Foreclosure in New Rochelle>Question Details

Janey Lee, Home Buyer in New York, NY

How do I deal with a short sale?

Asked by Janey Lee, New York, NY Thu Oct 9, 2008

I am looking for a house and I see a lot of houses listed as short sales (or possible short sale). I have heard that there is a lot of red tape involved in the transaction. What kinds of things should I know about, or ask about where short sales are concerned?

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As a buyer, you should be prepared for a lengthy transaction with much ambiguity. The simplest short sale will involve one lender.

Before making an offer on a property that might be a short sale, find out if there is more than one lien holder. Additional lien holders might result from second mortgages, HELOCs, tax liens, or judgments.

A short sale is one where the contract sales amount falls short of the amount necessary to pay all liens against the property and deliver clear title. In order for clear title to pass, all lien holders must agree to accept an amount short of the full amount due. That can be a daunting task if there are several parties involved.

For the remainder of this post, I shall assume there is one bank.

As a buyer, find out if the seller, or their agent has approached the bank about a possible short sale. Most banks have a short sale package, or set of guidelines for the property owner. Has the property owner reviewed this? Started the process?

As a buyer, find out who will be presenting and negotiating the short sale. A seller may present the offer and short sale package to the bank, or may have his/her Realtor do the negotiating. In some cases, a sellers attorney may present the offer and short sale package. My recommendation is for an experienced Realtor to negotiate the short sale. In order for a Realtor to present the package and discuss the offer with the lender, the seller must provide permission to the bank for third party disclosure. Many Realtors are out there trying to present short sale packages without any understanding of what they are doing. As a buyer, you are entrusting your potential purchase to the person presenting your short sale offer. It might be worth it to know who that person is and what their qualifications are.

As a buyer, you will want to know what process will be utilized to present offers to the bank. In some instances, a seller will negotiate a contract and terms with a buyer, and that finalized deal will be delivered to the bank for approval. Another method of handling short sales is to simply forward offers to the bank for their review.

With short sales, it is a common strategy to set the offering price below market value to create an auction type response with multiple offers. If that is the marketing strategy employed, you will want to know how an offer will be chosen and in which order offers will be presented. You don’t want to be the first offer, and have subsequent buyer offers have an advantage over yours.

All parties involved in a short sale are at the mercy of the bank. The bank may sit on offers for weeks with no response. There is nothing that even the savviest and sharpest agent or attorney can do at this stage. You simply wait…and wait some more…until such time that the bank is ready. When you hear from the bank, be ready to respond quickly. It might seem unfair to be kept in the dark for lengthy periods of time, but that’s a reality of short sales.

Even when there are multiple offers, some buyers drop out of the picture when the unknown becomes too frustrating. Even if you are one of multiple offers, hanging in there has it’s benefits.

Can you get a good deal? Maybe. There are good deals out there that are not short sales. Some short sales do go to contract at prices at a discount of up to 20% less than fair market value. It ultimately depends upon the buyers who step up to the plate, the motivation of the bank to settle, and the skill of the negotiator.

Bottom line - Possible good deal. Be patient and flexible. Those who do not have to plan or coordinate a moving date can usually weather the process easier.

Deborah Madey - Broker
Peninsula Realty Group - New Jersey
4 votes Thank Flag Link Thu Oct 9, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Hi Janey, There is too much info to post here, I have a great guide that will tell you everything you need to know about a short sale, if you provide me with your email address I will gladly send it to you. I currently have a deal on a short sale property now. The definition of a short sale is when the sellers net proceeds from the sale of their home are not enough to cover their closing costs and payoff the existing mortgage. The bank will then evaluate the property and the deal to see if it is beneficial for them to do a short sale. The primary lien holder has to also check with any other banks that may hold a lien on the property as well. Usually if the primary lien holder approves it the junior lien holders will to otherwise they won't get paid.

