Foreclosure in 94550>Question Details

Craig Shapiro, Home Buyer in Livermore, CA

Short Sales, how do they work?

Asked by Craig Shapiro, Livermore, CA Wed Dec 12, 2007

What is the process of a short sale, I have an offer in on a house that is considered a short sale. I know it is bank owned and subject to lender approval. What I do not know is if there are any hidden fees I should look out for when buying one.

I know it is possible for there to be two mortgages on the property, or two banks to deal with. I do not know how to find out if there is unless all I should do is ask the listing agent.

Please any help from someone who has gone through the process and learned something they think might be usefull, like I said I have an offer in and I think the bank is going to accept since the house is about to go into forclosure a second time.

The house is a shortsale right now and not a forclosure, i know forclosures have hidden fees.

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Answers

23
Honestly, this is not a SHORT SALE...this is a "bank owned" REO property...unless of course the bank is in default as the owner, and the house is financed from another lender...highly unlikely.

This process is different as the house was picked up by the bank either through foreclosure, or through a deed in-lieu-of foreclosure...a short sale is specific to a homeowner trying to sell a home for less than the current loan against the property. While possible there may be two banks - I doubt it.
If the bank has ordered a BPO, you could still try to have a second one ordered if you think the value the bank is requesting is too high. It would be then that you provide evidence via CMA and low comps that the home is overpriced...also look for repair costs to factor in when making your offer.

Ping me directly at thinz@apexsgroupus.com if you have specific questions you still need help with...
1 vote Thank Flag Link Mon Jan 14, 2008
Hi Craig,

Short sales require patience, persistence and two knowedable agents handling the transaction. A home that is being short sold is not bank owned, it is still owned by whomever the owner of record is. The bank gets involved because the home is now worth less than the current owners owe upon the home and the current owners must be without other resources that would allow them to satisfy the debt.

As a buyer, it doesn't matter to you whether there are two, three or more lender's involved in the transaction. The seller's agent is the one that will handle the negotiating with all the lenders involved.

Generally speaking there are no "hidden" fees with a short sale purchase. You do however need to be very aware of the fact that even though all property is sold "as is", in the case of a short sale, they really mean it. There is no money available from the seller to repair anything (if they still had funds they wouldn't be doing a short sale) and the lenders won't pay for anything since they are already considering taking a significant (sometimes very significant) loss. So, make sure to get a comprehensive home inspection from a reputable inspector so that you really know what you are buying.

Your agent should be able to explain the entire process to you and should also be able to help you navigate through that process. Just be prepared for the long and sometimes extremely long time without any answers and then the extremely rapid pace that will be established once an offer is accepted.

Short sales can be a win-win for all concerned as long as the agents and the participants are all well educated in the process.

Good luck with your transaction.

Take care,

Tisza Major-Posner, Realtor, Keller Williams Claremont/La Verne (909) 837-8922
Web Reference: http://Route66Living.com
1 vote Thank Flag Link Wed Dec 12, 2007
First, get online and read everything you can about short sales...there are so many forums, classes, etc. It is a complicated process and your online education is a great place to start.
1 vote Thank Flag Link Wed Dec 12, 2007
Hi Craig,

Are you buying the home yourself?

You need to know a few things.

How many mortgages are there. If there is a 2nd loan how much equity does it have. If if has no equity at all you may be in luck there are ways that these types of short sales need to be negotiated. It is very important for the seller that the lien be removed. Some realtors Im shocked to say have said the lender gets nothing and that is all there is. You need to negotiate and make sure that lien is settled.

As far as the first loan it also depends on how much is owed to the bank and what the home is worth.

Are you going to occupy the property? Is is owner occupied currently?

I work for an attorney and we specialize in negotiating short sales. Some realtors may say the know how to do short sales but may still be leaving the homeowner on the hook for the liability of the lien. Later when the homeowner gets a call about the loan that wasnt settled they will not be happy.

If you are the buying you dont have to worry about that. You might want representation though.

I am happy to answer any other questions if they come up.

