Clearing the confusion around Los Angeles, CA short sales

By
Real Estate Agent with L.A. Property Solutions BE# 01342428

In spite of the fact that Los Angeles short sales have been around for the last 6 years or so, confusion about the process still abounds. So let’s take it from the beginning…

The first step in a short sale is completion of the short sale package.

shortsale e1334692336855 Clearing the confusion around Los Angeles, CA short sales Briefly, a short sale package contains information from both the seller and the seller’s agent.The seller supplies a hardship letter and documents to verify that hardship. This will include bank statements, medical bills, a divorce decree, layoff notices, etc.The seller’s agent will submit information justifying the list price, along with other listing and property information. He or she will also submit proof that the home is being marketed.

Early preparation of the short sale package for your Los Angeles home is important because the package must accompany any offer the seller is asking the bank to approve.

When posted to MLS and other real estate portals, the listing will clearly show that it is a Los Angeles short sale offering. This gives buyers and their agents notice that it will not be a quick sale and that 3rd party approval will be required even after an offer is accepted by the seller.

It also gives buyers and their agents notice that they should submit a strong, clean offer. The bank’s negotiator will probably disapprove an offer calling for repairs and other seller concessions to the buyer.

One point of confusion centers around short sale pre-approval by the bank.

Under the HAFA program a Los Angeles homeowner may become pre-approved, with a selling price already agreed upon by the lender. However, this is not a condition of all short sales.

The next point of confusion involves the seller’s position in the transaction.

Contrary to what many still believe, all offers are submitted to the homeowner, not the bank. Only after the homeowner accepts an offer will it go to the bank for approval. In a multiple offer situation it is the homeowner, not the bank, who chooses which offer to accept. Multiple counter offers are not uncommon so be ready to compete for an L.A. short sale as much as you might for a standard sale.

What constitutes a strong, clean offer on a Los Angeles short sale?

In general, a strong offer is one that is not less than 70% of the balance due on the mortgage. It’s also an offer with a price in keeping with the prices of recently sold comparable properties. Although short sales are good buys, the story that banks will accept pennies on the dollar just to clear out inventory and avoid the expense of foreclosure is a myth.

Next, a clean offer is free of all but the most basic contingencies and accompanied either by a letter of pre-approval from a recognized lender or proof of funds for all cash offers. Either way, it should include proof of funds to cover the down payment and closing costs.

In short, a strong clean offer gives verification to the seller that you can purchase the home once the lender has approved your short sale offer – and that you aren’t making demands that the bank will not approve.

A strong offer is also accompanied by an earnest money deposit – normally in an amount equal to 3% of the purchase price. These funds will be placed into escrow within 3 days of written approval from the bank, so make sure that your funds are available. Your offer will be even stronger if you agree to put a portion of your deposit into escrow at the time off acceptance by the seller.

Even though esccrow will probably be willing to accept a personal check for earnest money, it isn’t unusual for the bank request funds in the form of a cashier’s check or wire transfer.

Next comes negotiation

Once the short sale offer/request for approval is submitted to the lender, they’ll assign a negotiator to the property. This negotiator will hire an independent agent to prepare a broker price opinion (BPO) which will be compared to the offered price. When that agent is not familiar with the neighborhood and the comparable properties, this can present a problem because his or her BPO will not be an accurate representation. This has been one of the sticking points in Los Angeles short sale negotiations. Dont overreact if the home appraisal comes in low Clearing the confusion around Los Angeles, CA short sales

In this case, the seller’s agent may have to submit additional verification to justify the price, and the lender may hire an appraiser to determine fair market value of the short sale property.

While the bank may accept or reject the offer outright, usually the negotiator will provide the listing agent with a list of what they will pay for and what the final payoff must be to the bank. The lender may ask the buyer to assume additional costs or raise the offer price.

Negotiations continue until, hopefully, an agreement is reached.

Is a Los Angeles County short sale worth the time and effort?

Yes! A short sale allows the seller to walk away without a foreclosure on his credit record while it rewards a patient buyer with a good deal on the house of his choice.  Also, if the sellers had a second mortgage, it protects them from a deficiency judgment that can occur if the property is foreclosed on rather than sold short.

A Los Angeles short sale is a win-win situation for everyone!

If you are in a tight position and are not sure if you qualify for a short sale in Silver Lake or surrounding areas, please contact me directly at 213-215-4758. I’ll be happy to go over the specifics of your situation with you and make recommendations on your best course of action.

For more information on shorts sales in Los Angeles County and buying or selling property in Silver Lake, Echo Park, Los Feliz, and surrounding areas, contact me directly at 213-215-4758.
Jenny Durling Silver Lake Realtor Clearing the confusion around Los Angeles, CA short sales

Jenny Durling
Broker Associate
L.A. Property Solutions
info@LApropertySolutions.com

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Rainmaker
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Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ
EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD

Very good article on Short Sales.  Good information to pass onto clients.

Jul 15, 2012 01:41 AM #1
Rainmaker
242,126
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

Thanks - it's likely useful for buyers and sellers everywhere but gotta put "los Angeles' in there for SEO. lOL!

Jul 15, 2012 02:10 AM #2
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Anna Banana Kruchten Broker/Owner, CRB, CRS
Phoenix Property Shoppe - Phoenix, AZ
602-380-4886

Jenny great article on short sales.  We've been dealing with so many as well this past year and there is so much mis-information and fear in peoples minds about them.  Having a defined process makes all the difference in the world betweenn success and failure.  Los Angeles Short Sale Sellers would be wise to call you for expert advice.

Jul 15, 2012 06:42 AM #3
Rainmaker
242,126
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

Hi Anna - Thanks so much. It would be wonderful if all listings agents handled short sales  in the same manner. I'm finding more and more that simply plug multiple offers into Equator and expect the bank to pick one. Not a good idea if you actually want a deal to get done and the buyer to stick around!

Jul 15, 2012 07:18 AM #4
Rainmaker
733,028
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

This is an extremely helpful resource for both buyers and sellers looking to buy short sales homes for sale in Los Angeles, CA or looking to sell short sale home in Los Angeles, CA.

Jul 16, 2012 01:40 AM #5
Rainmaker
242,126
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

Eileen- are you seeing many short sales in Manhattan?  I'm curious if the process is the same for you there as it is in L.A.

Jul 16, 2012 02:11 AM #6
Rainer
308,124
Jennifer Chiongbian
Specializing in all types of Manhattan apts & townhouses - Manhattan, NY
Real Estate Broker - NYC

Great flowchart on what short sale sellers can expect.  We don't have that market here in Manhattan so I only learn from others who do this type of market.

Jul 16, 2012 02:11 AM #7
Rainmaker
242,126
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

Hi Jennifer - that was what I just asked Eileen.  I"m very curious about how real estate sales differs between New York and California. When people relocate to Los Angeles from there, they think that every agent here has their own listings so they will go out and contact several agents. Since all agents here have access to all other agents' listings in the MLS, that can be a problem unless I can explain the process upfront and they haven't already started working with someone else.  Do people in NY use buyers' agents? Can agents only show their own listings there?

Jul 16, 2012 02:16 AM #8
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Rainmaker
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Jenny Durling

For Los Angeles real estate help 213-215-4758
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