Seller Beware - How The Un-Cooperative Buyer Can Tank Your Short Sale
All time, all the buyers are looking forward to a deal. And short sales are surely a deal. It's a good news to a seller when they receive an offer from a buyer on a short sale. What happens next?
Here is a re-blog from Pam - thanks Pam for your insights.
The mantra in real estate for decades has been "buyer beware", or caveat emptor. In the ever-changing landscape of real estate (pun intended), short sales in Temecula Valley California are becoming as common place as the bank-owned foreclosure, or standard, equity sale. My personal mantra to home sellers of short sales is "seller beware", but not quite the usual meaning of caveat venditor. Seller beware because the un-cooperative buyer can tank your short sale. Here's why.
Short sales are becoming the norm
There were 59 closed residential short sales last month. As of this writing, there are over 500 active listings for sale in Temecula Valley California. 241 of those are short pays, subject to lender approval; 204 standard, equity sales; and 104 foreclosures.
Currently there are 245 pending sales, or otherwise known as, residential real estate transactions in escrow. 78 are bank-owned foreclosures, 52 are standard sales, and 112 are short sales!
What does that mean for the home seller who is contemplating a short sale?
The good news is buyers are not afraid to purchase a short sale, or short pay. They are seeing the many benefits to buying a short sale. Their friends, family, co-workers have shared their stories of how they bought their home through a short sale, or short pay.
Mortgage Fraud and Why The Seller Must Beware
In a short sale transaction, which is subject to lender approval, the homeowner/seller's lender reviews the short sale package. Part of the package is the purchase offer that has been accepted by the homeowner, or seller, and signed by both parties.
Not only is the seller's lender looking at the documented financials and hardship letter of the seller, they are reviewing the purchase offer and buyer, as well. As a result, many banks are requiring both the seller and buyer to sign an affidavit in the presence of a notary, that the transaction is at arm's length --meaning the seller and the buyer do not know each other, that the buyer will not be selling or renting back the property to the seller. Any transaction which is not at arm's length must be disclosed to the seller's lender. If not disclosed, the short sale transaction could be considered fraudulent and could land the parties involved behind bars. See Bryant Tutas recent blog post on this subject.
The Uncooperative Buyer
Because of recent mortgage fraud in short sales, many lenders are now requiring additional information from the buyer, such as social security numbers, date of birth, and telephone contact number. Why is this important? If the short sale transaction results in mortgage fraud by hiding facts from the lender, the lender will have the buyer's information, as well as the seller's.
The three characteristics of an uncooperative buyer:
- Unwilling to deposit earnest money in escrow while waiting for short sale acceptance or counter from seller's lender.
- Unwilling to provide their personal information.
- Unwilling to sign an affidavit asserting the transaction is at arm's length, or any other affidavit required by seller's lender.
Not depositing earnest money indicates the buyer may have other offers elsewhere. When a better opportunity comes up, the buyer will leave the seller twisting in the wind with a short sale approval letter, but no buyer.
Not providing personal information will leave the short sale package incomplete, and seller's lender may close the file.
Not signing an affidavit may cause the seller's lender to rescind the short sale.
Short Sales Are Not a Race - They Take Time
It may be 60 days before an acceptance or counter from a seller's lender on a short sale. In that time, the seller most likely will be 60 days closer to foreclosure. Is it worth the risk for a seller to be under contract with an uncooperative buyer?
If you want to save your credit and avoid foreclosure, contact me for free tips on loan modifications and short sales at no-obligation.
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