Regards,
JoAnna Jensen
Realtor/Paralegal
The Bayard Law Firm
Your Personal Real Estate Advocate
Loan Modifications, Short Sales, Debt Settlement, Purchases, Sales
925 699 5041
0 votes Thank Flag Link Wed Aug 19, 2009
Just to clarify...there are distinctions to be made regarding the approval process.
First thing you need to find out is WHO the investor is that holds the loan.
Not uncommon for the servicer (Wells, Chase, Bank of America, etc) to have their own short sale process guidelines/requirements followed by another set of guidelines by the investor who owns the loan. This could further delay the approval process...most times servicers work within the investor model, but there are times that the investor denies a short sale despite having everything approved by the servicer to send in for the investor decision. And, both the servicer and the investor have a stack of short sales they are working through and as a result have their own turn-around time to consider.

The biggest hangup with 2 or more mortgages on the home is to satsify the lien release requirement. More times these days, the junior lien holders are expecting more of a cash contribution to meet their net, and not just settling for what the senior lien holder will contribute.
0 votes Thank Flag Link Fri Aug 14, 2009
Hi Tom,

Short sales with 2 lenders can sometimes take 3 to 6 months to close. It really depends on what banks are involved. Every short sale is handled differently, some listing agents send in all there offers to the bank ( when generally takes longer for a decision), and other listing agents just submit just one offer to the bank usually the ones the owners signed and want to be accepted to the bank.

In regards to hidden fees: There have been times the buyers comes across some unexpected fees for example:
1) paying the sellers per diem interest that happens if the buyers cannot close in 30 days as per contract
2) Charges the title company charges that the bank refuses to pay on behalf of the seller
3) Charges for services the seller would normally pay, but the bank refuses to pay: (for example: home warranty)

Also, in regards to the bank accepting your offer: In my experiance, the bank normally say yes or will counter offer you if they feel the price is low. They normally will give the buyers a chance at the purchase.


The only time, I seen a short sale not go thru is if one of the parties( listing agent, selling agent, buyers, or sellers) involved in the short sale does not provide the bank the has requested documents or does not follow the contract.

Best Regards,
Sherry Barto
http://www.sherrybarto.com
Windermere Welcome Home
Livermore, CA 94550
925-292-0469
Web Reference: http://www.sherrybarto.com
0 votes Thank Flag Link Fri Aug 14, 2009
Craig,
There are a couple things you need to know. First, a short sale is not a bank owned property. It is still owned by the people who purchased it, (trustor) but because the owner will be "short" money when the home sells, the sale can only be completed if the bank approves the sale. We call that a "short sale approval", or the sale being "sugject to" lender approval.

The process varies from bank to bank and the timeframes differ depending on how many banks need to approve the sale.

There are no hidden fees, but because terms of sale can change up to the very last minute, based on a final short sale approval, don't be surprised if you are asked to bring more money to the table. This is common due to ever increasing accumulated taxes and interest on the pre-foreclosure property. Bank guidelines change constantly and so what was approved by the first bank negotiator may not be approved by the next.

Hopefully the agent representing you has taken the time to interview the listing agent. There are many listing agents who do a very poor job in working to get the short sale approved. They are more interested in getting buyer leads from their listings. Your agent should ask the listing agent "How many short sales have you closed? How many lenders are we dealing with? Who are the banks? Has a notice of default been filed? What hardship is the seller having?" If an owner is not really having a hardship, and the home has 4 loans on it, there is a good chance the home will end up in foreclosure and you are wasting your time.

My advise is to be educated by your agent. If your agent is not educated on the process, then I suggest finding one that is, otherwise you may be wasting your time on a homes that cannot be bought in pre-foreclosure.

To find certified distressed property experts in your area go to cdpe.com.

Natalie Swanson, CDPE
Windermere Welcome Home
Livermore, CA
0 votes Thank Flag Link Sun Jul 26, 2009
If a bank forecloses (or does a short sale) on a residential property and they issue a 1009 can the bank still seek a deficiency judgment?

