What can I possibly lose financially if my short sale offer does not get approved by the bank?

Asked by Shortsalenewbie, 07020 Thu Jun 24, 2010

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Mary Petti, Agent, Edison, NJ
Fri Jun 25, 2010
Walter is correct on a two points that I stated incorrectly. That's what I get for answering a question at 3 AM. I am so sorry.

1) you will want to do the inspection since the house will usually be "as is", with NO repairs done at all, including the buyer's (yours) responsibility to obtain a township city fire compliance certificate and a Certificate of Continuation of Occupancy (CCO) if it is needed by that town. (I say usually because I had a seller who volunteered to do the minor repairs needed for the certificate of occupancy)

2) you will want to get your mortgage application in because as Walter pointed out, the short sale approval usually comes with a 30-45 day closing date contingency from date of approval.

But please, please DO get an attorney if you do not have one already. It is a necessity to help guide you through the process and advise you of your rights, obligations and keep up with the paperwork involved.

Again sorry, I will try not to answer a question again witl litle or no sleep under my belt.
1 vote
Walter Burns, Agent, Hoboken, NJ
Fri Jun 25, 2010
I just met with a short-sale attorney this week who has closed over 600 short-sale transactions and his recommendations are slightly different than what are being offered here.

There are going to be expenses on the part of the buyer regardless if the purchase goes through or not. In a short-sale, the seller still owns the property. It is not a bank owned property therefore the seller has to sign a contract and proceed with an attorney review period. The buyer will have to hire an attorney to represent them. There will he a lawyer fee.

Also, you are going to want to do your home inspections upfront, perhaps even before you make an offer. In a short-sale, the property is sold "as-is, where is" therefore it is worth knowing before you get deep into a transaction what issues, if any there may be with the property. The banks are not offering home inspection credits or repairs.

Finally, the buyer is going to want to start the mortgage process and apply for a loan. When the bank approves the short-sale, they usually order the closing to take place in under 30 days from the date of approval which is not enough time to apply for a loan and receive a loan commitment. By applying upfront, you may have to pay for a longer rate lock, since a traditional 60 day rate lock will mostly likely expire during the short-sale process. I recommend a 6 month rate lock with your lender.

So yes, there are expenses which you may not recoup if this short-sale does not go through. This is the risk of buying a short-sale property.

I have several attorneys in the area who specialize in short-sales, Feel free to reach out to me and I'll be happy to email you their information if you are interested in speaking with them.

Please let me know if you have any additional questions. I'll be happy to assist.

All the best in your home search.


Walter J. Burns
Weichert Realtors
Hoboken, NJ
201-653-8488 Ext: 230
201-694-8946 Mobile
1 vote
Joshua Baris, Agent, Tenafly, NJ
Thu Sep 2, 2010
That is a really tricky question. In my personal opinion as a local Realtor I would say it depends more upon your specific situation more than anything else. Due to your timing and what you are risking is the reward worthwhile. If the return on your investment is greater for you to make more on your investment than there may be no real risk. The major risks are if the short sale you wish to purchase falls through then how much is your cost for the time lost. For example, did you lose out on other opportunities, legal fees, interest rates, carrying costs of selling your current property, etc. Feel free to contact me for a discussion in greater detail. Joshua Baris, Coldwell Banker 201-741-4999.
0 votes
Tim Robbins, Agent, Northfield, NJ
Fri Jun 25, 2010
You can really tell the difference between North Jersey and South Jersey in the North they always say Spend money on an attorney. There is nowhere in a rules that state that a buyer and a seller must use a lawyer. Not saying that having more then one head working on the short sale is not a good idea. But in my opinion if a Realtor is truely a professional in their trade and have received the most updated training and do the job they are being paid for and complete short sale packages the correct way per the rules and not peice meal the package they should be able to deliver in a timely fashion.

As to any loses on the part of the buyer the Home Inspection and a updated BPO should be done to determine the value of the offering property. If you have a good Buyers Agent they should in my opinion do more they draft and offer. A sharpe agent should be able to walk through a property especially a condo and determine at least some of the known repairs. Then the agent should do for the client a current BPO and attached it to the offer making notations as to why, what and how much it plays on the offering price.

The cost of a attorney out ways the few hundred dollars of the inspection and has a larger impact on the deal then the attorney fees. Also if it is done correctly all attorney fees should be paid out of the proceeds of the Short Sale. By completing a Short Sale Package correctly and completely with all exhibits attached in the package this can ficilitate the process quicker. The problem is that when the package is submitted to the lender they are missing pieces of the puzzle and then this is where the delays take place

The other part is that the listing agents do not work for the same objective with the buyers agent which should be in all cases is to get the home sold where the Seller has total relief from all deficiencies moving forward. But in most cases that I have seen over the 2 years is everyone is on their own side. This is not what is should be and most deffinently the agents on both side should have the same goal NO MATTER what to get the tranaction done.

If all would act in a professional then transaction would go a lot smoother and a lot less stress also remember there is no such thing as short sale approved until the offers are submitted and accepted because even if the seller signs the offer as exceptable the seller can not pass clear title unitl the bank approves the final amount being delivered to the bank after closing. So Make sure your Agent does their job completely

Tim Robbins
0 votes
Mary Petti, Agent, Edison, NJ
Fri Jun 25, 2010

In this case it seems the SELLERS (owner not the bank) has already accepted the offer, but it now needs to be approved by the bank for the short sale.

