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How Short Sales Work


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2010 Aug 22, 2:32pm   9,990 views  40 comments

by Greg Fielding   ➕follow (0)   💰tip   ignore  

This may be a refresher for a lot of you guys, but some readers might appreciate a full break down of how a short sale works, from a seller's perspective...

How Short Sales Work

A Short Sale is a very different type of transaction than a normal sale with equity. Parties in the transaction have a different set of priorities, expectations, and concerns. The Short Sale Listing Agent needs an entirely different skill-set.

Here is everything you need to know about how a short sale works. (from a Seller’s perspective)

Pre-Listing Considerations

Most of the same considerations you would have when selling under normal circumstances still apply: De-clutter, touch-up the paint, keep the landscaping tidy, etc. Here are some of the extra issues that Short Sellers face and some questions they often ask…
What should you look for in a Listing Agent?

More than anything, you need an agent who has a decent amount of experience with short sales and has shown exceptional market knowledge. Fancy fliers, glamour-shots, and a “neighborhood specialist” won’t do you any good in a short sale. And don’t hire a “Short Sale Expert” just because they call themselves one.

A great Short Sale Listing Agent will have:

* Good Short Sale experience. Seeing as how we’ve been doing them for 4 years, an agent you hire should have done at least 20 or so successful short sales. Be wary of someone who says they’ve done hundreds…many of them won’t have the time or inclination to give you the extra effort when you need it most.
* Excellent industry and market knowledge. Short sale transactions are so much longer and more complex. It seems like there are a lot more things to go wrong. A good short sale agent needs to understand appraisals, different lending standards and practices, inspection and repair issues, and generally be the kind of person who can come up with the solutions needed to keep a deal moving forward.

NOTE: Some agents hire outside short sale negotiators to process the transaction with the Seller’s bank. If you are hiring an agent is going to effectively outsource their work, it is really this other company you are hiring. Ask tough questions accordingly. The biggest concerns here are that your listing agent may not be engaged and working as hard to keep your deal together AND some of these outside firms may charge you additional money.

Should you stage or spend any money on repairs?

No and No.

Do you have to be behind on your mortgage payments?

No.

This is one of the most common misconceptions about short sales. I have personally closed short sale transactions where the sellers never missed a payment.

The issue is one of hardship. The bank will want to see that you have a legitimate reason why you can’t continue making your payments. If you have a legitimate, provable hardship that justifies why you cannot continue to own the house, then you will be a great candidate for a short sale even if you are current on your mortgage. On the same note, exaggerating your pain by not making your payments when you still could probably isn’t going to help you any. The bank will see your pay stubs and your bank statements anyway.

Obviously, credit scores are a big concern for Short Sellers. In theory, a Seller with zero or very few missed payments will have less credit damage than a Seller with many months of missed mortgage payments.

Having said that, I’m not necessarily recommending that would-be Short Sellers continue making their mortgage payments. There are other factors to weigh in that decision…
Should you stop making your mortgage payments?

When making this personal decision, ask yourself the following question: “If the short sale doesn’t work, will I walk away anyway?”

If the answer is no, then maybe keep paying. If the answer is yes, then preserving cash may be the highest priority.

For most Short Sellers, keeping their homes is simply not an option and the cash saved by skipping mortgage payments is far more valuable than a less-bad credit score. Especially if the mortgage payments are high, it gets hard to justify sending more money into what is effectively a black hole.

Should you pull money out of your retirement to pay off the bank?

If it’s a small amount, something that you could easily pay back in a reasonable amount of time, then borrowing from family, credit cards, or even your retirement might be worth preventing a short sale. Paying the bank back in full at closing will save your credit.

Just give careful consideration to what your credit is actually worth. Even with a short sale, you can buy a house again in a few years. You can probably even get a car loan pretty quickly, if not right away…the only issue might be that you could end up with a higher interest rate. Besides, are you really going to need much credit for the next year or two anyway?

Is it more financially-prudent to possibly pay $40 more per month on a car loan? Or owe $30,000 to your uncle?

Should you file bankruptcy?

First of all, that’s a question for an attorney, not a real estate professional.

If you only issue is the house, then the answer is likely no. There probably isn’t anything about the home sale that should cause you to need to file bankruptcy. And, filing bankruptcy probably won’t (at this point) relieve you of the mortgage debts you owe.

I can tell you that a bankruptcy filing will complicate the short sale because not only would we need your lender’s blessing, but that of your bankruptcy trustee as well. This extra step can cause delays and potentially kill a deal.

Generally-speaking, your real estate transaction will go a lot smoother if you can delay filing bankruptcy. Please consult an attorney when deciding what to do.

Marketing and Selling a Short Sale

When marketing your short sale, you can probably skip some of the steps that traditional sellers take.

How much should you list your Short Sale for?

You need to show the bank that you made a decent effort to get them a fair price. Too many Agents and Sellers make the mistake of underpricing property and then having the Seller’s bank reject the offer. Try to figure out what your house might reasonably appraise for and list at that price.