The sellers attorney on my deal submitted the paperwork to the sellers bank in July, we are still waiting for an approval. One of the biggest problems is the banks are overwhelmed with these and also getting a response can take a long time if you get one at all. It's best to have an agent with experience guide you.

The bank will do their own appraisal or a Brokers Price Opinion, where they hire a broker not affiliated with the property to give their value. Once they do that they assess everything and make a decision. If they decline it they may make a counter offer to you.

I hope this helped .

Sincerely,

Christopher Pagli
Associate Broker
Legends Realty Group
914.406.9023
1 vote Thank Flag Link Thu Oct 9, 2008
I have provided a link below that will give you a complete outline on everything you need to know about a SHORT SALE from a buyers and sellers perspective.
0 votes Thank Flag Link Sun Sep 27, 2009
Janey, the main things you need to know regarding a short sale is that you go into contract which is presented to bank for acceptance. The banks can take 3 weeks to 9 months to make a decision and then expect a very quick closing.

The reason the banks take so long to make the decision is that once they accept an offer and agree to "forgive" the seller the mortgage money that is owing, the loss must go on the bank's books...that loss does not make the bank look healthy.

If you have the time to be flexible, you can get a great deal and the condition will most likely be much better than that of a foreclosure.
Web Reference: http://GailGladstone.com
0 votes Thank Flag Link Thu Oct 9, 2008
Hi Julie,

Isn't the Distressed Home Owner Law a Washington State Law? Since the inquiry is from NY, this law may not apply .

Hi Janey,

The posters who indicated that many Realtors shy away from short sales are accurate. We don't shy away from short sales, but we have a very candid discussion about the challenges and ambiquities before we embark on the journey with a client. We also will only work with short sale buyers with an exclusive buyer agency agreement. We do not have a consultant arrangement for a fee, nor is there a Distressed Homeonwer Law in NJ that is comparable to the WA state law.

Good luck.
Deborah Madey - Broker
Peninsula Realty Group - New Jersey
0 votes Thank Flag Link Thu Oct 9, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
In continuation of Bill Eckler's message - Realtors are also steering clear of short sales because with the new Distressed Home Owner Law, it is easy for Realtors to become "consultants." This gets really sticky and is a lawsuit waiting to happen because by being a consultant you "promise" to do certain things, like fix credit...we can't promise that. Knowing where the short sale is and if the notice of default has been put on the front door yet -- if the date for auction is already set then you have a very limited time to try and sell the property. Since most notices are posted 3 months before auction (I think), you need to be able to sell the property 20 days or less before the original auction date to avoid being considered a consultant -- your client becomes a consultant too! Not a good thing.
0 votes Thank Flag Link Thu Oct 9, 2008
Janey,

You should knoe that a very large percentage od real estate professionals are steering clear of "short sales" for a variety of reasons. First an foremost, these agents are looking to protect their customers from a very difficult, emotional, and often disappointing experience.

They know that approximately 10% of all short sale offers are successfully closed. They know the process could take months (2, 5, 6, or more). They know they will not be able to get the answers you need from the banki involved in a timely manner. They know you can't trust the information you have been given is accurate. They know most buyers regret getting involved is this process. They know there is a very high percentage chance that you will be frustrated with the process, disappointed with the bank, and mad at them.

There is more to be concerned with than "red tape." Definitely.........take a long look before you leap..........

