"Approved Short Sale" vs a Short Sale - BIG DIFFERENCE!!

By
Real Estate Agent with HomeSmart Real Estate

 

There are a lot of homes on the market right now, especially under the $300,000 range, advertising that they are a ‘short sale'.  In fact, for some of the searches I have done for client's literally ¾ of the homes pull up as a ‘short sale'.  Just because someone advertises a short sale, does not automatically mean that the bank will sell it short.  These folks, I guess at least 80% of them DO NOT HAVE APPROVAL FROM THE BANK TO SELL SHORT.   Their agents have mistakenly guided them to believe that once they get an offer - that is the time to approach the bank with the belief that with something in hand the bank will somehow take their request more seriously.  This couldn't be further from the truth. 

Being approved for a short sale can be much harder than being approved for your original home loan.  Essentially you have to qualify all over again and prove that you don't have the ability to make your payments.  Yep, we are talking tax returns, paystubs, bank statements, letters detailing your situation, etc....Initially when you bought your home this was a minimum 3 week process...now the banks are overloaded, understaffed and quite frankly, don't have the same incentive to get you moved through the system as they did when you were qualifying for your original home loan that was going to net them cash.  In addition to proving, or essentially qualifying with the bank to sell it short their must be a meeting of the minds on acceptable terms.  Negotiating the terms of an acceptable sale can take days or weeks....it all depends on the parties involved.  Now as always there are exceptions, but as a rule, it is not as easy as submitting an offer from a potential buyer and hearing back from the bank in 48 hours.

I always ask agents, "Has this short-sale been approved by the lender?"  If it has, then they should be able to provide you with the details of the approval.  I don't show homes that are not "approved short sales".  My buyer's time is valuable to them and once they are educated correctly, they understand that it just doesn't make sense.  Even if you do decide on an "approved short sale" you still have to work with a bank.  It's still ‘a roll of the dice' as to the ability of the bank to correspond to your buyer in a timely fashion.  A few banks have stepped up to the plate and have seen the value in working these sales efficiently but the majority have not and it can be extremely frustrating for all parties involved.  Here is what I tell my buyers, "I bet I can find you just as good of a deal being sold by someone that is competing against short sales and there will be disclosures, guarantees, repairs made, responses in a timely matter and we can count on the deal closing when it's supposed to."  Now, doesn't that sound better?

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Comments (74)

Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Brett, I love it when you get riled up!!! If it helps I am not a short sale expert nor do I play one on TV. In fact I usually avoid then like the plague. The few that I do handle I use an Attorney to handle the negotiations with the bank on the Sellers behalf. My job is to market the property and bring in a contract. And my opinion is that the higher the price the better chance of getting a bank approval. Short sales are a thorn in my side and they are destroying property values in Poinciana Fl.  I realize that if it is a primary residence the chance of the seller having liabilty after the short is agreed, is very slim, however, in my market, most of the "shorts" are investor owned properties.

I totally agree that taking on short sales should be left to the pros and are not for the faint of heart. This is why I've chosen to turn most of them down. I'm too busy with regular business.

I've been wrong many times in my life. Sometimes I'm not wrong.....I'm just different. I stand by my statement that my job as a listing broker is to get as much money as I can for the property. In the case of a short sale I just need to do it quicker which certainly affects market value. But my concern is does it really have to affect it by 35%? Or can I get a quick contract at a 20% discount? Certainly more is best for all involved on the listing side.

By the way, I have never listed a short sale that didn't sell. I have had some that didn't close but they have all sold.

Mar 08, 2008 10:05 AM
Real Estate Investing |Real Estate Investment
| Real Estate Radio USA - Fort Lauderdale, FL

What????: By the way, I have never listed a short sale that didn't sell. I have had some that didn't close but they have all sold.

Did you need the practice? LOL...

I guess 20% works for some..but I guess it depends on your area. I know of a guy ..and this is 100$ true story.

Condo in Miami Beach was bought for $780,000. Owner defaulted...agent put it on the market for $650,000 as a short sale. One of my associates had a client who wanted it..we advised him against it and stepped out of the deal...after a 6 week HARD negotiation he got the price he wanted and he was ecstatic. He CLOSED on the unit for ..you sitting down....$290,000.00

Today...there are 5 units, same config, on the market for UNDER $240,000 and one for $195,000.00. So that guy is already upside down and he has only owned his unit for 4 weeks. Now in time, it will obviously come back and he's in it for the long haul but hence my reason for getting as LOW a price as possible.

