Buying a Destin Short Sale? What is the Process?
- When you write your offer for a Short Sale, your agent should insert language into the contract that states the contract is "Contingent on seller's mortgage holders' approval".
- Often, lenders require Short Sale properties to be sold in "as is" condition, thus not threaten a potential closing with repair items. Language should be inserted into the offer in that regard, either with appropriate addendum, or under additional terms.
- The Seller may counter your offer. Remember, the contract is between you and the Seller, not you and the Seller's lender. The Seller does not want to submit an offer to the bank knowing it will likely be rejected and/or counter-offered because it is too low or has too many closing costs on the Seller's side. The lender pays these costs, and will always analyze its "net". In this case, it will be a "loss", so the lender wants to mitigate the loss as much as possible.
- After the contract is signed and agreed to by both you and the Seller, it will be sent to the Seller's lender, or lenders if there is more than one mortgage holder. Documentation submitted with the contract includes an estimated net sheet, the Buyer's approval or proof of funds letter, the listing agreement, Seller's financial worksheet, recent paystub, recent bank statement, last year's tax returns and hardship letter.
- The Seller's lender will then order an independent appraisal and/or Broker Price Opinion (BPO) of the subject property. Why? They are already losing money on their investment with the seller, i.e. the full mortgage amount that was agreed to is not being paid back. Therefore, their investors are not making what was promised. They want to make sure the offer is in line with market value, and not too low. They have a responsibility to their investors, and in the case of VA or FHA loans, they have federal guidelines that must be met in terms of value.
- The Seller' lender may counteroffer your offer with the appraised value if your offer was too low. In other cases, your offer may be rejected if it is even too low for an appraisal in the estimation of the short sale lender's internal valuation system.
- You will accept or counteroffer this amount. Your offer may ultimately be rejected if it does not net a certain percent of the appraised value, including closing costs. This varies by lender. The lender makes it decision based on the requirements of the end-investor on the mortgage regarding price. For example, even though the "lender" may be Wells Fargo, the actual investor reaping interest may be the Bank of New York or Merrill Lynch. There may also be PMI or private mortgage insurance on the loan. In that case, the PMI company will also order a separate appraisal or BPO. Your offer must satisfy both lender's requirements. If there is a second mortgage on the property, the first mortgage holder will offer the second mortgage holder a dollar amount as a "buy out". I help facilitate these negotiations. Additionally, the lender(s) may ask the Seller for a cash contribution or promissory note. If the Seller cannot comply, you may be asked for additional monies to make up some of the difference. If the property is a good deal, you may wish to do so.
- The timeline for initial counteroffer or final approval from the lender may be 2 to 4 months. This is because lenders have an overwhelming number of sellers asking for Short Sales. Some of the bank "negotiators" have as many as 400 files at one time. They often work on the files facing imminent foreclosure sale dates first. Rest assured, I contact these lenders every two business days by phone and/or email to get updates on the offer.
- After final approval by the lender, a "demand" or "approval" letter is sent out to the Seller. The letter will normally stipulate that closing must occur by the date stated in the contract, or there will be a per diem penalty for not closing on time. Thus, you are expected to have your mortgage, insurance and inspections completed in a timely manner. The per diem penalty is quite common in the corporate world.
- The lender will expect to see a copy of the settlement statement at least two days prior to closing to ensure it is accurate, and matches what was stated in the net sheet that was submitted with the offer and on the approval letter.
- Congratulations! Your patience has been rewarded. You got a great deal!
Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.
Call toll-free 1-877-ITS-WNDY (1-877-487-9639) or local 850-650-7883 ext 204
Email Wendy to sell your home or buy a home: firstname.lastname@example.org
Call Wendy Rulnick, Destin real estate agent, to list and sell your home or condo or help you buy a home or rental property on the Emerald Coast of Florida in Walton, Okaloosa and Santa Rosa County- Destin, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Crestview, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field. Wendy is a short sale and pre-foreclosure specialist and can help you sell or buy a short sale property in and around Destin Florida and the Emerald Coast.
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