Short sales. It's not only up to the Lender.

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

This is the third part of my series on short sales. As way of disclosure, I am NOT an expert on short sales, I am using this series as a way for me to think through the process and hopefully become better prepared to help some Sellers who may qualify for a short sale.

A short sale can be a very complicated transaction. Not only are we negotiating with the Lender but there is another entity who may be involved as well....the Private Mortgage Insurance (PMI) Company. Most Buyers, that did not put at least 20% down when they purchased their property, were required to purchase PMI for the benefit of the Lender.

PMI protects the Lender for loses usually up to 20% of the loan amount. So, they have a say so in whether or not a short sale is accepted.

I am in the process of negotiating a short sale right now where I am actually negotiating with the PMI Company instead of the Lender. This is a first for me but so far it seems to be going well. The lady I am dealing with has been very helpful and she is the one that is handling the negotiations with the Lender. Have you ever done this before?

I'm very anxious to see how this plays out. Brian Brady wrote a very good post about this a few months ago titled "A Realtor's guide to PMI and Short Sales". Give it quick read.

Anyway, the point of this post is to make you aware of the fact that a short sale is a lot more complicated than just getting the Lender to agree to a price. The Lender is looking at the bottom line. If the short sale does not NET them more than a foreclosure then it ain't happening.

When meeting with potential Sellers you need to find out if they have PMI. If they do, then do the math. Brian is better at that than I am so if you haven't already....go read his post.

OK that's it for today. These are my thoughts. What are yours?

Other posts in the series:

A "short sale" is an option NOT an entitlement!

Becoming a better "short sale" expert. A series by Broker Bryant.

Copyright © 2007 Broker Bryant Real Estate Ramblings | All Rights Reserved

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Bryant Tutas 08/09/2008 01:06 AM
Location:
Florida Osceola County Poinciana
Tags:
educational
short sale
short sale series

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Rainmaker
1,016,721
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
The same is true with FHA and VA loans. If you ever have the fun of trying to negotiate a short sale on one of those, you need to get approval from the lender and from the FHA or VA.  They have their own rules and special ratios that have to be met before they will approve a contract.
Jan 15, 2008 10:47 AM #9
Rainer
86,689
asdf zcxv
Keller Williams Realty - Ann Arbor, MI
Ann Arbor Area Real Estate
Okay let me think about this: work on short sales here with the blogs or in a class?  I would rather be here and work on this stuff in classes...thanks so much for this series! 
Jan 15, 2008 11:57 AM #10
Rainmaker
237,568
Marlene Bridges
Village Real Estate Services, Inc. - Laguna Hills, CA
Laguna Homes|Laguna Condos|Laguna Real Estate
BB - Unfortunately most buyers who are looking seem to be unclear on this concept - If the short sale does not NET them more than a foreclosure then it ain't happening. Thanks for articulating this succinctly and clearly.  It will become  part of my dialogue from now on working with bargain shoppers.
Jan 15, 2008 01:11 PM #11
Rainmaker
147,071
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
I'm in the middle of a short sale now.. this is my first since the 90's.. They can be a good deal for all concerned but they take a lot of patience from all parties involved.. Good Luck with yours..
Jan 15, 2008 02:25 PM #12
Rainmaker
435,420
Derek and Mariana Wagner
The Artisan Group- Keller Williams Premier Realty - Colorado Springs, CO
The Artisan Group - Colorado Springs REALTORS®

I swear ... by the time this market is done with us, we will ALL (well, all who are left in the biz) be Short Sale Experts. I have been in the middle of one short sale after another, non stop since I joined AR in Sept 06.

Short sales (whether you represent the buyer or seller) is an exercise in patience, diligence, repitition, and really makes you WORK HARD... and generally for less money. Geesh. Oh well. It is the way of the market right now.

Good luck, Blog Boy!

Jan 15, 2008 04:09 PM #13
Rainmaker
659,433
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645
I haven't run into many short sales in my area, but am starting to see more of them popping up in one or two communities.  The PMI company will definitely be a factor in some.
Jan 15, 2008 04:24 PM #14
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Thanks for the mention, Bubba.

That post was an oldie; 15 months ago! 

Jan 15, 2008 05:26 PM #15
Rainer
165,557
Dan Forbes
Bradenton, FL
I keep coming back to learn more about short sales everyday. Thanks for the update. No one knows it all and AR is a great learning resource.
Jan 15, 2008 09:37 PM #16
Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Great info BB!  I have a client who made an offer on a short sale but the Lender would not accept the offer because it was not a Fannie Mae Loan.  They said they needed to make an offer with a DU (desktop underwriter) approval.  I told the Realtor that the loan that they are approved for ( a real approval) was not a fannie mae loan.  Lender would not accept the offer.
Jan 15, 2008 11:03 PM #17
Rainer
209,246
Marc Grossman
Marc It Sold! - Longwood, FL
GRI, Greater Orlando Real Estate Broker
BB,  Thanks for the posts and info.  It's surely helpful because I'm thinking of speaking with a client about heading in this direction.
Jan 16, 2008 12:36 AM #18
Rainmaker
1,142,035
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hey everyone, Thanks for stopping by. I've been busy today so kind of abandoned my post. But as always I really appreciate you stopping by and participating.