Then, if you don’t get any offers after 3 weeks, drop 5%. After another few weeks, drop again. And again, if necessary. Essentially, just keep dropping 5% or so every few weeks until you sell. By starting at a fair price and making reasonable drops, you show the bank that you are operating in good faith to obtain a fair offer.

What Marketing Do Short Sales Need?

Just put it on the MLS and let your agent to their thing. Flyers, open houses, broker’s tours, newspaper ads…none of these things will benefit you in any way.

Negotiating Your Short Sale with the Buyer

When an offer does come in, setting the Buyer’s expectations is key. Your Agent should let them know that it could take several months to get a response and try to gauge how likely they are to stick with you. Remember, the best offer is the one that will close at the best price.

Other than contract clean-up, don’t bother haggling over the price as long as it is in the right ballpark. Sellers should let their bank guide them in any counter-offer…even if it takes a few months to get to that point.

If you counter-offer a reasonable Buyer to come up in price, three bad things could happen:

1. The Buyer could get mad and walk – and maybe the bank would accepted their offer as it was.
2. If the Seller’s bank requests another counter, the Buyer could get mad that they now have to negotiate a price a second time (meaning the initial negotiations were a misleading waste), and they might be more likely to walk away.
3. If the Seller’s bank doesn’t counter, the Buyer could get upset that, thinking that their original, lower offer might have been accepted as well and that they could have paid less.

In a normal transaction, the Buyer and Seller negotiate with each other. In a short sale, the spirit of the negotiations change: it becomes the Buyer and Seller working together to get the deal approved by the Seller’s bank.

There is no reason for hardball negotiation. Buyers and Sellers will need to maintain a good relationship for several months for the short sale to be successful. Start off on the right foot!

Submitting a Short Sale Package

Remember that for a bank to approve a Short Sale, they are really approving two things: the Offer and the Seller.

Here are the basic components of the Short Sale Package that Seller’s Agent will submit to their bank:

Bank Authorization Letter for the Listing Agent

This is a short letter from the Sellers to their bank, authorizing that bank to share their personal information with their Listing agent. The account number needs to be at the top and it needs to be signed and dated by all sellers on record. The text should be short and sweet something like:

“We hereby authorize you to share our personal information with AGENT NAME from AGENT’S COMPANY.”

Be sure to include the Agent’s contact info. Your agent should be able to type this letter for you and have you sign it.

Last Two-Years of Tax Returns

Assuming you’ve filed.

Last Two-Months Bank Statements

(These will likely need to be updated before final approval)

Last Two-Months of Pay Stubs

(These will likely also need to be updated before final approval)

Monthly Cash-Flow Worksheet

Some banks will provide this after the Short Sale Package is submitted. Basically, the bank wants a quick, one-page sketch of your monthly cash-flow. Write down how much monthly income you have, then show your expenses as line items and subtract. Including your mortgage, you should be negative. :)

A Short Sale Hardship Letter

The whole point of a hardship letter is to explain to the bank how your personal financial situation has changed since you took out the loan. They will want to see specifics: medical issues, job-loss or pay reduction, legal problems, etc. From the bank’s perspective, if nothing has really changed since the money was borrowed, then the Seller either lied then or is lying now and they may not be cooperative.

Again, short and sweet. Keep it to one page.

Copies of all Contracts

The short sale package will include a copy of the listing contract with your agent and a copy of the fully-executed purchase contract with the Buyer, including a pre-approval letter from their lender.

The HUD (Estimated Settlement Statement)

The escrow company will prepare an estimated HUD, which will show the Seller’s lender all of the transaction costs and detail exactly how much money the bank is going to get at the end. The escrow officer should estimate costs based on a close date at least 90-120 days out.

NOTE: The Seller’s bank will pay real estate commissions, taxes, and most other normal closing costs.

Package Submission

All together, a Short Sale Package can be hundreds of pages. The agent will add a cover page and usually fax this package to the bank’s Loss-Mitigation Department. In some cases (Countrywide for example) these papers are actually faxed to India, where they are sorted, scanned, and send back to the Loss Mitigation Department here in the U.S.

It can be frustrating just getting a complete package to a lender. Pages don’t always fax clearly or even get lost. And, it can take a couple of weeks sometimes for a lender to even be able to tell you if they received your fax.

A thorough and persistent Agent will help make sure that the bank has everything they need as quickly as possible.

The Short Sale Bank Approval Process

Processes vary slightly from lender to lender, but generally share the same major components. Here is a roadmap for how the typical short sale approval process…

The Set-Up Department

Most banks have a department whose job it is to make sure that the short sale package is complete and correct before passing the file on to the next department. The listing agent must call into the bank and reach someone in this department as soon as possible to confirm that the file is complete and moving on to the next stop.

If the agent doesn’t follow up, the file won’t go anywhere because nobody from the bank will ever call the agent to say that something is missing.

After Set-Up, the file is typically moved to a “Phase One Negotiator,” where a BPO can be ordered.

If the Listing Agent is on the ball, a file can typically move from Set-Up to Phase One in 1-2 weeks.

