Unless you have actually experienced a “short sale” first hand, it is nearly impossible to understand the process and anticipate what to expect. Unlike most foreclosures, each short sale is very different and they are not guaranteed to close. To help my Lake Norman homebuyers and sellers better understand short sales, I am going to share some actual Lake Norman short sale transactions with you. But first, a few facts and opinions:
Short sales are best for buyers that have an incredible amount of patience and are able to handle the “not knowing” for months.
If you like roller coaster rides, want a “deal” and are not in a hurry, then you may be a good candidate for a Lake Norman short sale. So far, every one of my short sale buyers has successfully negotiated and purchased their homes at excellent prices but not without a lot of stress related to being totally out of control of the process and not knowing for months if the bank will approve their offer…and some are STILL waiting.
Of course, Realtors’ favorite saying is that there simply NOTHING short about short sales. But, there is also nothing mysterious about them either. The process is relatively straightforward albeit complex and unpredictable:
- Seller gets behind in mortgage payments at least 90 days and is unable to continue to pay them due to a financial hardship of some kind. They have probably already received a notice of default and may even have a foreclosure date. The seller is still living in the home.
- Seller lists the property, usually for less than their total mortgage due to their lender(s) on the property, and their listing agent puts in MLS remarks that this listing is a potential short sale or pre-foreclosure.
- Hopefully, the listing agent has already made contact with the lender (s) to start the short sale process.
- Hopefully, the listing agent knows how to work a short sale. The listing agent will make or break this process!
- Buyer makes an offer, usually a bit lower than the comps and below the listing price.
- Seller accepts just about any offer in order to get something to the bank to start the short sale process. Listing agent will continue to solicit backup offers.
- Listing agent submits a very specific and detailed package to the lender including a draft HUD Settlement Statement showing what the net loss will be for the lender(s)
- Lender sits on the file what seems like forever but at some point finally orders a BPO (Broker’s Price Opinion) which is basically a comparative market analysis which is necessary in order to process the short sale.
- Listing agent calls lender regularly but finds that the lender’s short sale negotiator’s inbox is full so can’t leave voice mail messages and their emails go unanswered (Seriously, this happens every time!)
- During the process it is likely that the person at the bank who is assigned to your file will change several times. Truly a moving target!
- Finally, someone at the bank actually takes the file and works on it. (This can take weeks or months.)
- Bank (s) will make a decision about their bottom line and let the listing agent know.
- Closing attorney works up a new HUD Settlement Statement with the bottom line of the lender which determines how much the buyer will actually have to pay for the property. They will also put a deadline in for the closing. The buyer should have their lender lined up and ready to go because sometimes they only get a couple of weeks to close!
- Buyer can elect to pay the approved amount if it is more than their offer or walk.
- Once the buyer has approved the amount the file usually has to go to the investor/Fannie/Freddie who will also have to approve the sale/loss. This can drag on as well.
- Finally, you get approval from the investor and you can prepare to close. Know that the final HUD Settlement Statement must net the lender exactly what they have approved! Plus, they must approve the final HUD Statements before closing.
Sounds like fun? Here are a few examples of recent short sale in which I represented the buyers:
- October 15, 2009: Sellers signed my buyers’ Offer to Purchase and Contract. The offer price was 16% below the asking price and 31% below the tax value of the property.
- October 23: I received this email from the listing agent: “Everything is submitted and has been noted as received. They said we should see a negotiator contact within 2-4 weeks. The sellers have a counselor through Freddie Mac who is assisting in getting the bank to respond, which is good. “
- November 5th: I received this email from the listing agent: “Not much yet-we have resent the package and have a couple of contacts at the bank but nothing concrete as yet. Will keep you posted!”
- November 20th: From listing agent: “The file is being reviewed , they have received the BPO and all the documents they had requested. Called and email the processor this morning she will not be in till Monday. Hope to have an update at that point.”
- November 30th: From listing agent: “Well, they don’t have voice mail at their facility so we just call and let it ring and ring and then try back again. I have email for the loss mitigator and have pretty much filled it up. Hopefully she will at least acknowledge where we are sometime this week. =)”
- December 2nd: From listing agent: “No response as yet to emails or voice mails. We are calling daily and will let you know when we hear something at all.”
- December 6th: By mistake, the lender sent this email to me instead of the listing agent: “Diane,I am reviewing the above file for short sale and I am needing a new HUD. The one that I have now has a sale price of 235,000.00 and has us netting 269,000.00. I think maybe the estimated pay off was used instead of the net on line # 504. We have received the BPO and we are going to have to net 233,750.00. I can submit this to the MI company for approval as soon as I get a HUD that shows us netting at least 233,750.00″ This was the first indication that we had a real person to deal with and an amount that the bank had to net! From this point forward it was a scramble to close. Luckily, my buyers and their lender were ready to go!
- December 8th: We got approval from lender and MI company and were just waiting for Freddie Mac to approve. We also were busy doing inspections…the foreclosure was scheduled for December 30th so we were under the gun!
- December 16th: Got this from the listing agent: “We are still waiting on Freddie to give an approval, I have been in contact with the bank every other day.”
- December 18th: I again emailed the listing agent about the final approval and got this reply:“No idea-Christmas is the kicker-I don’t know what their holiday schedules are…but I know that when we get the green light we can close in 48 hours so we’re just pressing as hard as we can”.
- December 21st: I sent this to my clients: “I will forward this to him (my buyers lender) and ask him what else he thinks we can do and if we can close 48 hours after hearing we have approval. This is truly very frustrating because we keep asking and asking and yet are powerless to really do anything substantial and we are not getting concrete answers! I will send another email to the listing agent later today as well.”
- December 22nd: From the listing agent: “We have approval!!! We have until January 15 2010 to close, so see how fast US Bank can make it happen. All we need is 48 hours for US Bank to approve the HUD and we can CLOSE!”
- December 29th: We closed! My poor buyers didn’t know until one week before we closed if we had final approval so there was stress until the very end. But, we did it and my buyers absolutely love their new home!
Keep in mind that this was the easiest short sale I have had!
This is getting much too long so I will share with you more actual short sale experiences I have had in future posts on this blog. Please feel free to contact me if you have any questions!