Information On Real Estate Short Sales
I realize that lenders are under increased pressure to avoid foreclosure but there are limits to what they will do. And – Investors understand the short sale process is more complicated and the response time is much longer. However, in recent months – I have had several buyers offer full price on ‘Short Sale’ listings only to find out weeks later that the lender never even considered taking a discount or that the sales price, commission fees, etc… are impossible. Since there has been little need for Short Sales in the past 5 years – many Realtors are understandably inexperienced with the procedure. To add to the confusion, this process has no set guidelines or guarantees. But a combined effort by seller and agent to find out as much as possible about the lender’s requirements, who to submit the offer to, an estimated wait time, etc… may help us get more sales to completion. (and get impossible price listings removed from the MLS) I assume every sale and lender will have differences but here are some common things we have noted: Don’t rely on a loan rep’s verbal statements – ask (in writing) for them to put their response in writing. This can help cut down on vague stall tactics like “just start sending offers – then we will respond.” Keep in mind, the Private Mortgage Insurer (PMI) is an ally since they don’t have to pay unless the property forecloses. On the other hand – the lender usually won’t take a short sale that is substantially below what they would net from auction and PMI. If there is more than one mortgage – ALL lien holders need to agree to the sale. The lender won’t say how low they will go – but you may be able to search online or drill your preferred loan processors to get a ballpark idea of the avg maximum discount a specific lender is accepting. Most lenders require a short sale “package” This usually includes: Homeowners proving they do not have the means to repay the mortgage. The lender will ask for pay stubs, bank statements, tax returns, employer verification, and proof of hardship (if applicable) such as pink slip, divorce proceedings, doctor or hospital receipts, proof the seller must move to another location, etc… Proof that the seller’s change inability to pay is the result of something new – not something the seller concealed from the lender when they originally applied for the loan. (concealing could be considered mortgage fraud) An appraisal or CMA to verify the value of the property has decreased, the offer price is the maximum price obtainable and the property listing has exceeded average days on market. Verification that the seller has met with a HUD-approved counselor and that other options (refinance, loan modifications, etc…) would be fruitless. Proof of repairs needed with qualified estimates for repair costs. Preliminary HUD-1 with all estimated costs including required restrictions on Realtor commission and title agency fees paid from the sale. There may be special requirements for submitting offers to the lender and a few lenders require specific clauses or disclosures to be included with the Purchase Contract. If the seller’s request is accepted – the lender will give conditional approval to allow a short sale. This ‘approval’ doesn’t usually agree to a price – it just confirms the lender will consider lower than mortgage balance offers. HUD has (free) Housing counselors to help the homeowner understand the law, refi or sale options, and organize the qualification process. Best of all – these counselors will also assist you in negotiations with the lender. The short sale process will almost always go smoother (and much quicker) by enlisting their help. You can find contact information for HUD-approved counselors located near the seller at: https://hudgov-answers.force.com/housingcounseling/s/ or call 800-569-4287. Finally, make sure the seller knows upfront that they will probably owe the IRS on the amount of any forgiven debt or the lender may require them to sign for a new loan to pay back the shortfall. Prepare for the possibility that even if the lender approves the sale without a loan payback – the lender may come up with last hour requirements to pressure the seller into a loan, the buyers into paying more cash, or the Realtors to forego or reduce their commissions.