Short Sale experience = 10 years. For me Short Sales are quite enjoyable, although I can't always say that my staff enjoys them. Short Sales give you the opportunity to truly help someone in their time of need. It, also, does require some serious training and experience. However, lately we have been seeing some new trends in the Short Sales process that have caught us a bit off guard so I thought it would be helpful if I shared these thoughts with you.
These are three recent short sale scenarios!!
SUCCESSFUL SCENARIO #1 : Seller has had house on the market for 2 years.
Seller loses job.
Seller decides to move over seas to enjoy a lower cost of living in the far east. Seller has no income and has savings less than $10,000.
There are two liens on the property totaling $220,000
first lien $170,000
second lien $40,000 TOTAL LIENS = $210,000
The home sells for $200,000 which is determined to be market value by appraisal and BPO.
Cost to close = $20,000 (commissions, late fees, attorney fees, title etc, closing costs)
NET to lien holders = $180,000 First Lien holder's lien is 100% satisfied = $170,000 Second Lien Holder gets approx. $10,000 of their $40,000 note.
SHORT SALE ACCEPTED!!
However, this was a DIFFICULT negotiation because the seller had a 401K valued at $100,000 . The second lien holder wanted the seller to pay $10,000 at closing, but we were able to negotiate that to zero.
SCENARIO # 2: (Lien Holder requires promissory note) Seller's decide to get divorced. Mother is stay at home Mom, husband loses job but obtains contract work at significantly reduced pay.
FIRST LIEN= $200,000 Home Sells for $160,000 after 2 years on the market.
PROPERTY has Mortgage Insurance!!!!
Short Sale is approved but Seller is required to accept a $9,500 promissory note. Seller refuses to accept $9,500 promissory note! In this scenario the sellers had $14,000 in their savings. Also the mortgage insurance on the property may have been an issue since the lien holder is insured for $160,000.
The mortgage insurer will have to pay a full claim on this property at foreclosure! If the mortgage insurer agrees to the short sale they will have to pay the full claim NOW rather than later. A promissory note was probably the only way the first lien holder could get the mortgage insurer to sign off on the short sale. Additionally, the sellers assets exceeded $10,000.
SCENARIO #3: (Lien Holder requires a promissory note) In this scenario the seller is an investor who was in a car accident . The accident was severe and created a significant hardship for the investor. The resulting difficulties caused the investors wife to file for divorce.
First lien =$165,000 Home Sells for $155,000 after 6 months on the market.
The seller has significant assets and equity (over $50,000) and owns 10 other rental properties in various states. The seller has savings less that $10,000 and no employment.
Short Sale is approved but the lien holder requires the seller to accept a $12,500 promissory note at closing.
Seller refuses to agree to a promissory note so the transaction does not close.
CONCLUSIONS: There are lots of lessons to learn from the above three scenarios.
1. MORTGAGE INSURANCE: if a mortgage company is involved and has to pay a claim, it rather pay it later than sooner. Mortgage Insurance companies may not approve a short sale without a promissory note. Why would a MI company pay a claim right now when it may take 6 -12 more months to complete a foreclosure. MI companies rather pay the claim when the loss is truly a loss and the claim is truly a claim.
2. INVESTOR: if the seller is an investor, even one with a true and proven disability or hardship the lien holders will often ask for a promissory note at the closing of the short sale.
3. ASSETS: if the seller has assets over $10,000 you can expect a the lien holder to ask the seller for a promissory note at closing. ADVISORY: as a short sale REALTOR it is important that you prepare your short sale clients that they may have to bring money to closing or accept a zero interest promissory note. the trend is for banks to ask for promissory notes regardless of true hardship.
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