Short Sale Tip of The Week 9-2-09

Posted on 02. Sep, 2009 by ctlms in Short Sale, foreclosure

Setting Buyer Expectations is Key!

There are many pot holes to avoid in a short sale transaction.  Obviously dealing with the lender is the biggest, but buyers and their agents, attorneys, and loan originators can be pretty big obstacles as well.

From the time an offer is submitted there can be months before an approval is received from the lender(s) on a short sale offer.  This is plenty of time for a buyer to get there mortgage commitment.  But often the buyers and their agents are reluctant for the buyer to spend money on an appraisal before the offer is approved.  This is understandable.  Who wants to pay for an appraisal on a house you may not be able to buy.  Yet that does not prohibit the buyer from getting themselves fully approved.

A buyer can apply for a mortgage even without a fully approved contract.  They can received a commitment contingent on the property appraising and passing the required title search.  So by the time the offer is approved, the buyer only need tell his lender to get the appraisal ordered.  In today's environment that alone can take weeks.

But if the buyer has not already had their income and assets verified, that can stretch it out even longer.  Some lenders are not ordering appraisals until the buyer has every scrap of paper required turned in.  Rather than working more efficiently and having the appraisal conducted simultaneously to the paperwork gathering.

Most short sale approvals are only good for 30 days.  If the buyer cannot close within the 30 days we must request an extension which can often require additional money to the lender for approval.  Yet if the buyer can close within the alloted 30 day time frame, everyone is happy.

This is especially important if a foreclosure is involved.  Lenders can be reluctant to grant an extension when the foreclosure date is near.  They would then have to postpone the foreclosure as well.  This would lengthen the time before they could acquire the property through foreclosure if the buyer ends up not closing. Unfortunately the number of short sales that are approved but never close is staggering and the lenders know this.

The take away here is to set the proper expectations with the buyer's and their representatives right at the beginning.  Let them know it is in their best interest to do their home inspection before the offer is submitted.  Negotiating a reduction in the purchase price later is more difficult and time consuming than submitting that lower price up front with the inspection report.  Also the importance of the buyer proceeding to get a mortgage commitment contingent on the appraisal so the appraisal is all that will be required after the short sale approval is received.  Better yet, if the buyer is confident in their offer and wants to move forward with the appraisal as well, they can do that to.

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