What Factors will Influence a Lender to Accept a Short Sale
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors
When working a short sale, typically one of the first contacts you will have with the mortgage lender will be when you present your short sell package. The package has to be complete and thorough and most importantly it must compel the lender to accept your short sale offer.
The mortgage lender must be able to satisfy them selves that this is in the best interest of the bank. The short sale package must answer several critical questions from the lenders perspective:
The concerns that the bank might have is:
1. Does the homeowner truly qualify for and deserve a short sale?
2. Is it in the banks best interest to accept a short sale or are the better off taking the home back in foreclosure and ultimately resell the home using the services of a REALTOR?
3. Are there any hidden factors that might effect the banks decision during the short sale process? The lender will conduct their own investigation to make certain that the homeowner is truly deserving of receiving the benefits of a short sale. They certainly don't want to allow the seller to walk-away from a loan if they already have a newer nicer home purchased and they just couldn't get what they wanted for the old one. Another example of what they may be looking for is a seller that is current on all of their bills, except the mortgage - and they are driving around in a couple of really nice vehicles. You get the picture.
There are other factors involved as well. Not only is the lender looking at the value of the property, repair costs, realtor commissions, holding costs position of the homeowner - they are looking at their own portfolio to see what wiggle room they actually may have.
Several key points the lender will need to consider before making the decision to pursue the short sale strategy will include:
Analyzing the lenders own portfolio. How many properties does this mortgage bank have that are in default and how flexible is the investor backing this particular loan - remember, many loans are traded as a commodity on Wall Street?
- Is there a third party servicing the loan - and what is their fee?
- Does the homeowner have an attitude problem or are they being cooperative?
- Was the loan originally financed through the investor or were they able to purchase it as part of a portfolio at a discount - and how much is the discount?
Remember just because an offer sounds good to you...it may not sound so hot to the lender. After all, it is possible that they may think they would be better off taking the home back through the foreclosure process and selling it themselves and ultimately recover more of the money they are out.
If the first loan is upside down, then they will typically only allow the second to receive $1,000 from the sale - and the lenders in second position know this. However, if there is equity left over after paying the first 100% then the lender in second is in a stronger position to receive at least 10% of what is due them.
Always start the offer process with the bank LOW. Regardless of what you offer, they always seem to come back - so be prepared to negotiate and substantiate you position.
Perhaps the biggest unknown to the lender (and you) is what repairs are required to make the home saleable. If a lender takes the home for sale back through the foreclosure process. When you are negotiating with the lender, this card is often your "ace in hole". An estimate from a local licensed contractor is worth it's weight in gold - get tow estimates that support one another and your position and they are worth their weight in platinum!
When dealing with contractors you want well established reputable licensed contractors - not the cheapest handyman in town.
If you have your estimates done early in the process, you can use them to influence the BPO, which I'll cover in a subsequent article.
I again come back to a very important point in closing and that is to remain ethical at all times. Do not fabricate the illusion of damage to try and lower the value - this is fraud. Do not conspire with the contractor to do the work for a smaller percentage of the bid - this is both conspiracy to commit and fraud. Be ethical in what you do and not only will you sleep much better at night since you won't be thinking of the Attorney General or District Attorney investigating your deals, but by working ethically and fairly with all of the parties concerned I am sure your life will be much more blessed.
Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,
John Occhi, Hemet CA REALTOR
Realtor Consultant to Foreclosure Investors
Mission Grove Realty
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