Very good comments! As usual they add to the post. Thank you.

Rob, I haven't had an FHA or VA yet. It sounds like I may just have to pass on those.

Mathew, That is interesting. I wonder what their thought process was on that?

Mariana, Patience and more patience is certainly required. Good to see ya.

Jan 16, 2008 09:07 AM #19
Rainer
70,478
Jan Wood
None - Gallatin, TN
Bryant:  Thanks for the advice... Very informative post.
Jan 16, 2008 11:55 AM #20
Rainmaker
453,646
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904
Broker Bryant...patience is the operative word.  If you have the patience and enjoy the repetition of jumping through all the hoops like a trained circus dog,  then the Short Sale process is perfect for you.  (you being a generalization, not a personal thing by any means)  It is a lot of work and there is a risk attached with such a small success rate. Having said that, it is also another way of doing business.  Good luck in thinking through the process. I know you will do well with anything you tackle.
Jan 16, 2008 10:04 PM #21
Rainer
41,704
Steven Dean
Compass Real Estate | 202.545.6900 - Washington, DC
So many buyers these days are asking to be shown short sales without a full knowledge of what complexities of the transaction. I find it interesting that many buyers I've met with lately are more drawn to short sales than to a similar house at a better price. Shows the effect of quickly skimming the news.
Jan 17, 2008 12:12 AM #22
Rainer
51,690
Lori Gilmore
Baird & Warner Real Estate - Joliet, IL
Realtor - Will County Illinois
Broker Bryant -- We are seeing an increase in short sales in my area and I feel the need to educated myself on the process and the players.  These posts are helpful and I look forward to the next one.  I am off to read Brian's post for more great info.
Jan 17, 2008 12:27 AM #23
Anonymous
RRsafety

"If the short sale does not NET them more than a foreclosure then it ain't happening"

 This is important, but rather useless without context. How do mortgage holders determine what they think they will NET after foreclosure. My understanding has always been that mortgage holders usually screw this up to a faretheewell. They look down their noses at some short sale offers and then end up taking 40% less 18 months later through foreclosure.

 Sellers should only be concerned how THEY THEMSELVES NET out. Trying to figure out the brains of the mortgage holders and how they figure these things is a fools errand.

Jan 17, 2008 01:50 AM #24
Rainmaker
1,142,035
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

RRsafety, I hear ya! Lender are usually depending on an independent BPO(brokers price opinion) and/or an appraisal to arrive at what they feel it would sell for on the open market as a banked owned property(REO). Then they make a judgement call. One of the problems with trying to sell a home via a "short sale" is that once you disclose as a short sale needing 3rd party approval it affects the market value drastically.

Very few buyers are willing to wait the several months this process may take unless there is a considerable discount involved. If the lender decides to foreclose they will actually have a better shot at getting a higher price for the property BUT their expenses are quite a bit higher. Plus they have to factor in that in some areas the values are still declining. Time is money. It may be best to take less now than take the risk and cost of a foreclosure.

You also wrote, "Sellers should only be concerned how THEY THEMSELVES NET out" Well that's an easy one. The NET to the seller is the same in both cases. SQUAT! The only difference between being foreclosed on and doing a short sale is how it would affect their credit(short sale is a little better) and of course there could be tax and deficiency judgements to consider. 

Jan 17, 2008 02:21 AM #25
Rainer
62,831
Allen C. Wright
RealtyU - Aliso Viejo, CA
NS, AHS, REPS

It is complicated and really needs to be understood ... there is NO room for On-The-Job-Training.  There is potential for litigation if agents mis-handle a short-sale and it pushes the seller into foreclosure.

Currently we are writing a short-sale course.

Jan 17, 2008 10:30 AM #26
Rainmaker
251,783
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196
HAaaaaaa  I love your sign... did you find that or make it?     Very great post BB --- but I am sure you already KNOW that :o)
Jan 18, 2008 01:01 AM #27
Rainmaker
116,105
Annette Smith
Allen Real Estate Services, Inc. - Sarasota, FL
Sarasota Real Estate Agent
Thanks for the great info Bryant.  I wrote a short sale contract about a week ago after talking with my broker, researching the correct procedure and trying to educate my buyers of the process -- and the fact that they probably won't get the property as there are other offers for this waterfront home.  We'll see.  I'll re-read your blog in my downtime!
Jan 18, 2008 08:44 AM #28
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