Thanks to Pacita Dimacali from Oakland Ca for such a complete explaination of why we see failed short sales so often. No wonder so many agents shy away from making offers on short sales.
Last year, I showed a large house which was offered as a short sale at the time. This property was in contract at least twice, but just came back on the market as a foreclosure. My clients were surprised and wanted to know what happened?
What happened, indeed? Why did the short sale end up as a foreclosure?
In California, 3 out of 5 short sales close escrow, or 60% of total. It could be a number and/or a combination of several things.
Property owner couldn't prove or didn't qualify for a real hardship. For short sale purposes, hardship could be one or a combination of several difficulties that include:
- Loss of or reduction in income
- Death or illness
- Divorce or separation
- Job relocation or transfer
- Military service
- Increased expenses
- Drop in market value (this plays a part most especially if someone were relocating for a job)
More than one loan, more than one lender, and there's no cooperation.
Short sales are challenging enough as it is. When dealing with more than one lender, and having junior liens refuse to accept a payout offered by the primariy lien holder, then the file isn't moving anywhere.
Offer is much lower than the bank's investors are willing to approve.
Setting artificially low prices in order to get buyers attracted to stick it out during a short sale, is a popular tactic. The premise is when the lender comes back with an approval letter for a higher price, the buyer would be asked to raise his offer. This doesn't always work and may actually cause the buyer to walk away.
Seller rents out the place, the tenant is uncooperative and won't allow viewings of the property.
Sometimes, it's better to keep the property vacant than to rent it out because a tenant can kill all possible chances to sell the property. The tenant isn't motivated to move, and may hold out for "cash for keys" instead.
Seller won't respond to requests for documents in a timely and complete manner.
Short sales involve a ton of paperwork. And the seller is well advised to comply. The seller is asking for the bank to forgive his loan, and he is hardly in a position to dictate to the bank how he will comply with requests.
Property is in a distressed area and is competing with many distressed properties
These include bank-owned properties where offers won't take as long to process as one for a short sale. Buyers are more inclined to go for properties with the shortest time period to close with the least amount of hassle.
Short sale had buyers who backed out because the process took so long.
This is quite common. The normal process is, when a buyer backs out, it starts all over again with the next buyer.
Last week, Bank of America announced that if this happens, the next buyer may be able to pick up where the other one left off. I'll believe this when it actually happen
Inexperience and lack of skill and knowledge on the part of the agent.
Sad but true. The process is time-consuiming and energy-zapping. A knowledgeable and experienced agent makes all the difference in guiding the client through the process.
For anyone interested in buying. selling or representing buyers and sellers in a short sale, the most important qualities to have are: patience, perseverance, and know-how.
"Fasten your seat belts...it's going to be a bumpy night!"