Phase One: Ordering a BPO

When a file is moved from one department to another, it goes back to the bottom of the pile. You may have been assigned an actually Phase One Negotiator, but several weeks could pass before they even look at the file. There is usually no direct phone number, no e-mail, and no good way to get a hold of them.

Some banks have a policy where, if you haven’t heard from your Phase One Negotiator in 30 days, then you can escalate your complaints to a supervisor (who may have a week to get back to you). Depending on the workload and the quality of your negotiator, this process can move quickly or slowly and a persistent agent can make a big difference.

When your Phase One Negotiator opens your file, the first thing they’ll do is order a BPO.

A BPO (Broker’s Price Opinion) is similar to an appraisal, except it is done by a real estate agent and the bank pays them $50-$100 vs $300-$500 for an actual appraisal.

When the order goes out, it takes a few business days to actually be assigned to a BPO agent. That agent then has a few days to get it done and return it, where it goes back to the
Phase One Negotiator.

If the BPO value and the offer price are close enough, and the rest of the file is complete, the Phase One Negotiator will send the file up to a Phase Two Negotiator. Often, the bank will need updated bank statements and pay stubs.

NOTE: The bank will NOT share the BPO with you (don’t even bother asking).

On average, another 30-60 days has passed at this point, bringing the total to around 60-75 days.

Phase Two: Negotiation and Acceptance

It will probably take the Phase Two Negotiator a week or two to get to the file. Their job is to submit the file to the investors for approval. Depending on who actually owns the loan (remember, this is the Loss Mitigation Department of the servicer, not necessarily the lender) this could be a quick or slow process.

If the Investor wants more money, the Phase Two Negotiator will verbally tell the Listing agent where the price needs to be to get the deal done. At that point, the Seller’s would send a counter-offer to the Buyer. If the Buyer accepts, great. If not, then the investors may choose to accept or decline the short sale.

If the investor accepts the deal, the Phase Two Negotiator will send a letter to the Listing Agent, detailing the terms of the acceptance. In general, the Short Sale Approval Letter will:

* Acknowledge the purchase price, list allowable fees (including commissions), and give a net dollar amount that the bank will accept as payoff.
* Detail that this short payoff either extinguishes the debt, or that the bank may continue to pursue collections after the sale.
* Have an expiration date, usually about 30 days from when the letter is written.
* The dollar amount that they will pay the second lender (if applicable).
* Detail any other terms.

If the Seller is comfortable with the terms in this letter, they can sign it and submit a copy to the Buyer. In California, this would serve as written proof of bank approval of the short sale and the normal escrow process would begin.

If the Seller is not comfortable with any of the terms in the letter, they may be able to negotiate. For example, a seller may demand that the debt be officially extinguished and often the lender will agree to this request.

Getting Short Sale Approval From the Second Lender

If there is a second lender involved, the Listing Agent would send them the same Short Sale Package and manage the approval process with both banks concurrently.

A couple of differences:

1. The second lender may not bother ordering a BPO.
2. The second lender will not send any type of written approval until after the first lender approves the deal.

Once the second lender sees how much the first lender will pay them, they will either agree to the deal, or demand more money. If they demand more money, the Listing Agent has to negotiate with the Phase Two Negotiator to strike a deal. Typically, the second lender will demand 10% of the loan amount while the first lender will try and offer them $2,000-$3,000.

Obviously, an experienced and savvy Listing Agent can be a tremendous asset at this point.

FRAUD ALERT: Increasingly, second lenders are asking either the Buyer or Seller to send them extra cash, outside of escrow, for them to approve the deal. This is fruadulent and illegal. However, the Buyer or Seller may send extra cash to the second lender IF the first lender knows about it. So get the blessing from the first lender first, and put it on the HUD where everyone can see it.

NOTE: If there is a second loan, but it’s with the same bank as the first loan, they are usually handled together.

This negotiation process and actually getting the approval letter(s) can take another 1-2 weeks. On average a Short Sale will can go from initial submission to full approval in about 90 days. Sometimes it’s faster. Some banks, like Wachovia, can approve a short sale in about 3-weeks. Others, unfortunately, still can take 4-6 months.

The Short Sale Escrow Process and Close

Most banks will send the file to a Phase Three Negotiator, who manages the escrow period and closing of the file.

Once official notice is given to the Buyer, the traditional escrow process begins. The Buyer will order their appraisal and any inspections. If, as a result of inspections, the Buyer requests credits for repairs, that request, along with the inspection reports, will go right to the Phase Three Negotiator. They will either approve the credits, or deny them. And the deal will either proceed, or start all over again.

Just before close, the escrow company will send an updated HUD to the Short Sale Lender(s) to sign and approve one last time. They will look to make sure that the credits, expenses, and net proceeds match what they had approved in their approval letter.

Extensions

Sometimes it happens where the buyer needs some extra time to close the deal. If this happens, the Listing Agent must obtain new approval letters with extended close dates. Generally, though not happy about it, banks will cooperate.