Answer - Foreclosure and short sale are two seperate scenarios...The only way a bank issues a 1099C is if there is a foregiveness of debt in the sale of the house.
For a short sale, if the home sold for 200K and the balance to the lender was 300K, the seller would get a 1099c for the 100K relieved amount to release the mortgage lien and sell the home - ONLY if they give a deficiency judgment waiver and zero out the balance as paid in full after the sale.
The lender does not/cannot 1099 the seller if they will not zero out the balance and grant the deficiency judgment waiver. In a foreclosure, the lender typically issues a judgment for the outstanding lien, and will not issue a 1099c...unless of course they are generous. The homeowner would be responsible for the outstanding lien judgment that remains after the home is sold in a foreclosure sale/auction. In the example above, if the home went to foreclosure and was sold at auction for $175K, the lender would issue a judgment against the homeowner for $125K plus any added on legal/overhead fees as a result of foreclosing on the home. The only way the homeowne could be 1099 in that example is if the lender forgives the difference after the foreclosure sale - that is highly unlikely! At that point, there would be legal recourse the homeowner should consult with an attorney on regarding proof of insolvency, etc...
0 votes Thank Flag Link Tue Mar 10, 2009
If a bank forecloses (or does a short sale) on a residential property and they issue a 1009 can the bank still seek a deficiency judgment?
0 votes Thank Flag Link Mon Mar 9, 2009
A short sale is when a home owner is trying to get the bank to allow them to sell the property for less than what is owed. The seller would normally have to show that they have had some distressed event in their finances, ie: bankruptcy, divorced, family sickness etc. The lenders are starting to look at these more seriously than they did a year or so ago. You would want to have an experienced agent that is very familar with how Short Sales work. They can be long and frustrating escrows and a good agent can really help. Basically, the agent needs to bring the bank an offer and prove to the bank that it is in the bank's best interest to allow the seller to sell the property as a short sale, that there is no equity in the property and that if the bank forecloses on the seller, they will get even less money for the property. Many of the lenders are looking at the short sales in days or weeks rather than the 45 days or so it used to take.
0 votes Thank Flag Link Tue Feb 17, 2009
Be careful with which realtors you speak with...it is important to qualify them by making sure they know how to manage the buyer's expectations in a short sale...many I've dealt with DO NOT do this properly...and lose contracts because of the time it takes for approvals to come in. In order to manage the buyer, they need to have a lot of experience with short sales, otherwise you will have problems down the road.
Make sure they include verbage be default that says the sale is "AS-IS" and "Subject to lender approval"..
I can't tell you how many times the realtors are afraid to add this in the fear of losing the deal...the problem is, the buyer finds out from their realtor later in the process and then withdraws the contract...no good!
It is the old 80-20 rule...except with realtors, it seems like it is more the 95-5 rule...look for the 5% realtor!
Look for a top producer who is not affected by the current makret conditions!
0 votes Thank Flag Link Tue Feb 17, 2009
Craig,

Well, short sales transactions are very complicated. It generally takes a minimum of 45 days and in average 3-4 months to find out whether your offer is accepted by the sellers’ lenders. It is normally a very draining process to be part of, of course a seller has to go through that to possibly sell the property and partially pay their loan/s off, however as a buyer you have to wait so long just to find out whether you are given the opportunity to buy such house.

As far as fees are concerned, there are really no hidden costs, no more than a regular transaction. You need to make sure all your contingency periods start the day that the seller delivers the lenders’ approval of the short sale. If you are not in love with a potential property, I recommend you stay away from short sale situation as you may end up wasting lot of your time, I means months and months just to find out the outcome. There are lots of other good deals out there that you can concentrate on.

Craig, I strongly recommend you talk to a Realtor and seek their advice. They are trained and understand the complexity of the process and can assist you through the process if that is the route you like to take.

Good luck,
0 votes Thank Flag Link Tue Feb 17, 2009
Hi Craig, from what you wrote I take it your biggest concern is what you call hidden fees. I'm am not 100% sure how you define that term. In a foreclosure (REO) usually the REO lender will accept an offer by giving the buyer a counter offer/addendum that spells out the buyer’s duties as well as fees the REO Lender will pay for. This will be roughly the same for a short sale. After that it is pretty much the same as any escrow in any normal sale. Under all situations it is up to the Buyers Agent to help the buyers write a good offer and spell out all fees in the offer. Also any agent should have the tools and training to write up a reasonable “buyers cost sheet” that gives a good rough and worst case estimate of all fees and hopefully will be a higher estimate that what will be due on the day of closing. Your lender should also give you a “Good Faith Estimate” that will be similar to a buyer’s cost sheet and allow you to compare the two.