By the way..the biggest hint I can give you or anyone else...You need to understand regression analysis and use it in negotiating your short sales. To do anything other would be foolish and just plain bad business. The banks understand and lean on these terms. Agents need to know as well.

This is an extreme case but..20% too much?? I don't even look at a deal unless it's 35% to 45% below what is believed to be current market value. Getting or trying to get top dollar in this market is fiduciary suicide.

Oh and Christy..above...Please...iunderstand that it's not for you to imagine. You're not trained to speak to the bank. No YOU NEVER talk to the bank about a short sale until you are prepared to negotiate. YOU DO NOT CALL AND ASK QUESTIONS..you don't call and ask what they will take..NOTHING..you must remain in control and negotiate from a position of strength..ALWAYS!

Mar 08, 2008 10:19 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Brett, Practice is always good :) I can assure you if I was working on the buyer side my opinon of value would be different. Just a reminder I don't have a fiduciary with my sellers. I'm a transaction broker.

That's an incredible decline in value on those condos in Miami!!!! I guess now would be the time to purchase my dream ocean front condo. All those "specualtors" down there are screwed. Man oh man!!!! And I thought my market was in the pits with a 30% decline. Are you buying? When I'm ready to buy a short sale in Miaimi I'll know who to call. 

Mar 08, 2008 10:31 AM
Real Estate Investing |Real Estate Investment
| Real Estate Radio USA - Fort Lauderdale, FL
LOL.....Bryant..if you are looking to buy and hold...yes, You're retirement home on the beach awaits in Miami Beach! Overbuilt, blacklisted condos..hoa's with no funding..oh yeah...great deals to be had!
Mar 08, 2008 11:54 AM
Tiffany Cloud
HomeSmart Real Estate - Gilbert, AZ

Wow, thanks for the discussion.  I have learned a lot.  As much as I try to avoid shorts, I suppose I am grateful that in Arizona things are a little easier on us being a trust deed state then some other states.  We do have lenders that will talk - even so, I will still refer shorts out to the Brett Wilson's of the industry!

Mar 08, 2008 01:22 PM
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services
Tiffany- In Florida we are not a trust deed state. So maybe we do things differently here. But here, the banks will not even talk to the owner or the agent unless we already have an offer in hand. They just have too many files in hand right now. They certainly won't get a BPO before an offer comes in. We can call ahead of time to make sure that this lender is the owner of the note, if they are using a servicer to handle their short sales and if there is PMI on the loan. We can also send in our authorization letter to them and get their list of requirements for the short sale. We also can get the seller to gather up the documents their lender requires them to turn in. So we do make some headway. But there is no such thing as getting the seller approved for the short sale prior to an offer here in our part of the world. Katerina
Mar 08, 2008 03:34 PM
Stephanie Hindman
Prudential Douglas Elliman - Setauket, NY
I agree there are good deals for buyers out there that don't involve tying up their downpayment money or their hopes and expectations.
Mar 09, 2008 04:47 PM
Anonymous
James R. Porritt, Jr. ( Attorney at Law)

Because foreclosure processes vary from state to state the manner in which "short sales" are handled also vary from state to state and lender to lender. Most often what a mortgage 'server' can do is dictated by the 'holder' or 'investor'. Our experience is that approval of a short sale is more dependent on formulas based on an appraised value than on the amount of a loan balance. Ordinarily the holder or investor will not want to incur the cost of an appraisal without a proposed purchase agreement in hand. Consequently it is unlikely you will get an 'approval' before an offer is submitted. It is also difficult to get a disclosure of the amount of the 'appraisal', because the holder or investor does not want to invite everyone to shoot for the minimum [ if the holder is Fannie or Freddie the ratios are relatively well known ].

   It is incorrect to assume that a short sale always results in a discharge of the deficiency. The discharge of the lien ( mortgage ) is not the same thing as a discharge of the obligation ( note). Keep in mind that depending on who the holder is that the continuation of the deficiency means the holder still has a reportable "asset" on its books. That may be more important to some pools than any expectation of ever collecting anything on the remaining obligation. After the Congress allowed an exemption for debt forgiveness on a principal residence from income taxes, we began seeing a rash of short sales being "approved" without debt forgiveness ( or asking for a new note ).