How Short Sales Die

There are three general reasons why unsuccessful short sales die:

1. The Seller has no hardship and/or has plenty of money, causing the bank to decline the deal or to refuse to extinguish the debt. Here, the Seller may have no choice but to foreclose and deal with the consequences.
2. The property is too close to foreclosure and the bank would rather just foreclose.
3. The Seller changes their mind and decides to try some sort of loan modification instead.

Regarding a modification, know that most banks will solicit Short Sellers and try to get they to agree to a modification instead. As the months wear on and morale is low, some Seller agree to this because it’s the easiest way to end the misery of short sale limbo.

Getting a New Buyer

It is fairly common that the initial buyer – the one who’s purchase contract was sent to the bank in the Short Sale Package – will give up and go buy a different house instead. For a Seller, this is certainly a setback, but it’s not the end of the world.

In fact, that first, false Buyer did the Seller a favor: they got the short sale process started. Now, the Seller can go back on the market and let a prospective new buyer know that they are that much closer to short sale approval.

Maybe the BPO has been done. Maybe the bank had even accepted a purchase price. New Buyers might be thrilled to submit an offer knowing that the bank will respond more quickly.

The Listing Agent will quickly get the new contract and new HUD over to the negotiator and the process should keep moving forward.

It’s not uncommon that the eventual Buyer is the second or third Buyer that a Seller contracts with. Again, a savvy and experienced Listing Agent can really help at this point, both by getting more Buyers excited and by keeping the process moving smoothly at the bank.

IMPORTANT: Don’t tell the bank the deal died until after you get a new buyer! If you do, you may have to start all over.

Credit, Collections, and Tax Consequences

It is critical to understand that, Sellers could face credit, collections, and tax consequences as a result of their short sale.

Everyone wants to know the impact on their credit scores, but there is no clear answer. As it stands today, Short Sellers may qualify for a Fannie Mae or FHA mortgage after 2-3 years, but these rules are always changing.

Regarding collections, one of the big advantages of a short sale is that you have a change to negotiate with your creditors up front. If they say that they will remove the lien from the property, but refuse to forgive the remaining debt and intend to collect, try hard to negotiate a beneficial outcome. Generally, it is true that whatever collections consequences a Seller may face after a short sale, they would face the same consequences, or worse, with foreclosure.

However, there may be instances where a Seller is better off foreclosing than doing a short sale. If you are unsure about your situation, please speak with an attorney.

Regarding tax consequences, President Bush signed the Mortgage Debt Forgiveness Relief Act, which absolved Short Sellers of the federal income taxes owed from certain forgiven mortgage debt. From Wikipedia:

The Mortgage Forgiveness Debt Relief Act was introduced in Congress on September 25, 2007, and became law on December 20, 2007. This act offered relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)

Normally in US law when a lender decides to forgive all or a portion of a borrower’s debt and accept less, the forgiven amount is considered as income for the borrower and is liable to be taxed.

However, after the signing of the Mortgage Forgiveness Act, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties.

There may still be State tax liabilities and liabilities on second mortgages and home-equity lines of credit. Also, this program only applies to principal residences. Please consult a tax accountant if you have any questions regarding your potential tax liabilities.

Originally Posted at Bay Area Real Estate Trends

#housing

Comments 1 - 40 of 40        Search these comments

1   bubblesitter   2010 Aug 23, 1:56am  

You forgot to warn that some unsuspecting buyers are required to put money into escrow before the negotiating process with sellers bank starts. Some people have ended up loosing some fees and have their money hold up in escrow for quite some time.

2   vain   2010 Aug 23, 2:16am  

"Too many Agents and Sellers make the mistake of underpricing property and then having the Seller’s bank reject the offer. Try to figure out what your house might reasonably appraise for and list at that price."

Then nobody will ever consider a short sale. Why would I offer market price just to wait 4++ months? Agents know that, which is why they price low.

3   a4adam   2010 Aug 23, 5:08am  

Thanks, good post. The wife and I are currently in phase Two negotiations for purchasing a short sale. Tried a few others that fell through, one we walked after 6 months (and still no approval letter). Although it's unclear if the deal will go through, the trustee sale is scheduled for this Wednesday—the seller declared bankruptcy so that further complicates matters.

Patience is paramount if you are a buyer. Also, we had to pester our agent a bit as the listing agent for this short sale is not proactive and takes days to even return phone calls. Short sales are not for the feint of heart, that's for sure.

4   GaryA   2010 Aug 23, 5:19am  

If you live in a non recourse state, and you sign a document for a short sale, you could owe the difference. If you had just walked away you would likely not owe the difference. And even in recourse states, they are more likely to go after a short sale stooge than the guy who just walks because they have all that current paperwork.

I don't trust lenders, loan sharks, collectors, short sale advocates and the Tea Party. Next.

5   Greg Fielding   2010 Aug 23, 5:38am  

dadab says

You forgot to warn that some unsuspecting buyers are required to put money into escrow before the negotiating process with sellers bank starts. Some people have ended up loosing some fees and have their money hold up in escrow for quite some time.

dadab,

Though I'm sure this has happened, it is probably much more rare than you expect. In California at least, contracts are very pro-buyer and, unless the buyer has completely removed ALL contingencies, it is rare that a Seller will get to keep a deposit. Of course, that doesn't mean that a lot of Sellers won't try...

