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

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"

Posted by Jay Beckingham on 07/30/2010 07:15 AM

Comments (50)

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

JUL

2010

I have my short sale buyers get to work with their lenders just as soon as we have the word from the list agent that the sale will be approved - generally about a week or so before we actually get the approval letter, the list agent will know verbally if the sale has been approved. This gives the lender a little more time to get everything done they need to in order to give my buyers clear to close.

Sadly, the biggest barriers to successful Short Sale closings is the seller's lender. The Short Sale process as no relationship to good loan approval or real estate practices.

They are designed to thwart as many contracts as possible at which they are extremely successful.

We work as much or more with the buyers lender than we do with the agent to insure a smooth transaction...here we still have many lenders AND agents who have not worked with a short sale so keeping everyone in the loop is imperative to getting to a worry free closing...great points !sil

Good Morning Jay,

Thanks for the post and information in regard to short sale mortgage processing. Have a great day.

We just had a short sale approval. Contract is contingent on conventional 20% financing and a 10 day inspection period. The lender wants to close in 5 days.

Rita,

i would agree that that's a good starting point. in most cases even if i haven't heard anything 3-4 months into this process i'm updating pay stubs, bank statements and cautioning the buyer, don't buy anything.

Lenn,

i agree, it's the seller's lender.

i would hope that they don't try to thwart as many contracts as possible, but you could be right.

Sally & David,

I'm in Southwest Florida and if you're a responsible lender you need to know the process, and be ready to roll with the punches. there's a lot more hand holder going on with my buyers.

thanks

jay

Patrick,

thanks

Gabe,

5 days!

i'm speechless!!!

jay

After slugging it out with a lender to get a short sale approved (six months) -- the buyer decided to exist. The process can be challenging to everyone.

We have one of those going on now. The bank finally approvals, one of my favorite lenders in Ann Arbor, VA loan, the buyer is out of the country when time to close via the short sale approval letter. There is a 75.00 per diem on it. We were able to get it waived...a miracle, closing on Tuesday.

In all the situations I have been in with late financed closes in the last two years (which is almost ALL of them), I have been successful with getting the per diem waived for my buyers but one instance and that one instance was considered a standard sale (investor trustee flip).

I find the biggest saver is communication from the bottom to the top from the very beginning. In many instances, I have actually put the lender directly in touch with the list agent when something goes sideways. In the instance where the per diem was slapped on, is when the lender kept saying "the docs will be there tomorrow." (for about 3 weeks)

NOW I am not insinuating that you are lacking communication nor the buyers or buyers agent. It could be the LA or negotiator that is lacking communication to the lienholder(s) that you are presenting them.

Great post - too many people are unaware of the problems involved in short sales!

Education is key here, for the agent and buyer as well. If you are doing something for the first time, find someone with the experience and then get them to educate you on what you're embarking on.

Thanks for the food for thought.

It goes against reasonable business practices, IMO, that the short sale lenders take many months to approve the sale, only to come back with ridiculous time frames to remove contingencies and to close. I prepare my clients as best I can for this possibility. However, I have to admit that more recently, the short sale lenders are coming back with reasonable time frames to close... such as 6-8 weeks. A welcomed change.

You made me chuckle with a $75.00 per diem. I have received contracts from bank's attorneys where ther per diem is 1/10% of the purchase price ($350 on a $350,000 house. That works out to $10,850 on a 31 day month). This clause is presented as non-negotiable. More often than not my buyer does not buy the REO because of that penalty provision. They just cannot bear the risk.

To top it off REOs are sold as is and subject to code violations. More often than not REOs have code violations that preclude a buyer from closing with their mortgage company.

Banks make it very difficult for a non-investor buyer to buy their REOs in NY. They made the bad mortgages and are trying to get the buyer to pay for their bad loans.

Thanks for the pitfall update Jay. As Clint Eastwood said in "Heartbreak Ridge" . . . "what a cluster f#*k.

Jay

This post could not have come at a better time. I am currently working with a buyer and a short sale. I am so glad I read your tips. I will include them in my Toolkit. The Seller's bank had a previous contract but the buyers did not get appropriate financing. So I'm hoping fingers crossed, my buyer will not have to wait so long and that things will go smoothly. Thanks again.

