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What is an "Approved Short Sale" or what does "Short Sale Approved" mean?

If you are in the market to purchase real estate in Miami, Fl, chances are you have looked at some properties that are Short Sales. A sale is "short" when the market value of the property no longer covers the loan the owner has on the property AND the owner has a bona fide financial hardship which will not allow him/her to bring the difference betweeen the sale price and the mortgage balance to the closing table. The lender(s) must agree to the sale.

Miami Approved Short Sale For the lender to agree to the sale, they must analyze both the value of the property (in today's market) and the situation of the owner. They must be convinced that it is better financially for them to allow the property to sell for less (causing them to take a loss) rather than foreclose on the home and trying to sell it themselves after taking possession. They rely on third party neutral real estate professionals to provide a BPO (broker price opinion) in order to make their decision.

IF they feel the price is a fair one, or if they have been able to negotiate a price with the buyer that works for them, they STILL must be convinced that the seller does not have the funds to make up the difference. For example, if the morgage on the home is $400,000 and the market value is $350,000, the lender may "net" $325,000 after all taxes, fees, commission etc. are paid - resulting in a net loss of $75,000. The seller must prove that he/she does not have the $75,000 via a "short sale package". The package is lenghty and includes past taxes, bank statements, budgets, pay stubs, etc.

The process of determining an acceptable value and proving the financial hardship can take anywhere from 2-5 months and can be very very frustrating for a buyer. They don't know if their offer is going to be accepted or if someone will outbid them while they wait.

This is where the "Approved Short Sale" comes in... the seller, listing realtor and lender have already completed the leg-work. (This is normally due to an offer that was submitted, triggered the analysis process and fell through - ie the buyer became impatient, wouldn't come up to the lender's price, etc. but stil allowed the listing agent to know what the lender would release the property for). The price is APPROVED ther seller is APPROVED and the sale (at the APPROVED price) can go through as if it were a normal sale. If a buyer makes an offer on an approved short sale for the APPROVED amount, they have a very good chance of going right to contract, and closing. No long wait for approvals, no chance of being over-bid (assuming their offer is the one accepted) and a quick close. For buyers who don't have patience or time, this is especially valuable.

NOTE: Since the sale is approved at that amount, if the buyer offers any less, the waiting process may start all over while the new offer is analyzed.

if you are looking to buy real estate in Miami or if you may have a property you need to sell which you believe requires short sale approval, do not hesitate to conact me at 786-252-4970 or janie@janiecoffey.com

Janie

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Posted by Janie Coffey, GRI - Miami Real Estate on 02/03/2009 09:37 AM

Comments (39)

Short Sales in the Home Buying Channel

short sales, miami, miami preforeclsoure, miami short sale

Originally posted at: Miami Real Estate by Land and Sea: What is an "Approved Short Sale" or what does "Short Sale Approved" mean?

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39 Comments on What is an "Approved Short Sale" or what does "Short Sale Approved" mean?

FEB

This was interesting information regarding short sales and time. You presented it well.

thank you Barbara, I found that we all deal with short sales so much we forget that some consumers are as up on the lingo as we might be an hoped this would be helpful!

Janie, I agree with you that the lengthy time involved with a short sale is frustrating. This could be an opportunity for lenders to work closely with the real estate community to create "approved short sales." I realize that it is not the lenders position or should they be in a hurry to take a big hit on an investment, but is it not true that in many instances their financial clock is ticking also?

Janie, I know Fannie Mae and Country Wide have just started offering some of these "approved short sales". Personally I just don't see it happening. They are really going to have to "ace" the price in order for this system to work. Have you ever heard of an "approved short sale" that closed at the approved price? Just curious.

Hey Janie - I'm looking forward to our Short Sale seminar on March 7th! I'll get you the details soon. Janie KNOWs short sales!

Out of curiousity...do you have banks giving approved packets before offers? Most of my experience has been you do not and will not move to the finish line, without all doc's and an offer in place. It is too difficult to stream line the process, unless you deal with the same company, and same loss mitigater/negotiator at the same time. Lesson to learn, be nice to the people you are dealing with through the whole transaction, and thank them at the end. No telling when you will be right back in line, same bank/new client. Let's face it, contacts help!

This was so helpful. Thank you. It isn't yet much of a reality in NYC...but I wanted to understand it. Thank you.

Normally when working with a bank on a short sale, the process doesn't even begin unless you have an offer in hand. When the short sale is pre-approved, what that normally will mean is that the bank had an offer in hand, started the process, crunching numbers, going over the hardship letter, bank statements, etc., working out the numbers on the Hud-1. Because the banks take so long doing this, many times the buyer will back out before the process is done. So by the time the negotiator (in the loss mitigation department) decides to accept the sale or comes up with an acceptable amount and counter-offers, the buyer either does not agree to the counter offer or has given up. By that point, the package has been "approved" for a certain price and then the Realtor needs to get another offer in at the "approved" price. Short sales can be time-consuming and tricky, but they can also get your buyer a great deal and help the bank get the house off the books before it forecloses and starts to deteriorate in condition.

