Why are they called Short Sales when they are Long Sales?
Why are they Called Short Sales when they are Long Sales?
“Why do they call them Short Sales?”
This is the #1 question I get all the time from my sellers, my buyers, and callers. Well, there is a very simple explanation to this question. The type of sale is called a “short sale” because the bank is referring to the loan amount being short at close of escrow. The “short” is not a reference of time but instead the payment of the loan in full. Therefore, the lender is agreeing to accept less money than promised originally when the loan was taken out on the house.
“Can a Short Sale” be done in a short time?”
Two years ago, my answer would have been “NO” but in all fairness the banks are trying really hard to shorten the time period from 9-12 months to 3-5 months typically so I must now say “YES sometimes.”. I have dealt with Bank of America primarily and I can say I have had great experiences with them. They have trainers who go around the country and set up free seminars to train the realtors to work with them to get the shorts sales closed quicker. The banks have tried to streamline the process and it seems to be working great. I cannot speak for all the banks but the major banks realize time is money so they are in as big of hurry as we are to get it approved and closed. Wachovia, Chase, Citi-Bank and Wells Fargo are trying really hard to get their short sale process streamlined too to become more efficient and quicker plus they are giving seminars to realtors as well.
“If a buyer cancels during the short sale, do we have to start over from the beginning?”
No, not any more as many of the banks have changed their policies to make it easier for everyone. Now, many of the banks have started giving the listing agent 30 days to find a new buyer. Most of us will keep the listing in Back-Up status or keep the names of agents of who want to put in offers. Then, if the current buyer cancels, we can hurry up and get a new offer signed and accepted by the bank. This is a real time saver from the old process we used to have to deal with. This new policy has really shortened the entire transaction greatly.
“Will the bank do repairs? “Any alternatives?”
I have to say I am speaking in generalities and all banks and negotiators are different and have their own policies. Many banks will take care of some repairs like termite, Health & Safety violations like missing stoves, inoperable heaters and inside plumbing. If the repairs are extensive, sometimes the short sale can only be sold as “cash only” or a 203K Rehabilitation loan. If the buyer really wants the home and agrees to pay for the necessary repairs upfront to get the loan closed, this is possible in some cases too.
“Will the bank pay liens on the property?”
There are many kinds of liens that can be placed on the property;
1) State/County and IRS Tax liens.
2) Creditor Judgment and Mechanic liens.
3) Home Owners Association liens.
4) Public Utility liens; water, gas, electric, trash.
5) Child Support liens.
6) Code Enforcement liens.
7) Medical liens.
The important thing here as the seller looking at listing their home, is to be totally honest with your Realtor. Tell them what liens or letters you have received so they can check on them at first. One of the first steps your agent does is to have a title report done on the home but some of the liens may not show up immediately. The title company will run another check just before closing so if some unknown lien shows up; it can cause the entire deal to fall through.
If a letter arrives during the transaction, give a copy to your agent so the agent can notify title and escrow. It can be embarrassing but the agent is there to help you and truly understands what you are going through.
Many of these liens can be signed off or reduced to a reasonable amount and the important thing is to start negotiating during escrow so the creditor doesn’t file for a judgment and lien. The cost can go up astronomically and then the creditors are not as willing to negotiate.
Remember, when your agent is negotiating with the bank in the beginning, this is when the bank is more likely to approve the liens. Then if title negotiates the lien holder to reduces the amount later, great!
With tax liens, they can be negotiated successfully. The IRS usually requires a second appraisal and is an out of pocket expense for one of the parties; buyer or seller.
“I want to buy this short sale but I have to be in it within 45 days.”
A short sale may not be the thing for you as it is very rare for a short sale to close within 45 days. If you want to move fast, you might want to direct your searches to Standardsales only.
“Is the listed price approved by the bank or will they raise the price later?”
The answer is yes and no on this question. If the listing says “Bank Approved Sale” that means the bank has already decided to sell the home for a set price. The listing agent tries to find comparable sales in your area and will list the house fairly but……..down the road, the bank can decide to ask more. Then negotiations will start up again until an agreeable amount is reached or the buyer can walk away if they are not willing to pay the difference.
“How does the bank decide what a fair price is?”
There are usually three sources that the bank uses to come up with a fair price.
1. An Appraisal is done by a certified Appraiser.
2. 1-2 BPO’s are done by licensed Realtors.
3. The listing agent provides comps to the banks as well as any pictures that could affect the price; road closures, neighborhood info, repairs needed on the property.
Then the bank will review all the results and make a decision. The bank wants to sell the property so they are typically willing to take the fair market value arrived by the three sources,
Once in a while, I have seen listing agents try to low ball the sale price trying to attract buyers in the beginning. This is not ethical or reasonable as the bank will find out what the house is truly worth and then when negotiations start up again, the buyer typically walks as they only wanted the home when it was listed way too low. It is supposed to be a fair price and not cheap. So if you want it, ask a fair market price.
“What kind of hardship do I have to have?”
To do a short sale, the bank will expect you to be honest and forthcoming with them and provide a lot of documents; all of bank statements for the past 3 months, unemployment or SSI statements, a current utility bill. Plus the bank will send you a package and you will have to answer all their questions and write a Hardship Letter explaining what your hardship is. They also want you to list what you owe; credit cards, any liens, past due tax bills, monthly utility and personal expenses too like gasoline and food. The bank wants to see the entire picture. Most people who are behind in their mortgage are behind in other bills as well. They also want to see your tax returns for the past two years.
If you are current on all your bills, have lots of money in the bank, and just want to get out from under your mortgage since you have lost equity in the past few years….the bank is less likely not to approve the sale but all banks are different and have different policies.
“Do most short sales close or does the bank just foreclose anyway?”
Two years ago, I would have said no but today I would say yes the banks are trying hard to close their short sales instead of having to foreclose on them later. The bank/investor loses less money in short sale 40% vs. 65% in a foreclosure. So at this time, the trend has gone back to approving and closing the short sales instead. There are a lot of fees that the banks have to pay when they foreclose so the short sale is a great and cheaper alternative for all.
“When should I notify an experienced Realtor to list my home…right away or can I wait a few months?”
No do not wait; the minute you miss your payment, you should call an experienced short sale agent to help you. And like I mentioned earlier, be honest with your agent and tell them everything so there is no surprises later. Your Realtor will negotiate with the bank and needs all the facts.
Items to tell your Realtor: Missed payments, Property Taxes, Medical liens, Contractor liens, Home Owner Association fees, IRS and State Tax Liens, Court Judgments, Credit Cards, Automobile and anything else you are late on.
Your short sale can be short if you have an experienced short sale Realtor and your bank cooperates with you and the odds are more likely they will now.
Kristin Hamilton DRE #014092138 Keller Williams Realty – I am a full time agent and deal in all types of real estate transactions. Trusts, Probate, Short Sales, Standard Listing, Single Family Homes, Apartments 1-4 units, Duplexes and Condos. I am also an experienced REO agent. I sell real estate in the Riverside, San Bernardino, Orange, and Los Angeles Counties. I am a trained and experienced Short Sale agent. If you are looking for a professional and experienced agent, I am just a click away. Google me at Kristin Hamilton-Real Estate Agent. Homeowners and Buyers both will find my services top notch and successful. Call me to sell your home; both traditional and short sales.
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