The Deal Killer of Short Sales
Over the past year we have seen and read more about short sales than we probably ever wanted to know. For most pros out there it's a market niche that they have avoided because of the difficulty and uncertainty generally associated with short sales. And I think we would all agree that the process is, if anything, daunting. But there is one thing that is often overlooked that could increase your success rate.
Many times in the rush to get the lender onboard the documentation process becomes the primary focus. Everything is zeroing in on getting the price and the primary lender's cooperation and in the process a critical item sometimes get's put off or forgotten about.
The average loss on a short sale is around 19% of the loan amount versus 40% for homes sold after foreclosure. It's a great negotiating tool to use with the lender but you need to make sure you are negotiating with the one that makes the decision. Generally speaking to the lender's loss mitigation department can handle the negotiation even if the loan was packaged into a mortgage backed security. But the bigger issue is not with the primary lender.
Too often the failure to identify and factor in junior lien holders until later on in the process causes the deal to fall through. In the case of junior mortgages a rule of thumb suggests that if there is 20% left over after dealing with the first you are most likely in the ball park. But remember, nothing is cast in concrete until all parties have signed off ... and that is what usually causes the problem. You are fighting a time crunch from the "get go" and the more complex the financial issues are the harder it is going to be to hold all the parties together. The answer may be a simple step that gets overlooked in the heat of battle.
A simple title search up front before sitting down with the seller can save a lot of surprises. Yes, they told you about the first and the HELOC but they forgot about the tax lien or the 3rd that Aunt Cindy holds. The short sale is tough enough in a perfect world and the last thing you want is a buyer and seller in agreement on a price that doesn't have a chance of flying.
And while you're at it, don't forget the sale is sure to be in "as is" condition and your buyers need to be very confident that they know exactly what it's going to cost them to get the property in condition to meet their requirements. Be certain that they are getting the professional advice they need to make that decision and are not relying on something you said in passing - which needs to be "left unsaid." And don't forget to use those costs when negotiating with the lender on the final price. Put all this together and you have a whole lot going on with all 3 parties ... the last thing you need is for the "rabbit" to jump out of the hat at the last moment with a sign that says "what about me."
The short sale can be a good deal for all parties but there are very few of them that close easily. Do your homework and make sure that both the buyer and seller are fully aware of all the terms and conditions and are prepared for the eventual delays that are sure to come from the lender(s). Get Aunt Cindy or the tax man out of hat up front and keep them from killing the deal. If their presence makes the deal impossible you want to find that out as early as possible to avoid wasting everyone's time.
Moving into the short sale market niche can be very rewarding but it's a process that involves a lot of twists and turns along the way. If you want to learn more about short sales you should check out the Certified Short-Sale Professional (CSP) course from RealtyU. The CSP online course as well as all of RealtyU's other designation courses are being offered.
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