Home Buying in 94602>Question Details

jenny_fickle, Home Buyer in Oakland, CA

Why do short sale negotiations take so long?

Asked by jenny_fickle, Oakland, CA Mon Dec 10, 2012

Hi all,

Five months ago, my partner and I made an offer on a short sale that was accepted by the sellers. So now we've been waiting, and waiting, and waiting for an answer. The sellers have two loans with two different lenders, so I understand there's complexity there, but why do short sale negotiations take so long? What exactly are they negotiating? Either the bank likes the deal or they don't, right?

It seems there are approval matrices for every other type of financial deal out there--when you apply for a mortgage, either you hit the lender's minimums or you don't. Same with a credit card, or student loan, or insert-instrument-of-choice-here. So why not short sales?

It's not like this is a U.N. carbon emissions treaty or something; this is a small, modestly priced home in Oakland. What could the hold up possibly be? Banks and their negotiators are ridiculous.

Yours,
A frustrated buyer

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Answers

13
Laura Coffey’s answer
First of all you are banking on the listing agent being experienced and putting together a solid package. If one document is missing the package goes to the bottom of the pile. The bank will never call and say they are missing something it's up to the agent.
Second of all the negotiators are mostly paper pushers with no idea what they are doing but getting all the packages and going over what they think the investor will sign off on. Each negotiator has hundreds to thousands of files they have in their own.
Once you get approval from one you have to get the other to agree. This all takes time because the subprime lenders seemed to have the files are all the same. If one of the lien holders is ING I would walk now if you don't have patience that lender is nightmare that takes months.
1 vote Thank Flag Link Mon Dec 10, 2012
Hi Jenny
There are many potential reasons and sometimes it does not make sense. I now have a sheet which I review with any buyer who wants to consider short sales and we have a serious chat about whether they really have the stomach and personality for this type of transaction. Some buyers and agents are just not cut out for it! You need a higher tolerance for risk, a lot of patience and you have to be prepared to go along with "the game" and not let it upset you! It also helps if this is the ONLY way you are going to get what you want and it's worth the wait and the risk.(no gaurantee they close)
Yes, in theory you may get a deal (not always) but there is a cost involved. I absolutely agree that your agent can help vet what are the most likely short sales to close, but they will not be right 100%.
If the process drives you crazy, it may make more sense to pay full market price and get into contract with a property which is going to close with less hassle!
1 vote Thank Flag Link Mon Dec 10, 2012
This post may be helpful:

Short Sale Myths: 8 CRITICAL Issues You Need To Understand
http://www.trulia.com/blog/carl_medford/2011/05/short_sale_m…
1 vote Thank Flag Link Mon Dec 10, 2012
Very simple, nobody at the bank cares. I've closed short sales from offer to closing in as little as 40 days and had others take 6 months. The only examples I've ever seen of a quick answer and closing is when the mortgage is held in house by a local bank. ALL of the rest resulted in very frustrated buyers because of delay after delay with no answers to anything.

If you have an unlimited amount of time to wait and don't care if you eventually buy a home or not, then you might get a good deal with a short sale. There is certainly risk, 6 months from now the bank could say they want $100,000 more to approve the short sale. It's no longer a good deal for you. Interest rates and home prices have gone up so you can no longer afford to buy the home you want. You can really loose out big time waiting for a short sale. My most recent short sale closing took more than 6 months and it was an all cash deal for a buyer who agreed to pay the price the bank itself had set.

Unless you are bent on masochism I would avoid any short sale.

Don

http://www.donmituzas.com
0 votes Thank Flag Link Thu Oct 24, 2013
Factors that can hold up a transaction can be more then one lien holder, incomplete package, and the lending institution(s) involved.

