Short Sale Tip 2-4-10

Posted on 04. Feb, 2010 by ctlms in Short Sale, foreclosure

Common Short Sale and Foreclosure Questions

In this issue of my short sale tips I thought it would be good to just throw out some of the questions I get asked from listing and buyers agents.

1. Where are you in the short sale process?

a. I love this one.  The first thing I think when I hear this question is, "this person must not have ever learned anything about short sales".  The reason I think that is the very first thing nearly every lender will ask you when you call about a short sale is, "What's the offer?".  If you do not yet have one, they will tell you to call back when you do, click!  Except of FHA loans, you cannot start a short sale, without an offer.  So you are basically nowhere in the short sale process if there is no offer on the property.

That being said, my answer to that question is usually "we are ready to present an offer".  Unless the file was only given to me a week or so ago, I will already have authorization on file with the lender and know what they will need to see with an offer.  I will have let the sellers know what they need to get together when an offer comes in, and I know exactly where I am sending it and what guidelines I am going to be working with, because I have already found out who the investor on the loan is.

Now if the house has an FHA loan, it is possible that we will have gotten as far as having a "pre-approved" short sale when I get that question.  FHA does allow you to start the short sale process without an offer and get the property and the sellers approved for the program.  They will even tell us what the appraised value is, require it be listed at that price and tell us what they need to net from an offer.  So in that case, my answered would be more specific to where we actually are in the process.

2.  A foreclosure has already been filed against my client.  Can they still sell their house?

a. What?  Of course they can still sell, they do still own it.  There are issues though.  Will it be a short sale?  How much time is left in the foreclosure process?  Can any pending foreclosure date be postponed?

Usually, if you have an offer at least 4 weeks before a foreclosure date, we can still get everything into the lender and get the foreclosure postponed so they can review the offer.  But unless it is an FHA loan, without an offer there is nothing we can do.

3. How long will a short sale take?

a. It depends on the lender and how many of them there are.  It also matters if there is mortgage insurance and who the investor on the loan is.  On average short sales take about 90-120 days from offer to closing.  However some lenders have gotten much faster, while many of the larger lenders have gotten much much slower.  Best thing to do is call us and ask.  We know how long most of the lenders are running right now.

4. I have a buyer client with an offer in on a short sale.  We have not heard anything in quite some time and we don't know what is going on.  What should we do?

a. Give me a call and lets talk about it.  There are a few questions that a buyers rep should ask for their buyer when putting an offer in on a short sale.  Proper expectations are key to keeping buyers happy while waiting for the bank to make a decision.  I always tell the listing agents to feel free and have the buyers agent call me with any short sale questions.  I even tell them to put my info in the agent to agent remarks on the MLS if they wish.  That way any specific short sale questions can get answered quickly for the buyer to make their decision.

5. What questions should a buyers rep ask on a short sale?

a. How many lenders are there?  Who are they?  Who is the investor on the first mortgage? How long do you think they will take to decide? Who is doing the negotiations?  Do they have any experience?

With the answers to these questions I can can better answer question number 4 for you.

If you tell me you have an offer in on a property with Bank of America as the lender and it has been 3 months with no answer, I will say, you  might be half way to an answer.  Yet if you tell me that it has been 90 days and the loan is FHA, I will tell you that someone should be getting HUD involved to find out why the lender is taking so long.

6. Why should my client do a short sale if there is no equity?  They don't get any money out of it, so just let the bank have it.

a.  Please never say this to a client.  First off, none of us, including me, should be giving legal, tax or credit advice.  Whenever I talk to a client I make it clear that what I am telling them is my opinion based on my experiences and that they need to speak with a lawyer, CPA or credit expert before making a final decision.  I also let them know that in a short sale we will get the bank to pay for them to have an attorney represent them.

In most cases a short sale is less damaging to the homeowner than a foreclosure.  Each case is unique though.  How many mortgages they have, if they are purchase money or cash out refinance loans, do they plan to file Bankruptcy for other debts....These all can alter the situation.  But in most cases a short sale is the lesser of the evil options available.  Bankruptcy can screw up your credit for 7-10 years, Foreclosure will exclude you from buying a house for 5-7 years while Bankruptcy and short sale only exclude you for 2 years.  A deed in lieu is just as bad on your credit as a foreclosure and it does not guarantee that the lender will not have to foreclose on it anyway to clear off other liens.  In a short sale we negotiate those other liens and the only mark on the credit report is an account that is settled for less than full payoff, and there is a score reduction for that.  Of course the reality is most of our clients have already trashed their credit by not paying the mortgage in the first place.

Ok, this tip is getting pretty long so I am going to call it quits for this issue.

Have any other questions on foreclosure or short sales?  Think you and your fellow agents could benefit from an office visit from us?  Give us a call or email us for more information about our office visits.  They’re free and always informative.

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