I can't imagine a Seller ever being awarded deposit money if a buyer changed their mind while waiting for waiting for short sale approval.

6   bubblesitter   2010 Aug 23, 5:53am  

Greg Fielding says

dadab says

You forgot to warn that some unsuspecting buyers are required to put money into escrow before the negotiating process with sellers bank starts. Some people have ended up loosing some fees and have their money hold up in escrow for quite some time.

dadab,
Though I’m sure this has happened, it is probably much more rare than you expect. In California at least, contracts are very pro-buyer and, unless the buyer has completely removed ALL contingencies, it is rare that a Seller will get to keep a deposit. Of course, that doesn’t mean that a lot of Sellers won’t try…
I can’t imagine a Seller ever being awarded deposit money if a buyer changed their mind while waiting for waiting for short sale approval.

I am referring to an incident in which escrow company deducted money for the Lender - the $800 cost of HOA docs lender ordered with $150 rush service. No kidding someone really lost that money from their deposit. But I agree one should closely examine the contingencies.

7   rblack   2010 Aug 23, 6:16am  

Thanks for the post Greg, been wondering why our short sale is taking so long.

8   RayAmerica   2010 Aug 23, 6:47am  

Very good post. This is the type of information that is needed on a site like this and will be very helpful for anyone that is connected in any way with a short sale.

9   Bap33   2010 Aug 23, 10:08am  

I have yet to understand why a loanowner would bother with a short sale vs living rent free for two to three years. Not finding that answer out there. Just live rent free, when the constable leaves you a move out notice you go file for BR and get comfy for a few more months/years.

10   Done!   2010 Aug 23, 10:48am  

I got an IDEA!

Why not just get the house appraised and just offer and pay that price?

The Growing trend here in South Florida now that the Government is actually cracking down.
(Side note: I have a good friend that is police officer, that was recruited to Property Assessment Fraud.)

Now appraisers are appraising all houses a little under what the average list prices are listing for.
Then a few weeks latter when sellers catch on and list at the average appraised price, the appraisers go and appraise them even lower. It happened on my house I'm buying.

Short Sales are a Joke.

The bank should foreclose, and the bank should be made to list the house back on the market. If it's out of repair, then they should have to pay for it, or loan enough money to cover what they want for the property plus repairs to someone than can pay.

And stop this investor cash only bull crap.

11   Coventry   2010 Aug 23, 11:02am  

Ugh. My husband and I are waiting on bank acceptance on a short sale where the seller is 'strategically defaulting'. The seller CAN afford the payments but is trying the short sale process since his house has been on the market for almost 2 years now. The house is vacant and my husband and I would really love to get it, but it's looking a bit bleak now since the seller doesn't have really any hardship apart from losing equity.

What's really frustrating is that the seller just really doesn't seem to care anymore and the house is vacant.

12   a4adam   2010 Aug 26, 8:06am  

Short sale #3 for the wife and I just fell through. Everything seemed fine, all paperwork was done but the bank just decided to foreclose and would not stop the estate sale. It's too bad because we liked the house and our offer was more than $25k higher than the auction starting price.

I get the idea the banks want cash and don't want to deal with people who are getting loans. Such a bunch of BS.

13   Greg Fielding   2010 Aug 26, 10:32am  

a4adam says

Short sale #3 for the wife and I just fell through. Everything seemed fine, all paperwork was done but the bank just decided to foreclose and would not stop the estate sale. It’s too bad because we liked the house and our offer was more than $25k higher than the auction starting price.
I get the idea the banks want cash and don’t want to deal with people who are getting loans. Such a bunch of BS.

It just shows how these banks are too busy and they aren't necessarily giving individual deals as much consideration as they deserve sometimes.

14   bubblesitter   2010 Aug 26, 12:32pm  

a4adam says

Short sale #3 for the wife and I just fell through. Everything seemed fine, all paperwork was done but the bank just decided to foreclose and would not stop the estate sale. It’s too bad because we liked the house and our offer was more than $25k higher than the auction starting price.
I get the idea the banks want cash and don’t want to deal with people who are getting loans. Such a bunch of BS.

What kind of service can you expect from a confused and troubled organization?

15   Bap33   2010 Aug 26, 2:03pm  

a4adam,
why do you believe what your REpro told you? You do know there is a chance that every word you were told was complete bullshit, right? There may have never been a "assett manager", there may have never been any other "BPO's". and the seller may have never turned in any type of "hardship" papers ... it may all be bullshit.

16   Greg Fielding   2010 Aug 26, 3:36pm  

Bap33 says

a4adam,

why do you believe what your REpro told you? You do know there is a chance that every word you were told was complete bullshit, right? There may have never been a “assett manager”, there may have never been any other “BPO’s”. and the seller may have never turned in any type of “hardship” papers … it may all be bullshit.