Chris
0 votes Thank Flag Link Thu Oct 24, 2013
Recall the conversation you had with your agent when you submitted your offer.
Review all the disclosures you signed.
They were presented to you for a purpose.
Now, you have become aware, what you were warned about has become true.
=
There is no good faith negotiator on the other side.
The bank and and will do what ever they please.
Threre is NOTHING you can do about it...
....except make those around you miserable.
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Short sales are the "Wild, Wild, West of Real Estate. Where there is an illusion of rules but anything can and does happen."
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Behind the curtains that cloaks what the banks are doing is a flourish of activity that allow the bank and/or servicer to optimize their income potential, much of which has nothing to do with your purchase offer or purchase amount. This shortsale is but a thorn in the side of the grand scheme of what is taking place.
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But you knew this already, and you still signed up for the ride.
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What would make your question useful is if you were to identify the bank(s) involved, service company, and if needed, insurance company and investor group. This then could serve to alert others who 'don't believe' that a short sale with this cast of characters can prove frustrating. Buckle up and enjoy the ride.

Best of success,
Annnette Lawrence, Broker/Associate
Remax Realtec Group
Palm Harbor, FL
727.420.4041
You have a choice
http://www.FirstLookHomes.us
0 votes Thank Flag Link Thu Oct 24, 2013
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0 votes Thank Flag Link Thu Oct 24, 2013
I wish it was that simple and it gets a lot more complex with more than one lien holder. Most of the waiting is basically from your file waiting to be reviewed. It is a tough job for those people who review those files and they are overwhelmed with hundreds of files at once. Espescially if you are in a large metro area like Oakland.

Here is a few tips to help the process:
- If possible, the offer should satisfy two things: Be within 78%-88% of the BPO and 78%-88% of what the seller owes the bank. If both are not possible then it is more important to be within 78%-88% of the BPO. Your agent can run comps to get a good idea of what the BPO is but you will never know for sure.

- The listing agent should submit a complete file with a cover page and all of the paperwork in the order the lender asked for it.

- The listing agent should also supply as much extra documentation as possible to prove their client's financial hardship and the property's issues that could hurt values.

You will wait in line and the less your file needs to be handle to be approved then the faster it will go. These processors are looking for simple files to get done fast so whatever the agents can do to make it simple is important.

Remember, you are getting a good deal because it could take a while. Be patient.
0 votes Thank Flag Link Thu Dec 13, 2012
Generally speaking, Short sales can take up to a year. Is too many people involved in the transaction. Is crucial that your agent contact the listing agent and find out if the owner provided all the paperwork that the negotiator needs in order to process this sale.
If you do not get any good answer and do not want to wait any longer, check with your agent if you can get out of the contract and find a regular sale that can close in 35 to 45 days.

Best of Luck,

Maria Cipollone

Century 21 Tenace

http://www.Flahomespecialist.com
0 votes Thank Flag Link Mon Dec 10, 2012
You do not "have" to wait. Your short sale addendum can contain a specific date for opt out if you do not want to wait. Secondly, and no one knows why, but most decision makers on these deals are not necessarily very educated people with authority. Many of them "push" paper through the process only.
Very few banks do a pre appraisal. They mostly do a BPO. So my advice, work with an agent with short sale experience who can tell you it is worth waiting for an answer from the bank or not.
A
0 votes Thank Flag Link Mon Dec 10, 2012
"It's not you, it's me" - banks.

The lenders could have different investors that they have to answer to with different guidelines and expectations. Short sale lenders and negotiators have gotten a lot better as we are all working to get the process more streamlined and new policies in place where they have to give an answer within a X amount of time. It is not uncommon to see many short sales get into contract and close within two to three months right now.

Many lenders are also doing appraisals prior to the short sale and banks such as BofA have approved "streamlined cooperative short sale programs". Most of the times, it will cost a bank more money to foreclose on a property than to do a very long short sale. As long as you are still in contract, I would remain optimistic. Best of luck to you!
Web Reference: http://www.kennytruong.com
0 votes Thank Flag Link Mon Dec 10, 2012
To augment what Laura told you;
Understand that the Sellers, (Homeowners) are non-entities to this process; they can stop it, but they cannot make to GO.