Good luck
0 votes Thank Flag Link Thu Oct 9, 2008
I would find an agent who is trained in negotiating short sales with the bank. There are properties being advertised as short sales and are not qualified to be a short sale. So the first question is: Is the seller qualified to sell their property as a short sale? Now, if the property can be sold as a short sale then there is the experience of the negotiator that can make or break a deal. There is a complete package of information that must go to the bank before the bank will negotiate the offer. If the paper work is sloppy or the package incomplete it goes to the bottom of the pile. How the HUD statement is prepared and sent to the bank is critical to the deal and that is when you need someone who knows what there doing. Even the title companies mess these up. If I have a buyer who is interested in a another agent’s listing that is a short sale I make sure the other agent has qualified the seller and has a negotiator that knows what there doing or I won’t show the house as it’s a waste of time. How long it takes the bank to respond will depend on if your negotiator turned in all the right paperwork.
0 votes Thank Flag Link Thu Oct 9, 2008
Banks usually prefer to work with Realtors while doing a short Sale. Please note that the banks are so under staffed to deal with the millions of Short Sale so its going to take atleast 2 to 4 months to close. I do Short Sales for Coldwell Banker Intown in Atlanta and what I have found out is banks do not use common sense. You need to make sure that the seller has provided all the docs to the bank which will be a hardship letter, bank statement showing their hardship and Tax return information. Just be patient

Mitch Grooms Atlanta Realtor mitch.grooms@coldwellbankeratlanta.com
0 votes Thank Flag Link Thu Oct 9, 2008
Know that it often takes 3 to 5 months to get your offer accepted. Don't get frustrated with your Reator as the days, weeks, and months go by without a word. There is nothing your Realtor can do about it. In my area only about 50% of short sales actually ever close escrow. Which is way up from what it was earlier in the year. Have your Realtor ask if a "complete" short sale package has be submitted and if so when. Find out if there is more than one lender on the property, find out if the family is still living in the house, and make sure a notice of default has been filed.

If the "complete" short sale package has not been submitted, or there is more than one lender on the property, or the family is still living there, or a notice of default has not been filed, I would find another house because you are likely to get your offer accepted at least anytime over the next few months. And, if the family is still living there they just might refuse to move or trash the place on their way out.

If you really want a short sale house then go ahead and make a fair market offer (one just slightly lower than the most recent sold comparable home). The listing price is a pretend price that the seller/bank is not likely to accept unless it is priced fairly. Then... forget that you ever made the offer and keep shopping. If you haven't found a home you would rather have over the next few months maybe you will hear back on this one and be able to get it.

Good Luck!
0 votes Thank Flag Link Thu Oct 9, 2008
Janey,
Yes, be prepared to wait. Also, be prepared for a title report with some liens; so review it carefully and have your agent review it with the title company for red flags. If you think about the unfortunate position the sellers are in, think about what else is going on in their life -- this is where some of the red tape may come in. Behind on some bills -- many liens on the title are assumed by the new buyer, so you may be responsible for a handful of unpaid utility bills, etc. Also, the homeowners focus may be no longer on keeping the home in top condition. So, be prepared to have some deferred maintenance -- hopefully it is minimal -- but with situations like water leaks, that could cause wood rot, which is more costly.

Not all short sales will have liens for your assumption and deferred maintenance, but some things to consider when getting into that market segment.

Good luck! There are some great buys out there!
0 votes Thank Flag Link Thu Oct 9, 2008
Hi Janey,

Short Sales can be awsome deals for buyers. The main issue when looking at buying a short sale is to be prepaired to wait. You have to get approval from the existing mortgage holder or holders that they are willing to accepts less than what is owed on the home. If you are in a position to wait, they can be great buys.

I hope this helps,

Dannie Gann
Prestige Real Estate Group, LLC
1745 Shea Center Drive #100
Highlands Ranch, Co 80127
303-268-4212
SOLD4U2@msn.com
Web Reference: http://www.SOLD4U2.com
0 votes Thank Flag Link Thu Oct 9, 2008
Check out the article below about the process of a short sale.

Hope it's helpful! Any other questions, please feel free to ask.
0 votes Thank Flag Link Thu Oct 9, 2008
Make an offer and the Bank has to approve the price, which takes a little longer than usally. This is not red tape, but the bank is looking closer at you offer. Hint: Want a quicker respond, make an offer like you want the property, and not like your buying a fire sale.
Web Reference: http://PaulMVPteam.com
0 votes Thank Flag Link Thu Oct 9, 2008
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