I used to work for one of the Top Mortgage Servicers in the Country. In my six year venture, I worked in many departments: Foreclosure, Collections, Loss Mitigation & REO. (I have complete ADD, I got bored very quickly)
I have been selling real estate for the past 5 years. We all know the market has changed, an abundance of foreclosure filings, many Short Sale Listings, & REO properties are rising.
I just wanted to share a little knowledge with SHORT SALES, because there are so many out there. Working as a Team Leader in the Loss mitigation Department & working as a Realtor, I have seen both sides.
I understand how frustrating it is to many agents & buyers waiting....waiting....waiting...& waiting.
A Short Sale or Short Pay Off is a loss mitigation effort a bank will approve to accept less than the Total Amount Owed to them (Consult a Real Estate or Tax Attorney if you are representing a seller). Properties do not have to be in Foreclosure Situation, you maybe able to perform a short sale on an account that it is good standing.
Understanding the Situation...
When listing or purchasing a Short Sale Property, you must understand the situation. How many liens are on the property? How much is the Total Outstanding Debt with all the liens? If more than one loan, are they with the same lender? Are the Liens in Foreclosure? What is the Fair Market Value in the Area?
A good rule of thumb is that banks want to recover at least 70-80% of what's owed to them. These numbers are not set in stone, it depends on the situation. Liens go in the order which they are created. 1st position, 2nd position, & so forth.
Here are some Great Short Sale Opportunities-
- If a property has only one lien it is a perfect candidate for short sale. Very Rare in this market, but use the 70-80% rule. Ex. Lien is for $400K, Fair Market Value is $370K. Banks want to recover at least Net a $320K, after you include your commissions & fees.
- If a property has two liens with the same lender, the 70-80% is good rule to use. Banks that have multiple liens on the property are great candidates for a short sales for either listing or buying. Example - A property has 2 liens with Washington Mutual - 1st 400k & 2nd $100K = $500K Total Liens, Property Values $450k. Using the 80% Rule the bank wants to recover at least $400K with commissions & fees.
These are ones, I stay away from. Multiple Liens with Different Lenders, list prices that are too good to be true when they are short sales. Banks do not want to foreclose, but people it is a numbers game.
Here is bad short sale example with Multiple liens with Different Lenders & a List Price Too Good to Be True -
- If a property has Multiple liens with different lenders. Example, they have a 1st $250k with Countrywide & a 2nd $150 with Wamu. Total Liens $400K, Fair Market is $300K. The listing agent has it listed for $220K. I don't even waste my time with these ones.
In the example, the agent is lower than the 1st lien holder Countrywide. This short Sale is NOT GOING TO HAPPEN, because Wamu needs to subordinate their interest to allow this short sale & Countrywide must do a short sale. Liens again, go in the order of importance. You must pretend you are the 1st lien holder & in a foreclosure situation. In this situation you are covered! If you file a foreclosure you are going to wipe all liens (Except IRS Liens). You (As Countrywide) are going to recover your loan at the foreclosure auction or listing it as an REO Property due to the Fair Market Value. Banks have a departments that determine foreclosure situations. They are also going to Understand the Situation. Is it going to be cost effective to Foreclosure? Are they better accepting a Short Sale or Letting the Property go to the Foreclosure Auction. Sometimes while doing a short sale, you will hear from the Short Sale Specialist (Person at the Bank), your file is going to a Review Committee. If a property has Multiple Liens with Different Lenders, it can go either way. If you are dealing with an listing agent that Understands the Situation & has a grasp on things, patience can be virtue. If a property has two liens with different banks it has to make sense.
I hopes this helps.
This is my first blog, I apologize for the length, but it was on my mind.
Eddy "The Tattooed Realtor"