...because REpros don't actually want to get paid. They would rather just mess with you. ;)

17   vain   2010 Aug 26, 4:22pm  

Greg Fielding says

Bap33 says

a4adam,
why do you believe what your REpro told you? You do know there is a chance that every word you were told was complete bullshit, right? There may have never been a “assett manager”, there may have never been any other “BPO’s”. and the seller may have never turned in any type of “hardship” papers … it may all be bullshit.

…because REpros don’t actually want to get paid. They would rather just mess with you. ;)

No. REpros front it like they know it all. They are great at making stuff up. They'd be excellent candidates for any management position at any company. After they front to you as if they know everything (even if it's just stuff that they should have known for their RE license exam), they'll immediately go to an RE agent blog, Trulia, or Zillow, and ask others for help. Then a bunch of other RE agents answer their questions trying to prove that their are a polished one. But in the end, their answers are as reliable as answers they may have gotten via Yahoo Answers. There is also the typical. "In my state............ But you should check with your local ..................." Everyone in the same state as the one asking the question never answers.

18   a4adam   2010 Aug 27, 2:37am  

Bap33 says

a4adam,

why do you believe what your REpro told you? You do know there is a chance that every word you were told was complete bullshit, right? There may have never been a “assett manager”, there may have never been any other “BPO’s”. and the seller may have never turned in any type of “hardship” papers … it may all be bullshit.

I was actually watching the correspondence between my agent and the listing agent. We did sign some papers from the lien holder too. No, it wasn't BS at all. Yes, the listing agent was lazy and not very proactive but the bottom line is the bank just decided they would rather foreclose.

The point is that banks don't really care about what is good for the seller, the buyer, or the economy. They care about their bottom line. Blaming the RE agents kind of misses the point here.

19   bubblesitter   2010 Aug 27, 3:50am  

robertoaribas says

I got short sale approval from a bank, only to have the home foreclosed the following business day on a listing about a year ago. I was happy to see that after the foreclosure, which probably cost them several thousand dollars, they didn’t sell the home for six months, and then sold it for 25K less than the offer I had submitted to them. Screw you bank!

Not a smart bank. Fed will take them over very soon(and the part of that money would be from Robert's savings) :)

20   bubblesitter   2010 Aug 27, 3:53am  

ptiemann says

robertoaribas says

dabad:
Most agents selling short sales require buyers to make a deposit to escrow. usually a small one, like $1000 or so, typically, non refundable for 60 or 90 days, should the buyer cancel, but completely refundable if the bank doesn’t agree to the short sale.

This is to prevent a buyer from writing 50 short sale offers, and then backing out of 49 of them later. Hardly a point to be upset about.

Roberto, interesting concept, but not common in the SF Bay Area. I have currently 2 cash offers on short sales, wrote them 3 - 4 months ago, and I did not make any deposits. I had to show proof of funds though.

And every 6 weeks they ask me for a “new” proof of funds (updated account statement).
-Peter

Thanks for the input. It does not make any sense to deposit money when you very well know that deal is not going anywhere.

21   vain   2010 Aug 27, 6:16am  

E-man. I read that specifically for Chase (it could be others as well), that they are preferring Short-Sales over Foreclosures because they are net higher from the sale. With my Short-Sale situation, it didn't seem like 85% of BPO would have worked. They wanted exactly what their BPO was.

E-man says

- Let’s say I found some homes that are deliquent due to financial hardship. They owe $400k on the 1st loan and $200k on the second loan. The home is worth $550k to $575k now. I’d love to buy these homes for south of $450k. What’s the likelihood of the second lien holder to settle 10% on the dollar, or $20k? Have you worked with this kind of cases b/4?

With my situation, my property is worth $550k. First lien was $480k, and second is $120k. It would be nice if I could just outright buy the first lien, and negotiate with the second for 10%. I spoke to the agent about doing this but said she wasn't able to do such a thing. I didn't get any real explanation for it. It might require all cash. But it's properties like this that would attract investors at the court steps I'm presuming - pick the property up cheap, and wipe the second lien out. I would like to know if the agent I spoke to was just bsing me.

22   Greg Fielding   2010 Aug 27, 6:24am  

E-man

Let's get at these one at a time....

1. I figured 20, but 10 is certainly plenty. I simply wanted to illustrate that "3" isn't enough and "100" means that you might not get much personal attention. I've probably done around that.

2. 10% every 3 weeks seems a bit too much, but it could turn out okay if the offer end up coming in at a good price. The problem comes when agents drop too low too fast and the BPO comes in higher. You don't want to be in the situation where you have to come back on the market at a higher list price.

3. 85% of BPO value seems WAY too low. (not that they would ever tell you). I would expect somewhere in the 92-95% range. But, maybe some lenders go lower.

4. It's not only that Fannie/Freddie rules are always changing, but also that "extenuating circumstances" might lead to approval for some after 2 years, but not others. This is a massively-gray area...find a good mortgage guy.

5. I would expect the 2008 act to be extended beyond 2012 when the time times, just like California extends it's version every year.

6. The second lien-holder will do a BPO. If the value is really $550,000, they aren't going to let you have it for $450,000. The 10% part is for when the 2nd is wiped out.