I thought each short sale was unique and required a seaprate approval. I was told by every lender I've worked with that any short sale offer had to have a definite sales contract attached to it. When I asked about getting a short sale amount pre-approved, none of the lenders woiuld even consider it without having a firm offer. Their feelings were "What if an offer comes in at a higher level? Why should we tip our hands hands to any prospective buyers?"

Are things that different in Florida then they are in New Jersey?

Janie, thank you for thoroughly explaining this. Unfortunately, some of the lenders won't even look at the seller's financials until they submit an offer from a qualified buyer. Not a good business philosophy, because the lender loses even more money the longer it's on the market...

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Regina P. Brown

Hi Janie, If all shorts were handled this way this market would be so different !

This is a great explanation that makes it easy for consumers to understand what is going on and the potential benefits of an approved short sale.

FEB

I will come back and comment more but for now...

Bryant, Jani, David and Lisa, Terry, Regina, thank you all for pointing out a point that I had not included. The "home work" to get to the approval has normally been triggered by an offer which fell through, ie buyer walked due to time or wouldn't come up to lender's price. I have added this caveat above....

Great clear explanation. You almost make it sound easy and simple.

The other benefit is that you will get more showings. Since most Buyer's Agents don't want to bother waiting for approval, they don't show the property. There is easier fish out there for them, and instead of getting their buyer a great place at usually a fantastic price, they tend to look out for you know who...

(coming from a short sale listing agent)

Dean, I think the larger problem within the banks is 1) they are overwhelmed and 2) the difference between the objectives of the short sale negotitation (loss mitigation) and the bank entirely. The negotiators often due to time and pressure, don't see clearly the big overall net loss the banks are absorbing due to the length of time and, at times, unreasonable sale expectations (resulting in foreclosure and a much bigger loss)

Bryant we have alot of Approved Short Sales in Miami due to buyers making offers then pulling out before the deal is complete. The listing agent now knows the amount the bank will take. Our problem lies in that the NEW buyers see the Approved Short Sale price as a regular list price (hence let's just whack 20% off the top of that w/o looking at market value) as opposed to fully understanding that this is often the lowest the lender is going to go. This price often is the lowest and best offer of the lender (not always but often). Due to so many buyers becoming impatient and walking from deals there are lots of Approved Short Sales now on our MLS

Jani - (great name by the way ;-) - No, we have to normally have an offer to get the process going. We have a few investors normally willing to make an offer (legit of course). Only once has a lender said the offer was too low and didn't start. In the meantime we keep marketing and maybe get a higher offer, maybe the investor buys, etc. And yes, always deal calmly and professionally with the workout officers. We have made such good connections with a few due to our solid follow through and paperwork, that we are able to get them on subsequent deals and have been recommended to their REO dept for foreclosures as well! You reap what you sow!

Marjorie - thank you, unfortunately is is almost our ONLY reality in Miami! With 1/3 of all our listings being distressed (shorts or foreclosure) and 2/3 of our closed sales being distressed, you have deal with them daily!

David and Lisa this is exactly the scenario I am speaking of

Terri - no things are the same, David and Lisa explain it very well in the comment right above yours. This approved price has resulted out of a real offer that went south. Of course a new buyer coming in at that price has to also be approved (with a contract) but the approval price is normally still good to go (they rarely go up, but I have seen it happen!)

Regina yes, you are right, see my "footnotes" above on how the approvals noramlly transpire

Bill wouldn't it though?

Christine - thank you, I wrote this with the consumer in mind as it is all so confusing for them.

DeAndrea - I don't think short sales are too difficult, frustrating and irritating at times absolutely!

Matt - absolutely, more agents will show and buyers look if they know it might be a 30 day horizon not a horizon wihtout end!

A short sale can be very frustrating for the buyer, and the seller, and their agent. They ask for a package, with a contract, hardship letter, hud, etc., then they ask for more stuff, and more stuff, then they have to wait on the bpo (which was already done a month ago). Finally someone specific is assigned to the case, and it becomes a little easier because you are talking to the same person every time. Before that, it's llike the left hand has no idea what the right hand is doing. These banks have a mess on their hands, but if we are going to be good at our business, short sales are definately something we need to know how to do. I haven;t worked on an approved one yet, but I'd love to.

Thanks for the clarification. So it's probably going to take a failed first offer to pave the way for a short sale to truly be approved by the lender. In my seller's case, it will probably go to foreclosure before this happens.