I definitely appreciated reading this post, I agree that going through the short sale process has so many pitfalls that can happen and only with experience are you going to get to the finish line.

Jay: buyer loans for a short sale property are so frustrating since we, as the buyer's lender, have no control over who the seller's lender(s) is(are) and how on top of things they are. I had one where we were ready for docs but because the closing cost concessions were mistakenly left out of the original submission to the bank, we had to wait another few weeks for the bank to approve this. My buyers were beside themselves. Fortunately, we kept the loan documentation up-to-date and we did end up closing but what a nightmare!

Another good approach (if you're working with buyers to purchase a short sale property) is to contact the listing agent to determine whether or not the seller has already received approval for the short sale from their lender. If they haven't yet begun that process, I inform my buyers and advise them not to proceed with that particular property as it will most likely be bogged down in a long and drawn-out process.

It's not worth it for the buyer to be the seller's guinea pig in feeling out their lender's attitude towards a short sale.

-TMC

Tim Cahill
MBA, Certified EcoBroker, Realtor
Web site: CyberGreenRealty | Blog: Home Green Home
T: 617.599.2775
E: timcahill@avenue3re.com

Amen! I had one buyer wait 5 months, then they wanted him to close in 2 weeks. The per diem penalty was $100.00.

Ughhh, so true. I've dealt with several challenges with the waiting period especially with marginal credit byers.

Lorraine & Loretta,

I agree, i'm really surprised that any buyer would hold on that long.

Missy,

a happy ending , sort of. personally i don't think per diem's should be allowed for any VA buyer.

Renee,

if most or all of the transactions needed additional time wouldn't that indicate that the original time frames were unrealistic.

Barbara Jo,

as a fellow floridian i must say we have had to learn the nuances, and often the hard way.

Manuel,

i couldn't agree more

Bill

6-8 is a luxury, i think 4-6 would be good.

David,

$10,850 that should be considered usury. let's do an apr with that cost included.

Harj

the gunny was right on, as usual.

Susan,

best of luck with that. unfortunately the lender often begins the process again from scratch, something about due diligence.

Morgan,

experience helps. you need to be able to reassure the buyer(s) that what is happening is the norm in spite of it being ridiculous.

Cari,

are we having fun yet. within our industry we are doing it to oursselves, what sense does that make?

Tim,

here in good olde southwest florida we need to be able to work through these for the good of all.

Jerry,

2 weeks, plenty of time. ya, right.

Markita,

with a little babysitting, like making them hand over their credit cards, maybe their scores could improve. i can't help myself i'm just a die hard optimist

many thanks to all,

Jay

Good post, great points made to be aware of.

Hi Jay:

I think it is imperative for everyone to work together and stay on top of things in any transaction, let alone a short sale. I also think that, as agent, we must prepare our buyers for the incredibly long and difficult wait involved in short sales. Good article!

Great points in this post and your last....time does matter and pay attention to the dates! Remember when......?

PS. 70 degrees crisp sunny and cool here today....just glorious!

Everyone hurts when the short sale process is dragged out too long. Maybe the buyer changes his mind or finds another home. Maybe the lender changes his mind. Everyone loses.

Susan,

thank you.

Carla,

i agree. the waiting is brutal, for months it's almost like nothing is happening from the buyers side.

Joan,

thanks. 70 is nice. we're hot! hot! hot! and i love it. no oil, no storms just sunshine, white sandy beaches, and more.

thanks,

jay

I try and let the sellers lender know if the process goes too long we will need an extension from the very beginning of the short sale. Afterall they themselves are lenders and sometimes you have to remind them of that fact and they can't do the impossible if they were making the new loan.

Great post Jay. Very informative!

Jay - you make some great points here on Short Sales. Something for buyers to keep in mind

JUL

2010

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.

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

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.

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??

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.

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.

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.

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!

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.

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.

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.

Great post.

Thank you for the tips and valuable information.

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

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?

AUG

2010

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

AUG

2010

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

2010

Ashley,

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

thanks

jay

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!

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

MAY

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.

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Jay Beckingham

Cape Coral, FL

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