23   vain   2010 Aug 27, 7:10am  

Greg Fielding says

6. The second lien-holder will do a BPO. If the value is really $550,000, they aren’t going to let you have it for $450,000. The 10% part is for when the 2nd is wiped out.

Makes perfect sense now. Thank you Greg.

24   bubblesitter   2010 Aug 27, 7:20am  

I am sure there are lots of realtors lurking around here but don't care to provide any info as it may take away the essence of their game ,"secrecy". Greg you stand out by providing important info.

25   RayAmerica   2010 Aug 28, 12:38am  

Greg .... what has your experience been as far as being able to get the lenders to remove the deficiency judgment before closing short sales?

26   beershrine   2010 Aug 28, 2:15am  

From a buyers perspective: I bought a house last June but looked at a bigger and better home that was a short sale. I passed it up because of the complications and speed of the transaction, To get anybody to move with the decisions took forever they can have multiple offers and problems with multiple banks 2nd loans. Bank's have 100's of these homes for sale. Chances are good you won't buy that house. Thats my 2 cents

27   Greg Fielding   2010 Aug 30, 2:43am  

RayAmerica says

Greg …. what has your experience been as far as being able to get the lenders to remove the deficiency judgment before closing short sales?

For me, it's been 50/50.

In general, I would say that the more the 2nd lender gets back, the more likely they are to extinguish the debt. If they only get 2-3K, the odds aren't good.

I've seen BofA send a collection letter for 40K a week after a short sale closed (not one of mine). And, I've seen Wachovia work out a repayment agreement on the 2nd. 20K (down from 75 or so), monthly for 5 years, no interest.

Bottom Line: at least with a short sale you have a chance to negotiate and fight for it.

28   Greg Fielding   2010 Aug 30, 2:44am  

dadab says

I am sure there are lots of realtors lurking around here but don’t care to provide any info as it may take away the essence of their game ,”secrecy”. Greg you stand out by providing important info.

Thanks dadab.

29   EightBall   2010 Aug 30, 3:33am  

I was trying to shortsale my house - after sending in my paperwork to my 2nd lender, they offered a 6% payoff. When I finally got an offer, my first did what they termed a "drive by appraisal" and wouldn't budge off that number - unless of course I could come up with the difference. Of course the offer was a lowball about 100k less than what the bank wanted. The RE convinced me to lower the price before this - the bank wanted $40k more than the listing price as a counteroffer! Now I know why buyers don't want to work with short sales - everyone involved is disconnected from reality (bank appraisals, agent "intelligence", and buyers thinking they can get 20% lower than comp sales). So, here I sit just slightly underwater (I paid the 6% offer from the second...there were no "sales" strings attached...my lawyer gave it his stamp of approval) and the bank offers a 2 year mod that'll put me in the same place I am now two years down the road..but the mod makes the payment more than doable.

I took the house off the market as I was told that if I were to get a full-price offer that the RE agent company would demand "commission" even if I decided not to eat it with the bank... Anyone else think that this whole process is flat out lunacy? How can one bank eat 94% of a loan and ask for no deficiency and another bank stick to a ridiculously high appraisal?

30   gregpfielding   2010 Sep 6, 4:58am  

E-man says

Greg Fielding says

6. The second lien-holder will do a BPO. If the value is really $550,000, they aren’t going to let you have it for $450,000. The 10% part is for when the 2nd is wiped out.

Let me put it another way. If this home goes into foreclosure, someone could buy it the courthouse steps for about $450k or less (1st lien holder of $400k + late fees + late payments, etc.) and the 2nd lien holder would still totally get wiped out. No flipper would pay higher than $450k for it since there is no profit. I doubt that the second lien holder would foreclose on this home, but I could be wrong.
I guess my point is the current owner is behind on payments, let’s say 6 months ($2k/mo. interest only on the 1st loan) for discussion purposes. I would have to drop about $12k to bring the 1st loan current or pay-off the 1st loan @ $412k provided that the 2nd lien holder would settle for $20k. I then would give the current owner $3k to move out, and the agent would keep $15k in service fee, totaling about $450k.
Sounds like a win-win situation all around vs. letting it go into foreclosure. I guess my question for you is have you ever done anything like this?
Thanks again.

E-Man,

While what you are proposing is possible in theory, I don't see it as likely in the real world. In your example, the second would stand to get close to 100K (factoring in commissions and selling costs) if the property sold at fair value.

I doubt they would accept just 20K.

To this point, they seem to have made the decision to either accept fair value or let it foreclose and possibly go after the seller later. Sure, it may seem dumb in your example, but as a policy across thousands of mortgages, it must benefit them to show a tougher stance.

Think of it this way, if what you were saying was happening out there, we would all know about it and be talking about it. Buyers would commonly seeking out short sales with low first mortgages and make low offers to the seconds...I haven't heard about this happening (successfully).

You can get short sales at a discount. If the house really is worth 550,000 maybe you could get it or 510-520. This is certainly reasonable.

Having said all of this, I'm sure that somewhere, somehow, what you propose has happened. Maybe by skill, maybe luck. There's certainly no harm in trying. Just don't get your hopes up too high.

