Foreclosure in Illinois>Question Details

John Walin, Real Estate Pro in Libertyville, IL

Why do 80% of short sale listings end up in foreclosure anyway?

Asked by John Walin, Libertyville, IL Tue Jan 25, 2011

I think it is because sellers are shooting for zero defficiency satisfaction letters from the banks through their attorneys, and the bank isn't buying the hardship of the seller. Too often banks get blamed for slow response to an offer and the deal falling apart, when in fact the seller is threatening bankruptcy behind the scenes to the lender unless they provide a paid in full satisfaction. The shortage should be paid for by the seller unless there is a hardship.

What do you think?

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Answers

9
Too many short-sale houses are listed far below fair market value. Banks will not accept a short sale package where the house is appraised well above list price. Some banks will allow the appraiser to use REO properties as comps. This helps reduce the price the bank will accept. The bank is really looking for two things. First, does the homeowner have a viable hardship that prevents them from paying the mortgage. Second, the sale price accepted by the homeowner (yes, homeowner has the right to refuse an offer) has to be a reasonable reflection of the current market prices. Most of these homes need some TLC so it's ok to list them at the lower end of their market. It's not unreasonable for a bank to request some deficiency judgement. I recently closed a short sale where the homeowner hadn't defaulted YET but proved that they couldn't afford to heat the home or improvements necessary to maintain the home. The seller also offered to repay some of the loan if necessary. This willingness to cooperate with the bank along with proof of hardship lead to a quick close. Only three months for two lean holders and an extension for financing. Additionally, you need an SFR realtor and a short-sale attorney!
1 vote Thank Flag Link Wed Jan 26, 2011
Bingo Judy!
More and more short sales have a bank pre approved price for starting list price and that puts short sales in parity with REO's. A year or two ago, listing agents were listing too low to get a contract and then throwing it over the fence to see what the bank comes back with. Many balls in the air! defficiency settlement, 2nd lein holders power, lack of legit hardship of the seller, buyer financing more difficult with short sale. As-IS, Home inspection waived or repair items not fixed. And not being able to plan a schedule a move! Hard to live in a state of flux while figuring out if you bought a house or not.
0 votes Thank Flag Link Wed Jan 26, 2011
Minna
Thanks for the dialog and detailed response. Locally I don't see bank flexibilty you mention. My point is that getting the gettting the bank to release or allow a short sale is way different than getting a satisfaction letter and that most sellers want to bring zero money to the closing and that is a larger reason why these deals don't come together. Early on you were right about inexperienced agents dealing with the short sale process. Three years ago I was the first agent with a short sale listing in my office and man was that a learning experience! But now many of us active agents have been through the grind, understand the paper hurdles and know to use specialized attorneys to get the best deal for the seller, still the majority never close and get foreclosed. Unless a distressed BPO appraisal is ordered before a contract comes in and the bank preapproves a sale at the list price, these deals take too long for buyers to wait. In agent remarks saying short sale approved at asking price, means that bank will take the first buyer at that number. I see more banks doing this and that fast tracks 3rd part acceptance more than anything else.
Have a great day!
0 votes Thank Flag Link Wed Jan 26, 2011
Well thats just HAFA you're talking about. Theres many other short sale programs, and ones that are much better than HAFA IMO. I personally despise HAFA and always recommend the alternative - usually the lenders own short sale program ( at least until now. We'll see if the new HAFA guidelines change my mind - but I am not a HAFA fan AT ALL)
I have gotten current sellers approved for short sales and I have gotten clients with marginal hardships approved. I have also gotten sellers with assets and income approved. Do sellers sometimes take cash or a note? Yes sometimes, but not often at all. And the outlay can be minimized. Ive gotten approved a $250 cash contribution, or a $1000 note, minial sums like that. The largest note one of my clients ever picked up was 6k. Lenders will ask - I have had a current client asked for 20k cash and a 40k note and instead BofA agreed to go away for just a few k more from the first instead with no cash or note from the sellers.
I have never had a lender question a "liar loan"... The truth is the LENDER IS THE GREATEST BENEFICIARY IN A SHORT SALE. Not the seller. Its not like the banks are doing sellers any favors by approving. They're saving their own a$$.
Web Reference: http://www.homesbyminna.com
0 votes Thank Flag Link Tue Jan 25, 2011
Minna
I saw your blog on HAFA and HAMP I dont think banks have that much leeway or discretion on waiving the 31% rule or less than $6,000 in total cash assets or two month mortgage payments. So it all starts with a buyer becoming unqualified for their current mortgage through a legit hardship. Add to that if that original loan was a liar loan, stated income they can throw it out too. I did the SFR and the HAFA certification and while i do agree that a short sale is better than foreclosure for the seller, they need to realistically be prepared to bring money to the table or face foreclosure
0 votes Thank Flag Link Tue Jan 25, 2011
Not very many agents can actually handle a short sale properly but take them on anyway. I have not seen the banks be very discriminatory about hardships, nor have I seen many sellers backing out due to terms of approval. I do however see lots of agents handling short sales that have no business doing so. My 2 Cents.
Web Reference: http://www.homesbyminna.com
0 votes Thank Flag Link Tue Jan 25, 2011
Eli
Thanks for your response...I agree that a short sale negotiator can get a better deal out of the bank, however
even the best short sale specialist cannot overcome a seller without a hardship, if they are pushing for walking away scot free from closing and not having a non-collateralized loan for part of the shortage. Ya the one's that do close might include a 50% agreement to pay back, and them after closing go through a bankruptcy to wash that unsecured debt away. If you are going through bankruptcy anyway, you may as well be falsely compliant to do a short sale first.
0 votes Thank Flag Link Tue Jan 25, 2011
Most agents, title companies and lawyers don't know how to close a short sale. That is why the success rate is so low. You need a professional short sale processor to get the file closed. We are closing over 90% of our files. There is no reason a short sale should go to auction.

Most times, we can negotiate the deficiency judgement. There is no standard. Every file is different.

Once an agent closes a short sale, that agent will become known as a short sale specialist in their neighborhood. Business will flock to that agent. Our Realtor clients are very busy.

We are a professional short sale service. Please call us directly to discuss your specific situation. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states
0 votes Thank Flag Link Tue Jan 25, 2011
Most short sale processors don't know how to handle a short sale. That's why the success rate is so low. We're closing over 90% of our short sales. There is no reason a short sale should go to auction.

The deficiency judgement can be negotiated. There is no standard. Every file is different. If sellers and agents want their short sales closed, they need to use a professional negotiator. Once an agent starts closing short sales, they will become known as the short sale specialist in their neighborhood. Those agents that are closing short sales are flooded with business. Our Realtor clients are thrilled.

We are a professional short sale service. Please call us directly to discuss your specific situation. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states
0 votes Thank Flag Link Tue Jan 25, 2011
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