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Processing a mortgage for the short sale buyer...pay attention now!

By Jay Beckingham

Mortgage and Lending with Christensen Financial Mortgage 385907

July 30, 2010 12:15 AM

Like most purchases my involvement with the short sale buyer probably started out with prequalifying the buyer, and putting them through the preapproval process. Then I issue a preapproval letter based on hard copy financial data.

Pay attention now!

It has a shelf life...It's not good forever.

If the negotiation of the short sales takes 3, 4, 5, 6 months or more in all likelihood the prepproval has expired, the data is old, and essentially no longer serves any useful purpose.

Okay I have an offer accepted by the buyer and seller, subject to approval from the current mortgage holder and/or holders.

When do I actually start processing the mortgage application?

If I start immediately then I probably will have the need to reprocess the application in its entirety. The appraisal for sure will either expire and/or the comps will be deemed to be too old.

So when do I begin?

Good question.

When the offer is okayed by the lender please pay particular attention to the contract dates. They may be inconsistent.

For example, if the lender is calling for a 3 week closing, but the contract states that the buyer must obtain mortgage financing within 30 days of the effective date or lender acceptance, then you're asking for a closing before mortgage commitment. Cute trick, right?

Beware!

Why is it that the mortgage lender can take 5-6 months to reach a decision, but then decides that I need to close an FHA loan in 3 weeks? You could be headed for an extension on many/most transactions. As a lender you would think that they know that.

Beware! Take 2.

Per diem penalties are not my responsibility. I'm not unsympathetic, but there may be nothing I can do. I just saw one with a per diem of $75 per day. That's $2250 per month, a little steep I would say.

I can clearly see the difficulties of processing the application for the buyer of a short sale, but please understand that I do have a great deal of empathy for both of the Realtors involved who have worked so hard and diligently to get the buyers and sellers to this point, You certainly have earned more than you will be compensated.

Well, what's the point?

The point is that this is a very long and drawn out process. That we all need to work together as closely as possible, and remember always pay attention to the special details associated with the process.

So, I have a question in regards to the short sale buyer.

Are we aware of what they are going through?

Maybe Tom Petty said it best,

"the waiting is the hardest part"

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Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I think it's a good idea for the buyer to keep the documents updated to the lender - bank statements, etc. to try and keep things moving forward.

Additionally, once a negotiator is assigned, it's a good idea to move forward a little bit with the buyer's loan.

Jul 30, 2010 05:04 PM

Bruce Swedal

Denver, CO

Denver Real Estate

Another good point when working with buyers thinking of getting involved in a short sale

Jul 31, 2010 03:08 AM

Jackie Hawley

Coldwell Banker Professionals - Oxford, MI

Southeast Michigan Real Estate

When representing a buyer in a short sale I make sure up front they have the time to wait. I have them make mortgage application after the seller accepts their offer (but no appraisal- no need to pay for one before the short sale is approved). I advise them to not buy at the top end of what they can afford- who knows what will happen to interest rates over the next 3-6 months. Tell them not to incur any more debt and to save cash. There could always be a counter of either price or concessions or both. I ask them to keep their loan officer updated during the wait (keep sending check stubs and bank statements) and to please use an experienced loan officer. I order title work within a day of seller accepting the offer so it only needs updating when the short sale is approved. I warn everybody on my side of the transaction that after waiting for months we may be pushed into a quick close after the short sale has been approved. I haven't had one not close due to financing yet.

Jul 31, 2010 03:56 AM

Karen Crowson

Coldwell Banker Residential Brokerage - Rancho Bernardo, CA

Your Agent for Change

I agree Jay, some steep inconsistencies. I've been told by my buyer's lender, that their loan will take 45 days. That's the reality. If I put that on an offer receiving multiple bids, we're likely not to be selected. Yet we all know it's entirely possible. My favorite one of late? Bank XYZ tells the borrower they need to allow 45 days for loan processing. Same Bank XYZ approves a short sale and requests that we close in 17 days! Huh??

Jul 31, 2010 04:41 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

When I look at offers on Short Sales I look at the financing to see if it is durable or if we are lucky they have cash. Generally though if someone has a good sized down you can count on them being able to get the loan when the time comes.

Jul 31, 2010 04:48 AM

Joetta Fort

The DiGiorgio Group - Arvada, CO

Independent Broker, Homes Denver to Boulder

I've been doing short sales about 7 years now, and I'm thinking I've had enough of them. But sometimes, it works for the buyer - like when they're stuck in a lease but want to start looking.

Jul 31, 2010 04:56 AM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

Hey FNMA foreclosures are $150 a day for not closing on time. Never had them whack a buyer yet, but I think if the buyers are dinking around, they could have an unpleasant surprise.

Jul 31, 2010 05:38 AM

Nate Gerard

Keller Williams Premier - Stillwater, MN

CDPE, East Metro Twin Cities Realtor

This is yet another reason to have a relationship with a mortgage professional. Then that person not only knows when the deal is close but also trusts that they can go ahead and get much of the work done so you can close within the clear to close deadline from the seller's lender.

Great post to remind people of what they need to do from a lender aspect to further bullet proof their transaction.

Personally I like that our business in more complex. It weeds out the people who shouldn't be our colleagues!

Jul 31, 2010 05:45 AM

Tom Waite

Thomas Waite Real Estate Broker - Cypress, CA

So Cal-Apartment Bldg Investments

Well, since the Short Sale Lender is saying.........we'll get back to you...

I guess..............I'll get back to you on that processing thingy.