Visualize that the people at the Bank are processing thousands, maybe hundreds, of DEALS.
We've been told that sometimes, a Deal, for some reason, gets shuffled to the bottom of the pile.

But, most importantly; remeber the cliche' "FOLLOW THE MONEY"; the Bank has absolutely no incentive to hurry-up the process. They are losing money, and they are certainly not altruistic!

Go back to being patient.
0 votes Thank Flag Link Mon Dec 10, 2012
So, much like Lily Tomlin's Ernestine the Telephone Operator character, banks don't care, and they don't have to. I would imagine the longer the let a property sit, the less valuable it becomes, unless you live in the Bay Area, where home values are still completely out of whack with income. Ah, the beauties of supply and demand, and a perpetually bailed-out banking system.
Flag Mon Dec 10, 2012
First, note that NOT all short sales are approved so don't count on it.

When the seller is selling the property for less than what is owed the seller's lender and investors will have to approve the sale, price, terms and conditions. If the buyer is asking for a lot of credits or concessions, that may delay or derail the process.

There are many reasons why short sales take time to approve. The most critical part is for the negotiators to determine if indeed the seller has a legitimate hardship. If there is none (for example, if the seller is solvent or has some other assets) the sale may not be approved. If the price is much lower than what the investors want based on their formula, they also may not approve the sale, or come back with a counter offer to the buyer to raise his offer, or for someone to make a contribution between the offer and what the investors want.

Who is the lender? Some lenders are a lot harder to work with and may take longer than others to approve a short sale, while other lenders (like Wachovia) have a good track record of closing short sales.

How many liens are there, and are they by the same lien holders? Having one lien holder is tough enough. Having two is tougher. But when there are different lien holders, it can become extremely difficult to negotiate the short sale. The second lender can play tough and not give in unless they receive more than what the first lender is willing to give them to pay off the second.

Are there other liens against the property: utility companies, the IRS, mechanic's liens. Each one of these has a claim against the property and has to be satisfied. If the seller is totally insolvent, the bank may need to offer payouts to these lienholders who may refuse or negotiate for more.

DOES THE AGENT HAVE SHORT SALE EXPERIENCE?

It makes a world of difference to work with a listing agent who has a track record of successful short sales. That agent knows what to do, and can avoid pitfalls and delays in the process.

By the same token, the buyer's agent must also have short sale experience to guide the buyer how to write an offer with a good chance of getting the short sale accepted and approved.

By the way, the size of the home does not dictate the success or failure of a short sale.
0 votes Thank Flag Link Mon Dec 10, 2012
Unfortunately -- as others have said -- negotiators are inundated with hundreds of files, and each file has tons of information they sift through. Miss one document, or have incomplete/incorrect info and it causes untold delays.
What are usually requested: arms length transaction affidavit, comparable market analysis of the property, HAFA Request of Approval of Short Sale if applicable, seller's financial statements showing income and expenses, seller hardship letter, seller copies of pay stubs/2 years' tax returns/2 most recent bank statements, letter of third party authorization, listing agreement, HUD statement, purchase agreement, proof of buyer funds, buyer preapproval letter,
Making sure the paperwork is complete, verifying the veracity of the documents submitted take a long time. One file may not take that long to process to enter into their proprietary software....but if it's one of hundreds, it can take time. Last time I looked, 3 out of 5 short sales are approved.
Flag Mon Dec 10, 2012
Gosh, not all short sales are approved? You don't say. I'm shocked any get approved at all, given the slow pace and level of transparency that they (don't) offer.

For example, the hardship decision... I'm assuming they look at some configuration of pay stubs, credit histories, tax returns, employment history, etc., type some numbers into their proprietary lending software and, boom, get a readout on hardship. Why would the determination take months? Are they waiting for the Oracle at Delphi to send them a vision? Are they waiting to sacrifice a cow and spill its entrails to see if the answer will be revealed in the offal? Again, it is all too ridiculous.
Flag Mon Dec 10, 2012
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