Expectations

The short sale process is not for the faint of heart.  There are many elements necessary for a short sale to close.  There needs to be a fair market price agreed upon between the Seller and the Buyer.  There needs to be enough time to complete the process.  There needs to be a Buyer who is prequalified and willing to hang in there.  And there needs to be someone experienced in short sales handling the entire process.

Expectations of Sellers:

All Sellers considering a short sale should have a tax person they can talk to regarding tax consequences of doing a short sale such as the consequences of signing a promissory note.  Sellers should also have an attorney they can talk to about what the best course of action is for them.  Should they do a short sale or a foreclosure?  What will be the impact on their credit?  Should they sign the final documents sent over by the lender(s)?  Is bankruptcy really an option?  Ideally the Seller would talk with someone up front to figure out the “what if’s” and decide if they can live with the possible outcomes of a short sale (tax consequences, promissory note, etc) prior to spending a lot of time going through a process they’re not willing to see through.

While we try to collect as much information up front (the things most lenders typically ask for) there is a possibility that the lender will want information on their own form or even a phone conversation regarding some aspect of your submission for the short sale.

There IS a lot of paperwork in the short sale process.  The more information you give us in a timely manner, the better.  Full tax returns-not W-2s.  A copy of each mortgage statement. And don’t get an attitude about what the lenders are asking for-they need what they need and will not proceed without it.  They really don’t care if you do a short sale or not so will just put your file aside until they get what they want.

If you have money in the bank, don’t try to hide it.  The lender may find it or find out.  And, in reality, this is a debt you owe.  If you truly have a hardship and truly can’t afford your monthly payments because they’ve adjusted or because of your hardship, that’s understandable.  But if you just don’t want to make those payments any more and have money in the bank, be prepared to give them some of it.

If you already have a Realtor working with you on a short sale and you are still getting calls from your lender, it doesn’t mean your Realtor isn’t working on it.  The lenders are very large organizations with different departments that don’t necessarily talk to each other.  Politely tell them “I have someone working on this short sale for us.  If you’d like to talk to them, here is their contact info….”.  Also, if you get a letter that is important from your lender about the status of your loan, make sure you share that information with your Realtor.  This would include a notice of default/notice of trustee sale, a letter that your lender has sold your loan, etc.

When a Seller talks with their lender and we are in the process of negotiating with the lender, they need to be careful about what they say to the lender.  Recently a Seller told the lender that he lost a buyer because they were taking too long and the negotiator wouldn’t call back for 3 weeks (we had submitted another offer).  Another time a Seller told the lender they were considering bankruptcy….and the lender closed the file.

Expectations of Buyers:

We often see buyers entering into a short sale who need to close by a certain date.  Maybe they have locked a loan that will expire; maybe their current lease will be up by a certain date.  Whatever the reason, it is risky for Buyers like these to enter into a short sale as there is no guarantee they will be able to close by their deadline.  The buyer needs to go into the short sale EXPECTING it to take 6 months.  Buyers need to be committed to the property.  It is unfair for a buyer to tie up a property while continuing to make offers on several other properties.

I’ve had many people tell me to tell the lender “hurry up or the buyer will walk”.  Threatening the lender doesn’t work.  Again, they are handling so many short sales they really don’t care about YOUR short sale.  We have to work with in their process.

Expectations of Realtors:

Realtors need to prepare their Sellers and Buyers at to the realities of the short sale.  It can be a long process.  Short sales can take as little as 2 months but as long as 9 months.  Be prepared to wait. The length of time the short sale takes is entirely up to the lender(s).  They have their processes you have to work within.  Some lenders take 5-7 business days before they can tell you they got your fax, just to find out they DIDN’T and have you to go through the process all over again.  Some lenders have automated systems where you punch in the loan number, it gives you a recording with a fax number to send the package in and the automated system tells you when you can call back.  If you call back BEFORE that date, they will kick your short sale out of the system.  And the lenders lose paperwork ALL the time!
• The Listing Agent should be prepared to meet the lenders appraiser at the property when the BPO is being conducted.  Your Realtor can so you a huge favor if they bring a BPO THEY prepared.  This can greatly influence the BPO that is sent back to the lender.
• Paperwork should be submitted in a timely manner. It is best to get ALL of the paperwork from the Seller before there is a Buyer.  We’ve had packages we couldn’t submit where we had all of the Buyer paperwork and we were still waiting on paperwork from the Seller.  This could cause you to lose the Buyer if they find out because they don’t want to wait any longer than they already have to.  One time there was a “very busy” Seller who got his paperwork that had been requested for over a month 2 days before the home was scheduled for a Trustee Sale. That makes it quite difficult to get the lender to postpone.  Sometimes the lender will request updated information if the documents submitted are too old in their opinion (if it took awhile to get a buyer, etc.)
• The Listing Agent should market the property to receive the highest possible offer.  The lender will be doing their own appraisal and low ball offers will rarely meet the valuation the lender is looking for.
• Most lenders WILL NOT give an approval BEFORE there is a buyer on the property.  There is no “contract” price so there is not anything to accept.  The lender wants to know one thing…..what will their bottom line be?
• If a buyer walks on a short sale we can try to sneak a new buyer in at the same price and most lenders will let you do that.  But some lenders will make you start at square one if a buyer walks and we don’t get a new one in time-they will simply close the file.
• If a property already has a NOD (and definitely if it has a NOT) you may want to think twice about taking that short sale.  You still need time to market the property, get a buyer and, if there is a NOT filed, work with the foreclosure attorney for the lender to get them to postpone.  Many times they will only postpone if the Seller brings the account up to date.
• Lenders do not allow the sale of property between family members in a short sale.  Do not try this.  It clearly states in most acceptance letters that this is not allowed.  If you try to get away with this and they find out, it could cause a problem you don’t want.
• If you end up with a Buyer and then the Selling Agent stops communicating with you, send over a cancellation and move on to a responsive Buyer/Agent.  If they aren’t communicating at the beginning of the process, what will they be like to work with once 2 months have gone by?

Possible Outcomes:

There will probably be credit consequences whether you do a short sale or a foreclose.  If you need more info, consult an attorney or tax professional.  Call us if you need referrals.

There will be a 1099 issued.  Whether or not you will owe this tax will depend on several factors and, again, you need to consult an attorney or tax professional.

The 1^st could give its approval, just to have the 2^nd refuse to budge.

The 1^st could give its approval and the 2^nd asks for a percentage of their balance.  Sometimes the 2^nd will ask for a promissory note to be signed for this balance.

If there is a PMI company involved, they could kill the deal.  They could also ask for a promissory note.

In an ideal world, all goes well and we get to close escrow.  In an ideal world, the lender(s) accept the money and considers their balance “paid in full”