In the Northern Virginia market is is becoming all to common to find people who are not able to sell their home for what they owe. Short sales are a buzzword to some, but in reality are tricky to work. Here are some pointers so you won't waste your time listing, or writing a contract, on a property that may not get bank approval on the short sale.
FROM THE LISTING SIDE:
1. Determine if this sale is absolutely necessary. Then, take what you know and write up a hardship letter for your sellers to sign.
2. Have your seller sign a letter, detailing loan numbers, that gives you the authority to speak to the bank on behalf their behalf.
3. Collect about two months worth of bank statements, their most recent tax return and a monthly budget.
4. Send this information to the bank(s) and, if you really want to be ahead of the game, start negotiating a DEED IN LIEU OF FORECLOSURE. This way an appraisal and title work are ordered and ready to go when you get a contract.
5. DON'T OVERPRICE THE PROPERTY. Explain to your clients that the bank will generally accept 92-95% of the appraised value. Low ball offers will automatically be rejected, so they have built-in protection from that. Price to get the contract quickly.
6. Know that the bank doesn't ratify the contract...your sellers do!! Until the property is foreclosed on, the sellers are the ones that sign the contract. The 3rd party approval contingency is what protects them in the event the bank doesn't approve the sale...as long as you have given a long enough time frame in the contract to allow for 3rd party approval. I find that 45 days is sufficient if all the steps above have been followed.
FROM THE SELLING SIDE:
1. Determine if there are two trusts, and if so, if they are held by different banks. If so, this is a complicating factor as both banks have to approve the sale. Even if the same bank, it is likely that different investors hold the loan. One trust short sales are quicker to deal with.
2. Ask if the hardship letter and financials have been turned into the bank. If not, you are looking at about 8 weeks to even get to the point of a yes or no from the bank.
3. Ask if any mortgage payments have been missed. Banks are much more likely to approve a short sale when they are not receiving their payments.
4. Pre-qualify your buyer with the same lender that holds the first trust. You'd be surprised at how quickly the buyers lender can get answers when calling the negotiator within their own company.
These are all things I have learned the hard way. Particularly, the lessons on the buying end. I helped some buyers write an offer on a property on the 11th of November that STILL has not been turned into the sellers banks for approval. Why? Because the hardship letter and financials were not even put together to turn into the bank until 3 weeks after the contract was received. I wrongly assumed that because the seller (I had been told) missed 3 payments and was given an acceleration of foreclosure notice, that all of these things had been done in preparation for the short sale.
Know what your buyers should expect and tell them. If they absolutely love a home that is subject to 3rd party approval, no payments have been missed, no financials have been submitted, or something equally frustrating....let them know that this will not be a quick process...not even to get the contract to the bank for approval. And in the end they can end up waiting two months for something that ends up not working out.
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