In our Las Vegas market today, more than 75% of all resales are foreclosed properties and short sales. I must hear this comment five times weekly.
"Aaron, why does it take so long to get my short sale offer approved by the bank? I don't get it! It's FRUSTRATING!!!"
In a normal real estate transaction, you simply need a "meeting of the minds." You get the buyer and seller to agree, you get them both to sign the contract, and 30 days or so, after a bit of hard work, the home is sold.
In a short sale, there are far more people involved. The "meeting of the minds" involves many more than two.
We are in the midst of what is probably the worst real estate crash in history. Hundreds of thousands of foreclosures and short sales are hitting the market.
Your short sale request goes through the bank's Loss Mitigation Department. It can take some time based on the volume of short sales the Loss Mitigation department is dealing with. We all know these banks are understaffed in this area and it's very difficult from a business perspective to add personnel in areas that, by their nature, are costing money to begin with.
By now, you have heard about mortgage-backed securities. Understanding a bit about it will help you understand the potential challenge of getting a short sale offer accepted.
When you got your $300,000 mortgage from ABC Bank they may have packaged it with 300 other loans into one big $100 million package and then sold it to investors. These were investors of all sizes. Maybe one investor put in $20 million, maybe another one put in $5 million, maybe another one $500,000. So let's say there are 14 investors in that $100 million package of 300 loans. They didn't invest in one loan. They invested in a package of 300. The investor who invested $5 million into a $100 million package has a 5% interest in the package. That means he is 5% invested in your $300,000 loan.
Although, one company, ABC Bank, in this example, may be servicing all of these mortgages, meaning they handle the customer service, billing, payments collections, and such, it doesn't mean they own the mortgage and can make the decision.
Yet, this is who you call with your short sale offer. It's not very likely ABC Bank can make this decision on its own. It may have to go back to the investors. All 14 of them.
So now, today, when you want to make a short sale proposal on one of these properties, and you call ABC Bank and then get mad when you don't get an answer right away, can you see why it's not so easy?
They may have 14 calls to make on your one loan and depending on the agreement, they may need 51-75% of the investor vote to get this accepted. That can take some time. Months even.
This is not the case on all properties but on many today.
Can you even begin to imagine the pressure and workload these loss mitigation people and the people around them in these positions face today? Think about the calls they get from borrowers all day, every day. Consider the destroyed dreams they have to hear about.
Think about the pleas they get from the single mother begging them not take her house and send her and her children out on the street. Or the recently-unemployed man pleading for a few more months to find work. Can you imagine listening to the cries of the proud man of the house who is trying to keep a roof over his family's head?
Many experts say the single biggest reason for short sales failing to get approved is the inadequate staffing of loss-mitigation departments. I am certainly not envious of their role today and I am confident turnover is very high. It is important that you give them time to do their jobs. And if your buyer doesn't want to wait, move on.
Here is how it works from the seller side of a short sale and what the bank is considering. You will want to consider the same before taking the listing:
•· Is the seller deserving of a break, due to financial hardship caused by unforeseen circumstances such as job layoffs, divorce or illness?
•· Is it cheaper to simply foreclose on the home, make any necessary repairs and then sell it through a real estate agent?
•· They are going to order a Broker's Price Opinion (BPO) from one of the agents they use. This will give them some idea of what the property is actually worth in the current market. The lower the broker's price opinion, the more likely the mortgage lender will approve a short sale.
•· How many other properties do they, as a bank, and as investors, currently have in default? How many other properties does the seller have in default?
•· Are there are co-signors who can be held responsible for the balance owed on the mortgage they can go after instead?
So you get an offer on your short-sale listing. What can you do to move this process along as fast as possible for your seller and the buyer??
MAKE YOUR FIRST COMMUNICATION ORGANIZED AND COMPLETE
First impressions are most important. When you first make contact with the loss mitigation contact, make sure you know exactly what you are asking for.
Make sure you have already gone over the pros and cons of a short sale with your seller and he is completely agreeable to this process.
You will want to have a signed "Authorization To Release Information" form signed by your seller, giving you permission to deal with the bank on their behalf, in your hand, and ready to send to the Loss Mitigation contact on that very first phone call.
You can "Google" this to find a form but I found a very good, simple one here: http://www.real-estate-short-sale.info/Release_of_Information_Form.html
Be as friendly as possible with the Loss Mitigation specialist. Cut right to the chase. Ask him whether he even thinks a short sale is a possibility here.
Ask him what additional information he needs to successfully complete the process. Let him know you will be diligent in taking care of all of the details for your seller. Give him confidence in you that he isn't wasting his time.
They are going to ask your seller for a "hardship letter." This hardship letter can make or break your short sale. You want this to be well-thought out and well-written. You can get some writing tips on this at www.SaveMeFromForeclosure.com.