Jul 31, 2010 05:58 AM

Ann Wilkins

Golden Gate Sotheby's International Realty - Oakland, CA

Oakland, Berkeley, Piedmont CA

With short sales, this has always been my frustration - the approval letter with a three week or less close date. The good news it that we have always been able to extend the close date. Yes it is a few sleepless nights and we end up getting the extension at the very last minute. However, I am noticing that the past two with B of A, we are getting longer time periods for coe.

Jul 31, 2010 06:38 AM

Anonymous

Kevin Walton

Usually as long as you have a serious buyer, the per diem gets waived. Since it usually gets waived I'm surprised that more FHA financing isn't being used in SoCal, especially the 203k Streamline. It may take a week or two longer to fund but it can solve many a problem when it comes to fixing property issues, and even increase the loan amount a bit to enable them to buy new appliances.

Jul 31, 2010 10:19 AM

#41

Monika Phillips

Keller Williams Realty Palm Beaches - Palm Beach Gardens, FL

Great post.

Thank you for the tips and valuable information.

Jul 31, 2010 01:22 PM

Jay Beckingham

Christensen Financial Mortgage - Port St Lucie, FL

Seniors ROCK!

Cameron,

the hard part to accept , to me, is that as a lender they show no respect for other lenders. that's kinda sad.

Kathryn,

thank you. how have you been? hope all is well.

Roland,

it's tough to try and help the buyers make some sense of this process, but we must do the best we can.

Christine,

our preapproval process is such that we ask for tax returns, w2's, pay stubs, bank/asset statements, drivers license, and social up front. we then run it aus, and it is then certified by our in house underwriter. that's our preapproval, so we do get a good jump on it.

Bruce,

we need to help them establish the correct expectations.

Jackie,

personally i'd be more than happy to work in that system, but some won't.

Karen,

i've heard that senario before with the same bank, also try this. the bank establishes the price based on a bpo, the buyer applies at the same institution thinking it'll be easier. the same bank orders an appraisal which comes in low. the bank refuses to negotiate a new price with themselves. go figure.

Gene,

are cash buyers apt to be more impatient? unfortunately in todays market a good downpayment is helpful, but not the guarantee it used to be.

Joetta,

i'm in southwest florida and they are, and look to be, an important part of our market now, and for the unforseeable future.

Lyn,

i agree, but they are part of the contract and therefore enforceable, correct? you're right in that it's the sellers option. it would seem foolish for a seller to prevent a closing over per diem.

Nate,

many ex loan officers/brokers whatever, have found today's market to be to difficult and have left. i'm with you, that's okay with me. it's been over 30 years for me, and i still love it.

Tom,

let me know when you're ready.

Ann,

i'm happy to hear about longer dates. it just makes it easier on all parties involved.

Kevin,

i love the k's. i agree it solves a lot of problems for the buyers.

thanks to everyone,

jay

Jul 31, 2010 01:45 PM

Juli Vosmik

Dominion Fine Properties - Scottsdale, AZ

Scottsdale/Cave Creek, AZ real estate 480-710-0739

Welcome to the world of craziness!!!!! Everyone wants everything their way. Unfortunately, with short staffing of the banks, short sales take forever until they're ready. Then, it's now or never. I've talked to a few of the banks who say their internal policy on a short sale is that the docs expire in 30 days - WHAT!!!!! You allow mortgage applications to be 90 days old when you close with just a verbal VOE (verification of employment.) Shouldn't one match the other?

Jul 31, 2010 01:49 PM

Jay Beckingham

Christensen Financial Mortgage - Port St Lucie, FL

Seniors ROCK!

Juli,

how reliable is their data if they feel it expires in 30 days? would you care to share with us the name of the institution?

please

thanks

jay

Jul 31, 2010 11:36 PM

Ashley Kurtzman

Performance Mortgage - Findlay, OH

Gotta love short sales! Not to mention how much a borrower's credit report can change in the 3,4,5,6 months it takes for the offer to be approved. It's very easy to instruct the typical borrower not to change jobs, take out new loans, co-sign anything, or charge any major purchases in the 30-45 days it may take to close a standard sale, but try having someone hold off on doing any of those things for 6 months!

Aug 02, 2010 08:49 AM

Jay Beckingham

Christensen Financial Mortgage - Port St Lucie, FL

Seniors ROCK!

Ashley,

isn't that the truth. and LQI helps to catch em.

thanks

jay

Aug 03, 2010 12:15 AM

Kristina Heili

Keller Williams Premier Realty - Woodbury, MN

Comprehensive Real Estate Services

I just went through the exact scanarios you presented, from beginning to end. Took the lender 6 months to approve; gave us 7 days to close, with a $22 diem. Buyer's lender refused to start anything until the lender's approval letter was in their hands. Buyer refused the $22 diem. It helped to whine to the lender, "Awh come on! It took you 6 months to get to this point and you give us 7 days? Physically impossible; go back to the drawing board and give us an absolute minimum of 30 days (although we needed 45 days)." They did, and they did! Now we put the pressure on the buyer's lender and they were able to squeeze 45 days into the alotted 30 days! Man, what a workout!

Aug 03, 2010 08:38 AM

Jay Beckingham

Christensen Financial Mortgage - Port St Lucie, FL

Seniors ROCK!

Kristina,

there is absolutely no logical reason why we all must go through this, or be put through this. But i don't see it changing anytime soon. who's making these decisions? they need to be replaced, but that's not happening either.

so to you all i can say is you did a great job, congratulations.

thanks

jay

Aug 03, 2010 09:52 AM

Matt Robinson

Professional Investors Guild - Pensacola, FL

www.professionalinvestorsguild.com

Good post and good info. We definitely discourage any buyers from proceeding with any lender related stuff (except for initial application and pre-approval) until the lender has approved the sale. Yes, the dates have to be changed sometimes, but that's better than wasting money on appraisals.

May 18, 2011 06:10 AM