One thing....don't actually offer the second 20K...it will look like you are up to no good and will set off red flags. Simply offer a price that would get them approximately that amount and let them sort out the exact figures and decide what to do.

31   danville woman   2010 Sep 6, 7:15am  

This is a little videoclip from Jim the Realtor about short sales

http://www.creditwritedowns.com/2010/04/short-sale-tips-via-jim-the-realtor.html

His honesty is refreshing !

32   bubblesitter   2010 Sep 6, 8:03am  

danville woman says

This is a little videoclip from Jim the Realtor about short sales
http://www.creditwritedowns.com/2010/04/short-sale-tips-via-jim-the-realtor.html
His honesty is refreshing !

So the guys doesn't say I am honest, but there are lots of his buddies that are doing fraud. At least he is admitting that his fellow professionals are doing fraud. Does that make him honest?

33   danville woman   2010 Sep 6, 9:21am  

Check out his other videoclips. Lots of information that does not tow the typical Realtor Party Line.

34   vain   2010 Sep 7, 4:41am  

bubblesitter says

So the guys doesn’t say I am honest, but there are lots of his buddies that are doing fraud. At least he is admitting that his fellow professionals are doing fraud. Does that make him honest?

That makes him a snitch. I didn't find his information very helpful. There are just way too many agents making videos and writing blogs to show how much of an expert they are. But if you go to agent forums such as zillow or trulia, you will see many of those same agents are also asking for help from other people. They may as well use Yahoo Answers.

35   Bap33   2010 Sep 11, 1:25am  

where did we put the Bot-b-gone ?

I put an offer on a SS last week. I was told the next day that the seller will not pay closing costs. I was told the next day that the seller will not fix anything. The last thing I was told was to "offer more money to make sure I have a chance". Welp, that call went unreturned. My offer stands. I want to read the banks response, not listen to some REpuke.

Lets keep in mind, the SS asking price is pulled directly from some REass. Based on the twisted opinions of other REasses. No thanks.

Here is why the REpuke-scumbag-rotten-fkers want more SS: They get more on the commish. Period. End of story. An REO goes through a clearing house system with an agreed cost where the commish is much lower. The whole SS pile of crap is being pushed by greedy REtards. There is no logical reason for some stupid loanowner to bother with a SS.

36   elliemae   2010 Sep 11, 2:53am  

Tenouncetrout says

Why not just get the house appraised and just offer and pay that price?

This is called a short sale. Except it's more complicated, as described in the OP. It seems to me that the system is set up to fail, as are so many other systems.

37   evensenra   2010 Sep 12, 1:57pm  

You can argue all you want, but my experience proved to me the the BUYER is the victim in a short sale. They suck you along, want more deposit, want longer to decide, want more fees, want you to take property as is and inspection is VERY DIFFICULT. Buyers need to be super pricks!
You make the rules. Tell them 10 days max for a decision or $50 per day credit to buyer.
NEVER FORGET: THERE IS A HISTORIC SHORTAGE OF BUYERS, AND A HISTORIC EXCESS OF SELLERS!!

38   bubblesitter   2010 Sep 12, 3:00pm  

evensenra says

NEVER FORGET: THERE IS A HISTORIC SHORTAGE OF BUYERS, AND A HISTORIC EXCESS OF SELLERS!!

You just joined today and are making a very bold statement. If your statement makes sense then prices should fall like a rock on all tiers but it hasn't. This market has too many factors that has complicated this process very much.

39   Bap33   2010 Sep 13, 1:01am  

sure ... and the one thing you will find that we did not factor in on the upside of this bubble was the willingness of GOV to dump millions into worthless homes, just to keep rich liars rich. None of the bubble folks on here, that knew it was junk and was going to crash, expected the GOV to dream up welfare handouts to buyers of homes - cars - refrigerators.

THe GOV manipulation is the impossible to figure portion of this whole deal. THe fact that market forces are being stalled is undeniable, but nobody has yet came out and said the GOV debt=wealth system can save housing from going down to the level supported by the actual wages of the actual occupants.

If all other areas were still healthy, then the housing market would be at norm when the prices and volumes matched about 1999. But, as things go down hill in every area the level of "norm" goes down too. Plus, the homes are setting and turning to poop. Plus, in 1999 there was not high unemployment - which breeds unemployment. Plus, in 1999 there was no huge debt being created to pay for more socialism. Plus, in 1999 our war (edit happened here) machine was not running at half throttle 24/7.

From where I sit, here in the center of mexifornia, it has a loooong way to go down .... and every time something is done by GOV to force a false platue, it is only setting up a super crash in the future. Or, we find a way to build cars out of beer cans and run cars on dirty diapers

40   Jacques   2010 Nov 12, 2:59am  

I did not ever receive a final short sale approval letter outlining the terms of the remaining debt until after the closing docs were signed. The listing agent did not receive said letter either. The only letter that was received before closing docs were signed was them approving the sale price of the home and a demand that listing agent reduce commission. Any recourse for this? I am in Utah.

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