Many banks will NOT do a BPO on a house before there is a written contract so even if you know what the seller owes, it sometimes hard to figure out what sales price the bank will accept.

I have one listing like that now, despite my please to the contrary. It seems counterintuitive...do the BPO, let the "investors" determine what they will accept as an final payoff, and list the house as a pre-approved sale of "X " dollars, but that's typically not what happens.

I have had 4 short sales listings this year this year so far (not that you'd know it by my sleep deprived first post and I am still embarassed by that mis-information) and three have sold...

The owner of record (the seller) signed the contract, then it was presented to the bank for the short sale approval. Each time while waiting for the approval, the buyers did their home inspections and got their mortgage application going while waiting to hear from the bank.

The third one is scheduled to close on Monday. The buyers did their home inspection on May 18 and the bank only issued the short sale approval on June 2, giving us till July 2 to close the transaction.

Your statement that "Really, a home inspection BEFORE you make an offer? Is that how they're doing it in NJ? In Ohio, even in short sales, we'd never let our clients pay for a home inspection before an (sic) excepted offer. " is not totally wrong, but in some of these cases, it pays to do the inspection even before the approva. I have seen them done even before an offer is made. If the house is really, really bad, the buyer can walk away, and is only out a few hundred dollars for an inspection, rather than a few thousand for the mortgage application plus potential repair costs too.

With a condo, it may be less important to do the inspection right away since some of the repairs will most likely be covered by the HOA
0 votes
Shortsalenew…, Home Buyer, 07020
Fri Jun 25, 2010
Thanks guys for all your help. I think I will do an inspection after bank approval. It is a condo with I believe a total of 8 units. So I am pretty sure that the building for the most part is ok. I also visited the place twice and aware of some repairs that will be needed. Plus I have family that are contractors and specialize in renovations. I will get the mortage started as soon as my offer gets submitted to the bank.

0 votes
Gina, , Turnersville, NJ
Fri Jun 25, 2010
Hi Short:

You have a variety of answers and advice here. Short Sales can become frustrating and drag on. First off, as previously mentioned, DEFINITELY get an attorney. Your Real Estate Agent & Attorney can work together and assist you through this process. As far as an inspection, I would have my client wait until they get some kind of an approval from the bank, however if you want to risk a few hundred dollars and have it done prior then that is up to you. But also remember, the bank can take quite a while to make a decision and who knows, you may find another home during that time frame that you are interested in. Unfortunately that is what happens sometimes with Short Sales.

Much Luck to you!!
Gina Fagnani
0 votes
Jennifer Bla…, Agent, Basking Ridge, NJ
Fri Jun 25, 2010
I agree with Walter on all points as well. I am currently representing a seller on a short sale - the buyer has done all inspections, incurred attorney fees and has their mortgage committment. If you have the time, patience and energy to wait for the approval then it pays to be read to go once the bank says YES. I also think (though I won't know for sure until our approval comes in) that it's good to be able to let the bank know that this is a serious buyer who has completed every step on time and is ready to go.
0 votes
Hugo W Meza, Agent, Clifton, NJ
Fri Jun 25, 2010
I got to disagree with the attorney's recommendation,

Why in the world would you do an inspection if your offer hasn't been accepted? You have enough time to do your inspection after you get out of attorney review. You cannot get out of attorney review until you get an seller's bank's approval. You pay the attorney at closing, not approval, no closing, no payment. The bank usually gives you 30 days to close, but that doesn't mean you have to close in 30 days. I have good number of short sales and they never closed on time because of the loan, but I got extension as many time as I needed. The loan is never done 30 days, but everything else can be done in a week such as inspection, appraisal, Certificate of Occupancy, title, deed, etc. From experience, loan officers/banks promise you they will be able to close in 30 days and it never happens. They always blame the buyer saying... "they didn't bring the documents on time, they didn't respond, waiting time and so on". My recommendation would be to start working on your loan. Get a Underwriter Approval (DU) at least . It might cost you the application fee (this is something you might lose if the S/S is not approved) I think there is no reason to lose anything else. Your deposit is returned to you if the sale is not final. Short sale is very hectic so you will lose your sanity!
0 votes
Mary Petti, Agent, Edison, NJ
Fri Jun 25, 2010
Hi Short,

In NJ, especially with a short sale, you absolutely should have an real estate attorney who is familiar with all the paperwork involved in a short sale representing you throughout the transaction.

You have probably already given a good faith deposit (usually $1000) and perhaps your second deposit (if there was one) which should be either in your Realtors agency trust (escrow) account, if you are using a Realtor, or in the attorney trust (escrow) account.

If you are out of attorney review, you should not pay for an inspection until you know the bank has approved your offer. If the bank does not approve your offer, (usually because the "investors" want more money) and you are not willing to increase your offer, you can have your attorney cancel the contract. You will get your deposit money back, and perhaps your attorney will not charge you for his/her time, IF he/she feels you will eventually purchase another home.

If your offer IS accepted, then go ahead with the inspections. However, it really is important to have an attorney (and a Realtor) in your corner since they can both help make the process move along more smoothly and sometimes more quickly as well.
0 votes
Shortsalenew…, Home Buyer, 07020
Thu Jun 24, 2010
Wouldn't I have to pay for things like an inspection for example, lawyer fees etc?

0 votes
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