Have your seller write this letter, in detail, and in his own handwriting, before you make the first call. Review the letter with your seller and be a tough critic. Does it sound like it's a hardship letter to you? If you were the bank, after reading this letter, would you release your client from potentially hundreds of thousands of dollars?? If not, ask them to rewrite it. This letter, by itself, could be the difference between a successful short sale or an eventual foreclosure.
They are also likely to pull your seller's credit to verify his financial hardship. They will probably ask for current pay stubs, copies of medical bills, checking and savings account statements and more.
This will all take time so have as much of it in your hand when you make that very first contact to the loss mitigation department.
BE PROACTIVE TO THE PROCESS
An agent I know, who is very successful in short sales, submits the following items to the bank with his short sale package. I spoke with a loss mitigation specialist who described what this agent does as "a blessing":
•· The listing agreement
•· The fully-executed purchase agreement with all addenda, as well as all addenda for the short sale, and a reasonable closing date
•· The hardship letter from the seller
•· A pre-approval letter for the buyer from a nationally-recognized lender (he doesn't have to use this lender but this is to move the process along with a sense of comfort for the bank)
•· Last 2 month's paycheck stubs from the seller
•· Last 2 year's tax returns from the seller
•· Last 2 month's bank statements (all accounts, all pages) from the seller
•· A current tri-merged (3 bureau) credit report of the seller. You can get one at creditreport.com.
•· A current financial statement for the seller detailing their income, assets, liabilities and expenses
•· His own well-prepared market analysis
•· His own BPO (offered as an additional opinion, not as a replacement to the one the bank will also order)
•· A well-thought out letter written from him detailing why he believes this short sale is a good business decision for the bank with all of his contact information
After he submits this package, which he always does via Next Day Air, he makes contact with the loss mitigation specialist to confirm he received the package and then establishes reasonable follow-up contact timelines with him to determine when an answer will be expected.
This agent claims he has never received an answer on a short sale in less than 21 days and, in some cases, far less.
KNOW YOUR CLIENT AND THE BUYER
When you get the seller's information, like his hardship letter, tax returns, bank statements and credit report, don't just send it in without studying it yourself first.
Loss mitigation specialists say one his biggest challenges today are agents who submit short sale offers but have no idea about their seller. They just expect offers to be accepted because they believe the offer is financially "reasonable." That may not the case.
Review your seller's information as if you were the bank and then set your own expectations. If the seller has $40,000 in liquid assets and is making $100,000 yearly with a credit score of 680, and has never been late on the mortgage, your short sale proposition obviously isn't going to as strong as if he is broke and in serious financial trouble.
The experts say another big reason why short sales are failing to get approved is the homebuyer's qualifications. Talk to the buyer's lender and his agent. Get a solid pre-approval letter or, better yet, a credit-approval letter, which is more detailed than a pre-qualification letter.
Make sure your buyer is just as qualified to buy this house as the seller is desperate to get rid of it.
DON'T BE YOUR OWN ENEMY
I have heard of short sale agents sending in offers or short sale packages, demanding answers in 48-72 hours, and then following that up with non-stop voice mail messages and emails when they didn't get the response in that timeframe.
I have heard of other agents leaving nasty messages and threats to the loss mitigation specialists like "if I don't hear from you in the next day, my client is just going to walk from this house!!"
This is not your regular buyer/seller transaction and you are best advised to not treat it as such.
Be courteous and accepting to the timeframes necessary to successfully negotiate a short sale. Be respectful and considerate of the difficult work, challenges and pressure of being a loss mitigation specialist in today's high-volume mess.
There is a lot of work to be done and a lot of information to be dissected before a decision can be made. Be a helpful part, not a difficult component, of the decision-making process.
DON'T GET BLINDSIDED
It is very important that the seller of a short sale be 100% honest with his real estate agent. Know the liens on your seller's property. Know the promises and broken commitments he has made to his lender so far. Know how many months they are in arrears.
Most importantly, know if the seller has made any financial commitments of late that will kill this short sale offer before its starts and will be a monumental waste of your time.
An agent client of mine recently spent weeks working with a seller and then successfully negotiated a short sale purchase agreement. He developed a great relationship with the loss mitigation specialist and was confident a deal would be secured.
Upon the bank's review of the seller's credit report they noticed that the borrower just leased a new Mercedes three months prior for $1100 per month. The seller had told my client that he had that car for over a year. Needless to say, the deal was denied, and my agent friend wasted a lot of valuable time.
Banks understand that short selling may be more beneficial to them today than repossession in a foreclosure.
If you are active in helping the process and understanding of the details and requirements, it will become far less frustrating for you and, hopefully, less time-consuming.