2008. The Agent remarks states that it is an, “Approved Short
Sale”. My question is: Does it take just as long as a short sale that isn’t
approved? I mean to hear back from the bank?
Hi Lee,
As the buyer, your agent (if you have a real estate agent working for you) can inquire about this by asking the agent for the seller to provide deeper clarification about what “approved short sale” means in the agent remarks.
Typically, “approved short sale” is a good sign. This traditionally means the homeowner has completed all the preliminary paperwork required by the lender and the lender has given a conditional approval…..subject to receiving an offer from a bonafide purchaser.
Typically, this would mean a faster bank approval.
However, the current crisis we’re all living through is nowhere near “typical.”
Your agent can as the agent for the seller for regular updates such as a weekly update.
If the home seller is in default on their loan and foreclosure is imminent, the bank may approve your short sale offer faster.
If your offer was written with an expiration date, such as “buyer requires that the bank make a decision on the short sale no latter than ____ date____” then you can move on with your life and buy something else if the bank can’t make their decision within your required timeframe. Consult with your Realtor and/or your favorite real estate attorney for further details.
Another issue with Short Sales is the agents that don’t have the experience or knowledge on handling a short sale. Many agents don’t qualify sellers to determine if they would qualify for a short sale. Like Jillayne stated, short sales are for people with no money. Many homeowners want out just because their home is now worth less than they owe and they think this should be a reason to short sale!
I don’t know how many times I contacted the listing agent on a short sale and started asking questions to determine if it’s worth my client’s time in making an offer and found out that the listing agent hasn’t even contacted the bank yet to get the short sale process started.
Question: I’ve heard that recent federal legislation prohibits lenders from conditioning approvals of short sales on the sellers’ willingness to enter into a new note re-affirming a portion of the original note, or bringing cash from their own pockets to the closing table, to make up some of the shortfall. In other words, I’ve heard that the feds have said that a short sale is final, and there can be no continuing financial obligation on the part of the sellers on the original note once the short sale is approved and closed. Is this true, and if so, could someone please cite me to a resource I can use in one of my short sale transactions? Thank you!
Phil — I have not heard this and would be extremely surprised if it was true. I may be wrong…
Hi Phil,
Where did YOU hear that?
I’d be curious to know.
What state are you in?
I don’t know if anyone could help answer my short sale question..but here goes. I am in the process of buying a short sale condo. The bank approved our offer and we were to get the condo inspected today. Our agent just called and told us the home owner has just filed for bankruptcy. what happens now? we are told the owner can pay a fee to have the condo removed off of his bankruptcy list. How much is that fee? Do I still have a good chance with this sale??
Hi Jennifer,
Bankruptcy complicates things. If your homeowner was already in default on his/her loan, this could temporarily delay the eventual foreclosure (state laws vary) and typically, the bankruptcy judge has a say in allowing the short sale to continue on.
You still have a good chance with this sale; it may just take a little longer. Try to get the real estate agent for the seller to obtain an estimate as to when the bankrutpcy judge will make a ruling in this case. Good luck!
Jennifer, if the owner filed Chapter 13 then they possibly/probably could get the bankruptcy court to approve the sale, which would most likely be faster than the short sale process, depending on how far along that is. In Chapter 13 it’s often possible for the court to approve the sale over the objections of the creditor. Same answer for Chapter 11, which is somewhat of an unlikely chapter to have filed, except that some courts may be reluctant to approve a sale early on in the Chapter 11 process.
If it’s Chapter 7, the most likely chapter, then most likely the filing of the bankruptcy will only hinder the sale. The debtor’s attorney would need to get the property “abandoned” so that your sale could go through, and then you’d still need the bank’s approval. So it adds an extra step.
Finally, note that the above would likely vary by state because state laws do affect bankruptcy, and that my knowledge of the bankruptcy laws is mainly as it existed prior to the amendments a couple of years ago–they could have changed things. What I would suggest is find out if the debtor even wants to bother with the sale at this point, and if they do find an attorney that works primarily for bankruptcy trustees or creditors and get some local advice.