Another good article about short sale.!

It’s very challenging to do short sales these days, as lenders have become less inclined to let things slide and negotiate. When it comes to a short sale, both agent and seller need to be pro-active. Above all, the parties involved in the transaction – the seller, the buyer and their respective agents – need to be very patient.

The tenets of a short sale transaction are like no other, according to Katherine Handley. The senior vice president of Old Republic Title Company shared her experiences with short sales at last week’s Cupertino/Sunnyvale District tour meeting.

Handley told listing agents their sellers need to be very forthright with them, and timely in submitting the required information to the lender. They need to fully complete a document package which will contain all financial information – tax returns, bank statements, W-2s, and they will need to tell all in a hardship letter.

The listing agent, in turn, should present a BPO, CMA, other documents that show the lender that the agent has done the homework with regard to pricing the home. She indicated it takes about one to four weeks before a lender downloads the package and assigns a loan mitigation officer to the case. Then it takes another four to six-week period to review and get back to the escrow officer.

Handley said escrow officers communicate with the parties every step of the way, but do not negotiate. “We merely present the lender’s conditions,” she stated.

Complications in the process arise when more than one lender is involved. Handley said last year, second lenders were more amenable to releasing their lien and closing the sale; today, the lenders are more aggressive and ask for 10 to 20 percent of the loan balance, which requires cash infusions from parties.

Agents also need to understand where the short sale is in the foreclosure process. Before, if an owner was two months behind on payments, the lender would automatically report the default; now, few do. Some sellers are 10 to 11 months behind on payments and their defaults have not been recorded.

Once recorded, there is a 90-day clock ticking before foreclosure. You can work on the short sale during this time, but if the seller waits too long and the lender gets ready for a trustee sale, it may be too late to negotiate a short sale and the home may go directly into foreclosure. Some lenders have been good about postponing the foreclosure sale if a short sale is in process, but if in process within 72 hours of the day of the sale, the lender will not postpone the foreclosure.

Most short sales take three to six months to close, so it is a long escrow process. “It’s important that the seller and the buyer’s agent understand and are willing to hang on,” Handley said.

A short sale is approved for a 30-day period, but can be extended by the lender. Handley said last year, lenders permitted several extensions, but these days, after the second extension some lenders demand a per diem from the buyer.

The senior escrow official noted in her 36 years in the profession, working on a short sale “has been the most frustrating.”

“The lenders have no compassion. They will tell you they don’t care. There is no common sense or understanding of the plight of the seller. The government would be surprised at the type of behavior of these lenders,” Handley exclaimed. “They will tell you these are their conditions. You either agree with them or the short sale won’t go through. They make the rules; there’s nothing you can do about it.”  

Handley acknowledged often lenders' decisions are dictated by investors.