Ordinarily a server will notify the borrower or the borrower's third party rep what they require in order to consider a short sale. First on the list is a copy of a listing agreement showing that the property has been on the market for at least 60 days. This is the same requirement if the borrower is looking for a "deed in lieu". If you are being asked to take a listing on an upside down property you may want to include a provision granting you some measure of compensation in case the borrower resorts to a D.I.L. ( not much difference to the borrower in terms of credit score ).

Jun 17, 2008 09:25 AM
#62
Anonymous
Lisa Phillips

What is happening to this Country is nothing less than criminal

I would like to let someone explain to me, how hardworking citizens of this great Country are getting their homes taken from them?  The media want you to think that homeowners aren't calling and trying to work with the loan companies when they run into trouble. But that's not true. I have been working to save many "good, hardworking people" from foreclosure.  I have qualified buyers waiting patiently to purchase a home from individuals who; lost their job, got divorced, had an ARM etc. The banks do not want to help these people.  They just want the Government to Bail them out.

The government is bailing out the companies who did the wrong things in making these poisonous loans that were doomed to fail. Unless something is done to help struggling homeowners, people are left out and we're the victims. It's not fair. The government needs to remember that people who pay taxes and work hard every day.  What should have happened and still can, is... - there should be a freeze on any loan with an adjustable rate.  The lender is making 90% interest on the first 10 years of the term, then greed steps in. 

Second,  The lenders do not want to save the homeowner from foreclosure.  I have tried, and am still trying with all my heart and sole to work with these lenders to negotiate the sale of a distressed homeowner.  I have gotten down to the wire with an escrow closing just days away, just to have the bank foreclose when they know there is a qualified buyer with a purchase contract waiting.  This does not make any sense at all. 

Please, please, please, someone help me make sense of why the lender forecloses...buys it back at the commissioners sale, then lists it with a REO realtor and sells it for thousands less?

Sep 24, 2008 04:17 AM
#63
Gena Riede
Riede Real Estate, Lic. 01310792 - Sacramento, CA
Real Estate Broker - Sacramento CA Real Estate (916) 417-2699

What a GREAT comment above by Lisa Phillips. We see this time and again. It makes no sense and yet it is allowed to continue. It's like watching a train wreck!

Sep 24, 2008 04:25 AM
Tiffany Cloud
HomeSmart Real Estate - Gilbert, AZ

It's amazing how much has changed since I wrote this post 6 months ago.  1 year ago I was bragging how I would not 'touch' a short or bank-owned property and now approx 2/3 of my deals involve a bank approval on some level. 

Have you all noticed the banks trying to do a better job on these shorts sales? 

Some observations I have had since I wrote this initial blog post:

  1. I write more offers per client before getting them into a home then I used to.  3 to 7 offers per client is the norm instead of 1 or 2.
  2. Standard 45 day escrow .... NOT
  3. Once we have submitted 3 offers on 3 different properties...we still keep looking.  Response time on a short averages 2 months - that is before we get into escrow.  Even though a buyer says they are content to wait, they get ancy and start wanting to look again.  What if they find something else while waiting?  It's just too tempting NOT to look - there is, after all,  definitely not a shortage of inventory out there and two months (or longer) is a long time to be in limbo.
  4. EVERY SINGLE bank is going to try to drastically cut my compensation.  Listing agents will try to cut my compensation.  I work longer and harder per client than I used to and I have to fight for every single dollar of compensation that I have been promised.
  5. If I don't work shorts and foreclosures I am not working - I don't really have a choice if I am going to make a decent living in this industry.
  6. Title companies that specialize in working foreclosures are working for the seller (bank).  They are NOT impartial, they are NOT interested in working in a partnership with buyers, REALTORS and lenders...they are just interested in getting as many deals through as possible with little concern to customer service.  It's an assembly line.  I will remember you title companies and escrow officers when the market turns...
  7. Do they have a babysitting designation I can add to my ABR, CRS, GRI and e-PRO?  I have earned one after having to babysit the listing agents and title officers involved in foreclosure sales and short sales....GOOD GRIEF!! 
  8. My clients have gotten some SCREAMING deals on some beautiful homes.  Yes, literally 1/2 the price that the homes sold for only 2 years ago.  I am creating wealth for my clients and am proud of the work I do on their behalf.

