Short sales have become an daily term of our lives in the last two years. I bet many of us haven't even heard this term 7-10 years ago, but now it's as base as a burger or plasma Tv. A "short sale" means in uncomplicated terms that the bank is willing to take less than what the bank is owed by the homeowner and allows to sell the asset in order for the homeowner to avoid a foreclosure and a trustee sale. The banks are doing it not because they all became so grateful to the tax payers for bailing them out in the policy of this financial crisis, but because of a pragmatic "lesser of two evils" calculation that figures that it will cost the bank less to write off a part of the loan as a supervene of the short sale than the cost of a foreclosing, retention the asset and then eventual disposing of the asset (i.e. Property) at a later date. Plus, in today's market, especially after the infamous stress tests that the Feds put many banks through, they truly need to show liquidity, i.e. As much liquid cash in the bank as possible, because if they don't, the Feds may require them to take more Tarp money, which comes with a magnifying glass over the bank's payroll, or might end up on Fdic "near-dead" list?.
Many buyers shun away from short sales though. They got so much bad publicity that many buyers and many real estate agents don't even want to put an offer on a asset offered as a short sale. Most citizen think that short sales are endless mazes that will lock the buyers into contracts and after hanging in there for the next eight months, the buyer will not get the asset at the primary price anyway. Some of these fears are true. Many are true because of the ways banks deal with the process, though some are true because of the incompetence of the agents handling short sales. But we are not here to blame anybody, we are here only to study what you as the buyer should and shouldn't do in order to stay sane and finally perform your Goal: buy your dream home at the price you can afford. So here we go, our seven lessons of short sales:
1. Don't expect the banks to give the houses away.
Yes, the banks don't want to take this account on their books, but they also don't want to lose their shirt thoroughly and they have to work within their internal guidelines. Development super aggressive lowball offers on short sales doesn't all the time get you even a serious look from the lender. You can expect a reduction of 5-10% off the shop value of the asset depending on the status of the foreclosure process and the health of the property, but anyone beyond that amount will make the bank indifferent to your offer and will make them think that they can get more money by finishing the foreclosure process and then reselling the house as an Reo. You can start with a lowball offer, but then be prepared to up your offer if the bank says no.
When the bank starts a short sale process approval, the bank will order a so-called Bpo - Broker Price understanding from a local realtor. It's a mini-appraisal that states the understanding of that realtor of the health of the property, comps in the area and fair shop value of the asset as is and as a 30 day "fire sale" value. Most agents today shun away from doing Bpo's, because it's a lot of work for a meager that the banks pay for Bpo's on average. (Side note: I don't believe the banks are truly serious about this whole foreclosure accident because if they were, they would be investing more serious money into the process. For example, they would probably pay more for great qualify more literal, Bpo's, even if they had to recoup this higher fee through escrow. They would also hire and train much great negotiators comparing to citizen they have working at short sales departments, most of whom have no background in real estate valuations, negotiations, asset supervision or any other relevant field; are overworked, underpaid, indifferent, unresponsive, rude, and ample incompetent to deal with the process).
Once the Bpo comes back, the bank's negotiator will answer to the offer. If the offer is over 10% below the Bpo value, expect a counteroffer or an outright denial from the bank. The fun part is that you'll never get to see the Bpo, no matter how insane it is. We had once a house with a cracked foundation and a fair shop cash offer based on the fair shop value of the house minus the cost of repairing the foundation (which is about ,000). The bank refused to take our offer because of the Bpo value, which was done only from the covering and didn't even mention the cracked foundation. We even did a full assessment by an covering appraiser and send it to the bank to show that this is a fair value, no luck. It took us four months to convince the bank to have other Bpo done and truly go inside to look at the foundation cracks before we ultimately got the sale approved.
2. Don't expect to close in 30 days, even if the listing says so
Short sale approval is a long process. If the listing broker or the seller's negotiator already submitted the box to the lender(s), it still takes time to get every person on the same board. Very often by the time the 2nd lender issues an approval, the 1st lender's approval expires and the seller's negotiator has to start the process all over again. Short sale process is long and complicated. It takes at least 30 days for the file to find a desk to throw an anchor, and then other 20 days for the negotiator to uncover the file from accumulated dust and boxes of donuts, then other 10-20 days to order a Bpo (Broker Price Opinion). In the meantime, the negotiator might also find out that some jobber documents are missing and now the file has to go back to the back of the line waiting for all documents to come in, which it seems they don't read any way, they just need to put a check mark that they have something in the file: "Last year Tax return showing Zero income, Check. Last month's bank statement showing negative balance, Check. Photo of the neighbor's dog, Check..."
3. Not all banks are equal
Some banks are more negotiable, some are less. So, before you make an offer on the house, find out who the lenders or servicers are (Servicers are fellowships that process payments on profit of the bank or note holder, they don't necessarily own the mortgage, they just process payments, such as Emc Mortgage as one of the largest ones out there). Some banks like Wachovia, Bank of America, Wells, and some smaller banks are relatively easy and uncomplicated to deal with. If you see Us Bank, Chase or CitiMortgage as one of the lenders involved, expect a long drawn out process that may never close at all, based on our experience.