Thank you for that brief but succinct explanation. That is a good way to explain to buyers in simple terminolgy what happens in a "short sale". Then they understand the time constraints involved. If the banks would look at the buyers finances etc. first, then give an idea of what to make the purchase price ,that might help. That may be too simple or not be in the banks best interest but they don't want to be in the real estate businesseither and more foreclosures are certainly not in anyone's best interest right now. Just a thought in these unusual times. Susan

Kenneth, yes it is frustrating and I hope you work on an Approved and Closed one soon!

Kelsey, don't give up! we have had sellers actually have the judgement awarded and still managed to get a short sale approved before the final auction. We have also managed to delay the court date b/c of the pending offer. Just keep talking and talking and talking to the lender!

Susan - that is exactly the right comment, the right hand vs the left hand and unfortunatley sometimes their success is measured by different standards which is even worse!

Thanks for the informative & helpful information! We are seeing more & more short sales here in Northern Michigan.

thank you Meagan for stopping by!

I see lots of advertised approved short sales. Upon further investigation it was approved 2 months ago. The approval normally lasts 30 days and more often than not the process starts all over again.

JANIE,

It would be great to have the lender pre-approve the amount they would take but there are certain issues that need to be worked out. First, real estate is local and we all know that prices can change from one block to the next. The pricing is also very time sensitive so it is very difficult to set a price and just stay on that despite what is happening around you. It is very difficult for a lender to try and get a set price for their property not knowing how long it could take to get that offer, not to mention getting a buyer willing to pay that price. The buyer wants to dictate what he will pay and would care less what the lenders opinion is. The biggest problem in establishing a set price is integrity. It is my opinion that the difficulties we find ourselves working through, were because of the many agents that would submit multiple offers to the lenders hoping to get a counteroffer and thereby marketing the home with an "Approved Short Sale" heading. Many times these prices were lower than the market would be willing to pay. Has anyone noticed that most lenders won't come back with a specific counter offer...they will just say "this offer is too low, get a higher one." The best way to deal with this is through education and getting a better package to the lender than explains all the specifics of the homeowner, their finances and the market.

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Hi Janie, What a terrific post! It's well done & will educate many a consumer. As you covered earlier, the offer will generate a BPO & get the ball rolling. It would be great to actually have pre-approved ss. We know that the loss mit. dept. rarely sees the big picture.

Great information! I get asked this question all the time, so it is great that you have written it up so well. I think many more agents and buyers will be learning these terms in the next few years.

PS: I still miss Coral Gables... Go UM!

Janie...as others have said...thanks for the great explaination of this....well...ugly process!

I've not done any short sales or foreclosures yet....reason being, most of my buyers want to buy, and don't want to play "Let's Get our Heart Set on This House and Then Pray We Get It!" I had a buyer wait and wait on one property and through some channels we learned he lost it over $45.00. Yep, you heard that right.

I may get a better taste in a week. I've found the perfect place for a buyer....and it's a foreclosure! Hey, time to jump in the pool I guess!

FEB

Gabe, that certainly can be the case, but it is still normally a faster process than if you start from scratch

Sidney, I have had, on a few occasions, the lender say "that's not high enough" but almost without exception, we have been given a price. Gabe above is certainly right, these approved prices can "expired" but it still forward progress. The intent of this blog post was to explain to consumers in a very basic uncomplicated way, what an Apporoved Short Sale is, there are always going to be exceptions and special cases.

Marian - thank you so much for reading and commenting

Roland - Yes, Coral Gables is very very nice indeed!

Good explanation for the consumer.

FEB

thanks Mike, that's what I was going for!

FEB

Janie- We have closed plenty of short sales where the sellers do have money. We get them approved all the time no matter what their financial situation is. The difference is in what the seller is going to be getting as a deficiency and/or what the seller is going to be asked to contribute.

We just had one where the sellers have over 1 million in their savings account but they are in their 80's. The short amount was $120,000. We were able to negotiate that down to $20,000 pay out instead of the 120K.

So again, it is relative. You can not say that you must have a financial hardship to be approved for a short sale. We have a lot of investors that we get short sales approved. We are working in on one right now where we have closed on 2 of his rentals right now as shorts and 3 more to go with all in the works. He has not had to contribute one penny to closing.

Janie- also, Countrywide approved short sales just changed their rules.
They treat each buyer as a separate file. So if one buyer is approved and the deal falls through, ie, the buyer walks, then the next offer is brought all the way to the front of the line again and they freaking start all over again, 30 day wait just to assign a negotiator! URGHHH!!!! We just had that happen to 3 files!

Katerina - thanks on the info on the financial hardship question, that is great to know that it may be an option. I think the Countrywide thing goes back you your other comment, everything changes every day! Thanks for commenting!

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