When a borrower is no longer in a position to make the mortgage payments, is facing foreclosure and the current market value of the property–including escrow costs–is less than the loan on the property, the borrower may consider a short sale. This could save the lender the expenses of foreclosure proceedings and from having another REO property on its books. From the borrower’s perspective, the short sale prevents having the foreclosure on the borrower’s credit history, and releases the borrower from an obligation that he or she can no longer afford.
In essence, a short sale is a sale transaction subject to a lender’s approval in which the lender consents to a sale of the security interest for less than what is owed on the note and accepts the proceeds in full satisfaction of the loan amount. A short sale requires much paperwork and preparation on behalf of the borrower. Typically, before applying for a short sale, the seller must have an offer from a ready buyer and all the paper work prepared to present to the lender. The buyer of the property must also be prepared for a protracted time period to conclude the purchase of the property.
Lenders will report the short sale as being settled for less than the full balance. This would show up on the borrower’s credit report as a negative mark for seven years. Before a short sale is contemplated, it is strongly recommended that the borrower seek the advice of a professional tax advisor.
The borrower’s home should typically be on the market with a realtor who has the knowledge in negotiating short sales
I am told that lenders would rather do a short sale than a foreclosure, but it certainly does not seem that way when you try to do it.
I have negotiated several short sales so I can speak from experience. I lost a few buyers in the process and had to put the listings back on the market a few times, but after a lot of hard work and patience the properties sold at the short sale.
The real challenge is when there are two loans on the property. You start with the first lender. They do not respond quickly and in a declining market, the value of the home goes lower than the offer that was received. The lender wants to do 2-4 BPO’s on the property. If the BPO comes higher the buyer backs out. The roller coaster starts again. You look for a new buyer, the buyer offers a price that the bank wants, the bank takes a while to look into this offer and finally approves it.
Now you are ready to negotiate with the second lender. They demand that the first lender pay them $10k. The first lender only agrees to $2000-$5000. You go back and forth for a month and the buyer backs out again just when you thought you had done it this time.
Agents are so put off by the whole process that they don’t want to sell a short sale listing. And then there are agents that will list it but are not motivated enough to follow up with the lenders. They think that the lender said they will respond in a week so even when they don’t hear back, they do not want to call the lender again and in a short sales situation, as an agent you need to call the lenders every week and keep following up till the approve the short sale.
From all of this you can see the patience one needs in dealing with the challenges of a short sale. It just does not make sense as to why the banks cannot get their act straight and help in making the short sales easier since it is a win-win situation for them, and the seller who can avoid a foreclosure and of course the agent and the overall market since the foreclosure properties are bringing the prices down.
I have had a 100% success rate dealing with short sales and all the different lenders in the industry. If you are looking to do a short sale and need to talk to a short sale specialist, please call me at 510-279-9580. I would be happy to discuss what it takes to do a successful short sale.
Shopping for a home is an emotional experience. I am going to share some tips on making your home purchase in Mission San Jose, Fremont less stressful and more enjoyable.