4. Don't lock your deposit in a short sale escrow
It's a normal process to send your deposit to the escrow enterprise once your offer is accepted by the seller, which may amount to 1-3% of the agreed upon sales price of the property. If for some surmise your escrow doesn't close without buyer's fault or liability, you can all the time ask your escrow deposit back, and there are very few instances when you can truly lose your deposit. But there is nothing "normal" with short sales. Make sure your agent writes in the buy compact that the deposit will be forwarded to the escrow enterprise Only upon receiving a written approval of the short sale at the agreed upon terms from All lenders. This way your hands are free, and if you want to continue shopping for a house while the lenders are getting their act together, you are free to do what you need without jeopardizing your deposit money
5. Don't play a silent auction
Some listing agents refuse to accept your offer until the lender accepts it, which means that they will send your offer together with any other offer that comes in while the approval process to the lender, and let the lender conclude which offer to take. As a result, you are waiting in perfect darkness for months and months thinking that you may have a chance to buy the asset that you like and not even knowing that every week the listing broker keeps sending new offers to the lenders who are taking their sweet time Development a decision. I believe it's thoroughly wrong, and it puts early buyers who had the sense of accident into a disadvantage. In my understanding the only surmise for such situation is to allow the listing broker to use the early offers like this to gain an approval from the lender without committing to the buyers while waiting for a buyer who will use the listing broker as a buyer's broker as well. Knowing what the banks will take, the listing broker grabs the buyer as well, and pockets both sides of the commission. Believe me when I tell you that this unethical behavior happens among real estate "professionals" more often that you may think. Besides, I doubt that this custom is lawful: the seller, not the lender, is still the title holder of the asset and as such should be the person accepting or not accepting offers, and then sending them for "short pay off approval" to the lenders. The lenders cannot accept offers as they are not title holders with short sales.
Put in your offer specific language demanding that the jobber accepts only one offer (yours) and no other offers to be accepted by the jobber until and unless you cancel this offer or fail to perform. Sure, the listing broker will try to tell you that this is how they deal with their listings, then make sure that your brokers tells them that this is how their brokerage handles buy offers, and no other way will be acceptable, otherwise you are wasting your time.
6. Don't even go out of your house without a pre-approval letter
Getting financing is the biggest hurdle in today's market. This is the amount One surmise deals don't close, so it's only logical that you get this uncertainty out of the way as early in the process as possible. There are plenty of sources of mortgage financing today regardless of what media tells you, especially if you are a finding for a sub-0,000 house and you have good credit and can prove your income. There are perfect sources of remodeling projects, there are sources for jumbo and super-jumbo loans, even stated earnings loans are showing up here and there. Get all you documentation, meet with a lender and get a pre-approval letter based on the highest amount you can afford. It doesn't mean that you are going to offer that amount, it just shows you the upper limit of your search. After you get your approval and until you close on the purchase, do Not buy any new toys, do Not open new credit cards, do Not co-sign for your brother-in-law's new fishing boat. As soon as you sign up for new debt, your debt-to-income ratios go out of whack, your scores drop and your pre-approval letter becomes just as essential as "McCain-Palin" bumper symbol in 2009.
7. You can't all the time get what you want...
Can't get what you are finding for exactly? Is it hard to find a 3,000 sq.ft home on a half acre lot, swimming pool, six bedrooms and a wet bar, all at the price of 0,000 or less? Compromise! Find an alternative way of getting what you want. For example, I have a integrate who is finding for a 2,000 sq.ft. Home for less than 0,000, and they can't find anyone decent. So, instead we found a asset that was a fixer with only 1,100 sq.ft. For 0,000. They financed the asset acquisition, the cost of remodel and 1,000 sq.ft. Room increasing with an Fha 203(K) loan, as a result, they ended up with a 0,000 loan and a 2,100 sq.ft. Practically brand new property.
I had other client who couldn't buy a asset because he came into this country two years ago and only had 1 year tax return. Without two years of taxes and a strong pay check, he couldn't get any financing, even though he had 20% down payment. So, instead we negotiated an All Inclusive Trust Deed, where the jobber carried a mixture of an existing mortgage and the seller's private loan and were able to buy the house that the buyer liked. In a year or two, when the buyer has adequate documentation to satisfy the lender, he will refinance the seller's private loan into a quarterly bank loan in his own name. Be creative, think covering the box, you can make any deal happen if you are working with an educated sophisticated broker.
Buying real estate today is very challenging. The markets offer adequate nuances as it is, and every week we face new laws and regulations from the state and federal regulators who offer nothing in terms of real estate shop comprehension but mostly try to score some populist points for the next elections. But despite all challenges, this is still the best time to buy the house of your dreams that you can enjoy for many years to come. Don't miss this time, don't read newspapers that spread doom and gloom, think of your needs and move forward. Good luck with your search!
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