The quirk about Short Sales is you have to wait for the Seller’s Lender to review your offer and approve it. This takes time, especially when they are overloaded with other short sales, other offers and trying to decide on which ones they want to foreclose on and which offers to accept.

As a listing agent here in town, I will be honest, I like the idea of getting a commission from both side. And I do represent both clients truthfully and honestly as all agents I know in this town do. But from the effective use of your time, my best advice is to get an agent working for you and not spending your time trying to talk to each and every listing agent. Plus as a buyers agent I would draw my commission from the seller’s proceeds and never your pocket, unless we agreed to do that because you thought you might be able to get a lower offer. Send me a private email and I would be happy to sit down with you and go over what a buyers cost sheet is and how to make sure your fees are spelled out in any offer we would write?
Web Reference: http://www.MikeGuddal.com
0 votes Thank Flag Link Wed Feb 11, 2009
the site below is a good resource for short sale FAQs
0 votes Thank Flag Link Wed Jan 7, 2009
The Hagley G…, Real Estate Pro in Pleasanton, CA
MVP'08
Contact
A short-sale is not a bank-owned property, but a property that is being sold for less than the value of the owner's loans or mortgages on the property. This requires the permission of the lenders affected.

Excellent option for this market - lenders are willing and ready to negotiate. All you need is an experienced agent to manage the transaction.

Call me for more details.

Tom Worster
925.399.5900
0 votes Thank Flag Link Tue Jan 6, 2009
They work in theory....not appropraite in this market.

People argue this fact of a "Shorty" being a low ranking if not impossible option. If your shopping at Sears for a genuine 1776 G Washington look alike otter fur bathrobe - well maybe? They do sell bathrobes; but its too off the wall a proposition. Same with the short sale.

The lender will foreclose upon a trigger for delinqunecy and whereby theat state allows them to recover their security. That can be in a juducual or non judicalaction.

The culmination of the foreclosure process is the reversion back to the beneficiary. The coveyance back with no metion here of a right to redemeption will eventually become an REO assset. In a trustee sale it maybe retunred at a price lower than the obligation and set by the bank.

If the accumulated cost to take the property back and book the REO , over time and assuming you reset the price is lower than what youo can liquidate th ehome for, why not. You are better off getting your higher price today. A short sale is actually a borrower "Deed in Lieu" with permission to convey title to another party at a reduced value less costs to close.

Benfits:
Lender borrower friendly alternative to hostile foreclosure

Negatives:
You initiate the offer, hussle and do all the work
Negotiate with the parties and thats tough
Finally walk away with a non foreclosure but highly visable blemiish on your credit report.

End Result:
On or just before Easter your lender will send you a friendly reminder of the gratitude....1099 deficiency loss from charge to bank.

Expert Opine:
Don't do it and can't do it anyway for non agency sub prime loans. Not possible!
0 votes Thank Flag Link Mon Jan 5, 2009
First of all, a short sale is NOT when you are behind in payments, and is not a foreclosure..A short sale is a result of the negotiation to sell your home for less than what you owe on your mortgage(s), and have the bank agree to release your mortgage liens to allow the sale to occur. It can happen regardless if you are behind or not in payments, have good or bad credit, or are in pre-foreclosure.

A short sale is also negotiated for sellers that are not behind in payments, but who can describe a good enough hardship that will convince the lender to allow the house to sell now, vs. later when the homeowner starts missing payments, gets into pre-foreclosure, then foreclosure if no short sale is agreed to by the lender. For example, I may have excellent credit because I always pay on time, but I may need to make a case because in 3-5 months I may not have a job and need to sell quickly via a short to to avoid going into default down the road.

A short sale does not typically have hidden fees, and all closing fees can be found on the HUD1 closing statement before the sale occurs. To find out if there are two mortgages, ask the listing agent, or go online and lookup the mortgages for the property, or get a quick search by a title company.

