Short Sales Continue to Frustrate
by Evan Vanderwey on 05/03/10 at 7:21 pm
If you are a home owner and you want to sell your home but you owe more than buyers are willing to pay, then you have three options:
- You can sell the home anyway and pay the difference at the closing.
- You can request that the bank to whom you owe your mortgage take an amount short of the full balance. This is a short sale.
- Some combination of the above.
If you are a buyer and have written an offer on a home that is listed as a short sale, you know the following story all too well.
You write the offer at some amount that is a great deal for you. The next step happens quickly and is almost irrelevant, but important none-the-less: the seller accepts your offer! You get excited, but wonder: “why am I excited?” Never has there been something less exciting. Here’s why:
The seller is not in control of the sale. In a short sale, the seller’s acceptance of your offer is almost always a given – and means nothing. Since the seller is getting no money from the sale, they couldn’t care less what you offer.
After accepting the offer the seller must send the offer to their bank and get the bank’s approval to sell at the terms of the offer you’ve just made. The seller, who has the right to sell the home, does not have the ability to sell it. Why is that?
If the seller has done their homework, then it has also been determined that they do not have the ability to make up the full difference between your offer and the amount that is owed to the bank. They need assistance and thus permission from the bank to sell at the terms they have accepted because the bank must take an amount short of what is owed to them.
To complicate matters, the bank that is owed on the mortgage does not have the right to sell the home because they don’t it. They can’t sell what they don’t own. They need the seller’s cooperation and signatures along the way to make this fly.
So, what’s the big problem? The seller and the bank work together and you buy the home, right?
Well, banks are big, and short sale sellers are generally an unmotivated group of people.
Some time after the seller accepts your offer, they ask themselves why they care. Somewhere they’ve just read that if they go through with a short sale, the hit they will take on their credit score will be similar to that of a full foreclosure. A fact that may or may not be altered in the future, but is a reality today.
The bank on the other hand must jump through many hoops all the while taking this seller with them through each one. If you’ve ever been to Sea World, you know that it takes a special kind of mammal to do the hoops and costs a lot of fish food. It’s not for the faint of heart. It takes some commitment and determination to stick with Flipper for an entire transaction–something that some sellers do very well, and others do not.
At first it’s fun. The seller gets to sign paperwork and wait. Sign and wait. More signing, more waiting. Then the first of the next month comes around. They know they will not be getting a dime from the closing. Why would they make their mortgage payment? Why not keep that $1000 or $1500? It’s a good question. They call some friends who all agree and the mortgage goes (further) behind.
This complicates matters even more and potentially brings the loan closer to foreclosure land, which, by the way, if things go that far, then the deal is off completely and you, the buyer, must wait until the new owner, now the bank, has the deed and the right to sell the home. This can take weeks and will likely involve a different realtor, and you may not be the only buyer once it hits the market again. But that does not always happen, so let’s stay in short-saleville for the rest of this post.
Meanwhile, the bank is doing simple math. They’ve analyzed the loan performance of the homeowner, reviewed their income and assets, and decided that they would be better off taking some amount lower than the full amount as a way of protecting their asset (the full loan amount) from greater loss through what might be that inevitable foreclosure. Foreclosure law is cumbersome for banks, and they are often better off to take what they can get through short sale.
However, they have a long line of customers asking for this, and they don’t care about the details of any particular circumstance. This deal simply goes on a pile. When your offer is finally reviewed, it’s determined that the seller needs to initial something. The bank calls the Realtor, the Realtor calls Flipper, and the signature is put on paper and returned. The file finds its way onto the pile again.
I have provided preapproval letters for more than 30 active buyers who are looking for homes right now. 2 or 3 of them have written offers on homes that are in short sale. One has been waiting more than 4 months to find out if his offer is accepted.
Ann O’Connor of Re/Max Home Professionals is a seasoned local Realtor. She says:
“Be prepared for a lengthy time leading to the closing table. ‘Short’ sales are not called short sales because of how long it takes to close. They test the patience of all parties. They do offer a good way for distressed sellers to be able to move forward and for buyers to purchase good value at reduced prices. Each one is unique depending on terms, bank and property, including condition.”
I’ll end with an important word about motivation. If you are a buyer or a seller and are considering a short sale, you need to involve a full-time, professional Realtor. If you think about it, buyers are motivated to buy this home. Sellers, as we’ve discussed, start out motivated but will often lose steam right when they need to be on their game. The employees at the banks that are dealing with these are not only behind in their work, they’re also likely to be new to the process in the last two years and not financially motivated to see this through.
A Realtor has done this before, is able to keep all parties on the same page, and most importantly, will get paid when and IF it closes. A fact that will likely be the main reason your deal gets done.
A Realtor will earn his or her commission getting this done for you. Don’t do short sales without one.
