Following are the guidelines for short sales that I "run" through my law office. Please note that these are guidelines and exceptions can be made so long as the exceptional nature of the sale is discussed with me ahead of time. If you send a contract to me for approval on a short sale that I do not already have in my office, a paralegal will call you back asking that the Seller schedule an appointment in person or by conference call (if they are out of State). Essentially, the steps that I require have reasons in italic and they are all based upon experience. My goal is to have my practice evolve along with the short sale market, bank behavior, and experience so that we close more deals and have fewer deal fall through. . .
Let's close! . . . .
The ideal short sale is simple: Cash transaction priced at market value with all contingencies removed prior to short sale approval. Every added contingency is added risk that can lead to the loss of our Seller's short sale opportunity. To avoid this loss I require the following steps and considerations:
BEFORE you take the listing:
- Call or email the address to me so that we can run the title and let you know what kind of adventure you are on: There have been many occasions where we find multiple State and Federal tax liens and executions. On one occasion, the Seller had already been foreclosed on and did not own the house! Let's not waste time on mission impossible. . .
- Have Sellers meeting with me for a free consultation: I often meet with Sellers and their Realtors to make sure that we are all on the same page and to present a thorough team approach. I want the Sellers to work with their Realtor to sell the home and not to walk away leaving the Realtor with a dark cold unsaleable shell of a home. The more ground we cover the fewer surprises we will encounter and the better prepared we will be when the offer comes in.
- Start the Short Sale Before the Offer Comes In: Many banks are offering Sellers participation in cooperative short sale programs, absent which, the Seller will lose out on a waiver of the deficiency and incentive money $3,000+/-; Also we can get all documentation together before the offer comes in - this cuts down on the time it takes to process the sale dramatically! It also alleviates the time-crunch situations when we cannot submit the short sale because we do not have all of the documentation.
BEFORE you accept an offer - Make sure that you are making a good short sale deal:
- Remove all of the contingencies that are in your Seller's control such as TitleV: Personally, I have seen so many deals fall through or become unnecessarily complicated over Seller's unwillingness to pay for the title V tests prior to contracts it makes me cringe. a) If Seller does not want to pay for the test, I do not want to work the file for 90 days. b) Often times in short sale and regular sales, the Seller vacates months before the actual sale. MANY cities and Towns will give "conditional passes" if the property is vacant for 30+ days. That means holdbacks are necessary if Buyer's Lender even permits a holdback - that can mean the end of the short sale even if the system passes! The Title V report is good for 2 years!!!!
- Avoid Closing Cost Credits: Closing cost credits are often reduced or denied at the short sale approval stage. If the entire deal is contingent upon the credits we may lose the deal. Also, the Buyer will often expect that the Bank will at least allow a price reduction in place of the credit - NOT SO - In this situation the bank will likely insist that the price remain unchanged and deny the credit.
- Avoid "Subject to Buyer Selling their current home contingencies": Seller sometimes gets one shot at a short sale before foreclosure. It is therefore against the Seller's best interest to leave subjective contingencies outstanding while chasing short sale approval.
- Avoid complicated financing relying on multiple sources: Seller cannot wait for the planets to align for a marginal Buyer. In a multiple offer situation the type of financing would trump the price Buyer is willing to pay; for example I would take conventional over FHA or VA even if one offer was thousands better than another. We need to make the best deal for the Seller which is the least risky deal.
- Buyer must inspect during the offer period: a) If Buyer does not want to pay for inspections I do not want to work the file for 90 days only to have them walk away because they find something that they could have found on day 1. b) Seller can lower the price prior to submitting the contracts to the bank for legitimate items. In a short sale the only thing we have to negotiate is price. Once short sale is approved, we cannot negotiate the price. c) Seller sometimes gets one shot at a short sale before foreclosure. It is therefore against the Seller's best interest to leave subjective contingencies outstanding while chasing short sale approval.d) Buyer's opportunity costs are greater than the costs of the inspections. Short Sales are usually a bargain (never had one fail to appraise) interest rates are going up and a Buyer can miss the season waiting for short sale approval. If the Buyer waits, inspects and is not satisfied, that inspection report functions as an on/off switch instead of as a bargaining tool. If ultimately the deal is off, Buyer may have missed the Spring/Summer market and these wonderfully low interest rates while waiting for the short sale approval and starting over when inspections fail. . .
ALWAYS respond to our request for Seller documents in 24 hours: The Equator system and lenders who do not participate in the Equator system have Draconian, unforgiving time lines. Delays can cost Sellers HAFA approval ($3,000) and lost waivers of deficiency $???.
That is it. I close 5 to 7 short sales a month and the number is growing - along with many normal purchases and sales. Our approval turn around rate is generally 60 days from time of contract. I am happy to work with Realtors who want to work with me, but I make money on the files that I do not take!
(See offer addendum below which shows ideal time line for normal contingencies and negates the automatic $1,000 termite credit that our short Seller does not have!)
Short Sale Addendum to Offer
BUYER understands and agrees that the sale of the Premises is the subject of
a "Short Sale" meaning that the SELLER has made a request to his lenders, to
accept loan payoff amounts for each loan that is less than the amount due
under the terms of each lender's Note.
BUYER further understands and agrees that SELLER's performance under this
Offer is conditioned upon:
1. Lender (s) approval of short sale
2. The amount of proceeds due SELLER or the amount of cash due from
SELLER shown on the final HUD Settlement Statement at closing shall not
exceed zero and 00/100 dollars ($0.00), meaning that SELLER shall neither
take proceeds from the sale of the Premises nor be required to bring funds
to closing or sign an additional note nor agree to remain responsible for
payments under the original note or lien obligations to consummate the sale
of the Premises to the BUYER.
3. All real estate taxes, condominium fees, utilities, executions
or liens of record or any other expenses related to the maintenance of the
premises, adjustments or sellers closing costs shall be paid first at the
time of closing with any deficit to be taken from the lender(s) or other
creditor (s) fees as the lender(s) or creditor(s) may agree. Seller will not
be responsible for any post closing adjustments.
4. BUYER understands and agrees that if SELLER is informed that one
or both of his mortgagees do not approve a "short sale" of the Premises,
this Offer shall be null and void, SELLER shall not be obligated to perform,
and BUYER's deposit shall be promptly returned to him or her in full.
5. The BUYER understands that there are no funds available to pay
for termite repair or treatment should such repairs be recommended by
Buyer's inspector. Buyer may perform such termite or wood boring insect
inspections and any other inspections under as provided in paragraph 2(b) of
the offer. The Buyer agrees that Buyer and Seller will not enter into a
purchase and sale agreement until inspections are completed. All inspections
to be completed within 10 days of Buyer's receipt of signed offer. Buyer
agrees to provide Seller with copies of all inspection reports.
6. Buyer agrees to promptly provide information or documentation
reasonably required by the Seller's Lender in order to qualify for the short
sale.
7. Buyer agrees to be responsible for the cost of installing smoke
and carbon monoxide detectors and for the cost of the smoke detector
certificate.
8. Notwithstanding any other dates provided in the offer, closing
shall be 30 days from short sale approval, mortgage contingency shall be 25
days from short sale approval. Should Seller be unable to obtain short sale
approval within 60 days of the date of the signed purchase and sale
agreement, Buyer may terminate said agreement with all deposits returned to
Buyer.
______________________ _____________________
Buyer Seller
______________________ _____________________
Buyer Seller
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