Getting the offer accepted will depend mostly on the result of the BPO appriasal done by the lender. While it is highly recommended to have an interior BPO, some lenders will only do an exterior drive-by.
We just had one done by Wachovia for our client with a $850K home in Connecticut and our initial short sale offer was approved this past Friday. This happened in the span of 30 days from start. The key to getting these done quickly is to carefully organize all the paperwork and present it in one package to the lender as quickly as possible with an OFFER and Contract. Also, while not typically required, I now have the client sign and date EVERY page of the short sale package. Most times, just having the loan# on the top of every page was enough, but recently a lender made us get the seller to sign and date all pages. But since going through this unpleasant additional step, we now just do it for every one and save a lot of hassle down the road.
0 votes Thank Flag Link Sun Jan 4, 2009
Please go to my new website which is 100% dedicated to foreclosures in Livermore, Pleasanton, Dublin, and neighboring cities.
Thanks,
Tom
0 votes Thank Flag Link Wed Nov 5, 2008
Hi....a short sale is when the owner is behind on their payments and you are negotiating with the bank the price of the home. the bank is going to take less (short) of what is owed on the note. If there are two loans boths lenders have to negotiate to make the deal work. Sometimes this takes a while longer than a traditional sale because the banks are backed up with foreclosures.
Has an nod (notice of defautl been filed?) You really should work with someone who has done several of these before. This is not new but to a lot of realtors it is. A short sales is before the home goes back to the bank in a judicial foreclosure.


JoAmna Jensen
Realtor

"The difference in Real Estate

Hometown GMAC
925 699 5041
Pleasanton, Livermore, Danville,
Web Reference: http://www.joannajensen.com
0 votes Thank Flag Link Mon Mar 17, 2008
Hi Craig,
Short sale is foreclosure. When the owner receive Notice of Default that means the bank starts the foreclosure process. Short sale is in the first stage of foreclosure. f you are buying the foreclosed property to live in then you don't need to know more about the laws which affects the ownership of the property, you should work with the Realtor who has knowledge about the foreclosure process so he/she can explain or help you to the research on the title, taxes owed,judgments or liens against the property (if any) . If you prefer to work by yourself then you need to order a preliminary report from the title company so you can do the research yourself. This report often costs you around $400 to get.
it. If you are buying to invest then you have to know the redemption right for the owner which gives him/her the right to get his/her house back after two years when you bought the house. You have to give the house back to the previous owner plus money compensate to him for the damages while you rent out the property. Any improvement on the property while you are the owner will not be compensated.

Bank owned is different. When the bank take back the property they clear all the title or debts, liens or judgments they are the owners of the property. When you make an offer to the REO ( bank owned) property, you are dealing directly with the bank who is sometime represented by an agent. There is no hidden cost in foreclosed or bank owned property but there are cost to repairs. You have to be careful to those properties because the distressed owners took their frustration and anger onto the properties by pouring the concrete down to the plumbing, ripping all the electrical wires out and cut them off, or destroy the flooring or wall. They knew that they would loose the house and their hard earned money to the bank so they would destroy what they had worked hard to have it.
I hope you will find my answer helpful. Feel free to contact me if you have any question.
0 votes Thank Flag Link Sat Mar 8, 2008
Regarding this question and my previous response that had a typo in the email, you can ping me directly at thinz@apexgroupus.com if you have specific questions you still need help with...
0 votes Thank Flag Link Thu Jan 17, 2008
Craig, it will be important to you to know if there are two or more mortgages on the property, just in terms of how long the process may take. When there are two mortgages, the process can take twice as long. In the short sales that I have done with two mortgages, the first mortgage has required the second mortgage holder to provide a letter that they will accept no more than $1000.00 for their payoff. The holders of the first would not even discuss accepting a short sale until this letter was provided. The entire process had to be completed with the second mortgage, then we had to go through it again with the holders of the first.
0 votes Thank Flag Link Wed Dec 12, 2007
Great answers from the other posters. I'd like to emphasize one point. Recently at a broker's meeting we were discussing short sales and we were all reporting response times on purchase agreements of 4 weeks or longer. Patience is necessary in order to get the property because the banks are very busy.
Web Reference: http://www.RachelLuckow.com
0 votes Thank Flag Link Wed Dec 12, 2007
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