Short Sale FAQs

Short Sale FAQs
Frequently Asked Questions:

 

 

What is a short sale?

“Short sale” was an unfamiliar term until the recent real estate and mortgage crisis created the situation where the value of millions of properties in the United States were worth much less in value than the mortgages that secured them. During the late 1990s until early 2007, properties appreciated unrealistically and lenders offered loan products such as negative amortization loans, 95% financing, adjustable rate mortgages, stated income loans, and other products that created an atmosphere where the following occurred:

• people with little or no credit could acquire multiple properties with no documentation;

In 2006, the excesses of the earlier years began to take their toll as the adjustable rate mortgages and negative amortizing loans became delinquent. People could not make their mortgage payments and lenders began to foreclose. The current economic downturn has made it impossible for many people to sell their properties as they owe more to their lender than the property is worth.

A short sale or short payoff occurs when a lender agrees to accept less than the outstanding loan amount to satisfy the seller’s loan. A short sale allows both the lender and the distressed property owner to avoid foreclosure by selling the property at a loss. Since the Seller is requesting that the lender accept a short payoff, Sellers can not receive any funds at the time of closing. Short sales are warranted in the following situations:

• Seller owes the lender more than the value of the property and can not sell otherwise.
• A mortgage modification is not a possibility or has been declined.
• Financial Hardship creating an inability to keep property (i.e. loss of job, medical hardship, divorce, etc).
• Over-extended borrower with multiple mortgages;
• Job transfer resulting in the forced sale of your home in a depressed real estate market.
• Without a short sale, foreclosure is imminent.

Why is a Short Sale Advantageous to the Lender?

Short sales are more helpful to a lender than a foreclosure. Lenders are not in the business of managing and owning real estate, and a short sale offers the lender the ability to remove a bad debt from its books and lend the money again. Short sales are less expensive than completing the foreclosure process. By accepting a short sale, a lender is capping its loss immediately, rather than the cost and uncertainty of foreclosing on a property. Foreclosure can be very expensive to a lender because it could take up to a year or more to take back a property, and in a declining market, the property may be worth substantially less when the back obtains title than when the homeowner went delinquent. The bank may pay thousands of dollars to the foreclosure attorneys, sit on the property for another year, and then still have to pay the 7% average commission to a Realtor.

 

What does the Seller need to know about the Short Sale?

A seller initiates the short sale by contacting a real estate agent to draft a real estate contract with addenda and contingencies specific to short sale transactions. If the seller has already selected a listing Realtor, the seller needs to check and make sure the Realtor understands how to list and price the property to attract the most offers. It is recommended that you hire a Realtor who is highly experienced in the intricacies of the short sale transaction and who have worked closely with lenders successfully closing deals. ASK FOR THE NAMES OF SELLERS THAT ARE SATISFIED WITH THE AGENT’S RESULTS.

 

How A Does Short Sale benefit the Seller?

The mortgage is marked as satisfied (usually marked “satisfied for less than owed”) at the credit bureau, not marked “foreclosed”. 

What does the Buyer need to know about the Short Sale?
 

A Short Sale  is a contract that needs acceptance from three parties; the buyer, the seller, and the seller’s lender(s). Without approval of the contract by lender holding the mortgage(s) on the seller’s property there is no fully executed contract. When I represent a buyer, I make certain that the seller or its agents have submitted all necessary documentation to its lender and will manage the transaction from contract to closing;

 

The listed price may be lower than the price required to satisfy the lender? How does this work?

Unless indicated in the listing that the lender has agreed to accept a set price, the price in the MLS listing may be completely unrealistic and ultimately rejected by seller’s lender. When a buyer makes an offer on a short sale, the lender will not approve the contract until they have sent an “independent agent” to the property to give a broker price opinion, also known as a BPO, or an appriaser has completed a full real estate appraisal. The BPO or appriasal gives the lender an opinion of the fair market value of the property at current market conditions. The lender will usually use the BPO/apprailsal as guidance when determining whether to accept a particular offer.

 

Why Is Sellers having 2 mortgages are more likely to fail than sellers who have 1 mortgage?

A common scenario involves a seller who has a first and second mortgage and the offer will require that the first mortgage accept a short payoff, and the second mortgage to accept nominal sum (i.e. $1,000.00 to $3,000.00) to satisfy the second mortgage. In most circumstances, the first mortgage holder who agrees to a short payoff will not permit the second mortgage holder to receive any more than a nominal sum, because they know that if the property goes to foreclosure, the second mortgage holder will probably be wiped out and receive nothing. Frequently, the second mortgage holder will insist on more money than the amount allowed by the first mortgage holder resulting in an impasse.

 

Our team has been extremely successful in creating solutions to close transaction where approval is required by 2 lenders however the buyer must be educated about the risks.

• The property may be sold at foreclosure auction before the closing can take place;
• The sellers may take “back up” offers while the lender is approving the buyer’s offer;
• Short sales will not close in 30 days;
• The buyer may be forced to use the seller’s “closing agent”;

• Short sales are “as is”;

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Tags: deficiency judgement, FAQ, foreclosure, lender, Loan, Real estate, Real estate broker/agent, Sales, Short (finance), short sale

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