Any additional thoughts?

 

Sep 26, 2008 05:22 PM
Anonymous
Brett Wilson | Real Estate Radio USA

"any additional thoughts?"....

How about "you've come a long way baby" and you're to be commended. (not being chauvinistic or offensive..quoting the commercial)

Feb 05, 2009 05:32 AM
#66
Daniel Poulos
The Elite Lending Team at Milestone Mortgage - Jupiter, FL
Paving the Way to Home Ownership for 30 Years

The biggest frustration is working for months negotiating a short sale finally to get an acceptance letter from the lender for a short pay-off then.....THE BUYER WALKS!  Now you're "all dressed up and no place to go."  There is a place you can post these lender accepted offers so that you find replacement buyers before the acceptance letter expires.  It is a complimentary service at www.RealEstateRoadkillUSA.com   We have often found buyer's within hours after posting the offer!

Feb 26, 2009 04:28 AM
Bart Foster
Keller Williams Realty Boston - Metro - Boston, MA
Boston MA Real Estate

 

Be very suspicious of any claims of a pre-approved short sale. Why, most agreements from lenders to the seller, to settle for less than owed (agreement for discounted sale) will require signature of the specific buyer who made the offer. If the buyer walks, the agreement can not just be signed by a new buyer just like that.

Here are a few of my tips:

1. Listing agents: please pre-screen/qualify the seller for a Short Sale.

2. Team up! Refer out and have your seller retain a 3rd party review their financial position, and when an offer is received, to negotiate with the lender/bank.

3. Accept that few lenders will act until there is an offer on the table.

4. Every 15-20 days aggressively reposition the property with a price reduction of 5% or more.

5. Document everything. Listing price history, number of showings at each price, feedback, anything you think will help.

6. Keep the communications going, schedule follow up calls like an appointment, and never forget to make a call

5. If you're the buyer's agent, support your buyers offer by submitting comps or a BPO summarizing any damage or major repair issues, and draft an estimate for the seller's side of the HUD.

6. As with Bank Owned property, offers that have fewer contingencies get the most attention.

7. Home inspections: the buyer may want one, just do not make it part of the offer. The buyer can always have an "FYI inspection" ultimately backing out if they are unable to have a meeting of the minds over the final terms of the P&S.

As for advertising an Approved Short Sale; this will require 3rd party pre-approval and agreement with the seller to sell the property. In this case, the investor is already onboard with regards to list price, commission and terms. All that's missing is a ready, willing and able buyer.  I am certain that most reading this will have questions regarding how on earth do we get past the bank all the way to the investor? With "luck" or persistence it can be done.

Mar 29, 2009 05:23 PM
Anonymous
Eloy Rodriguez

 Leads from banks for possible pre-approved short sale listings will surpass the REO listing in the near future.  Why?  Banks saves and owners will get CFK.  Position yourselves now.

Apr 03, 2010 11:37 PM
#69
Anonymous
Case Reynolds

Lisa,

Read the Huffington Post. If you do a search, you will find articles addressing exactly what you are talking about (unless they remove them after a while). For example, one BoFA employee admitted that his bosses told him to target houses with equity for foreclosure. Another BoFA employee was fired because she just could not any longer say no to people calling for help, so she said yes to one family, so BoFA fired her. Other people have been foreclosed upon after the bank agreed to a loan adjustment. A judge in Ohio has thrown out some foreclosures because the loan had been sold so many times that the chain of title couldn't be proven. The banks built a profitable house of cards--literally on nothing but paper--and now they want the taxpayers to bail them out. And you are so right about the interest.  I don't for one minute believe that the banks are suffering. I don't know why more people don't point out the way interest on mortgages works.

May 13, 2010 01:21 PM
#70
Anonymous
kEN5938

Hi Everyone,

I would like to thank each and everone of you for taking your time on this forum.  I'm in the process of purchasing a home.  I started looking for a home since January 2010 and I sent out multiple offers and all of them have been rejected.  I didn't even negotiate the price with the seller.  All I asked is to pay 6% closing cost.  One of the Seller that rejected my offer and went with another offer called us back on 4/15/2010 and we agreed to go with them and extended the contract date on the same day and sent them a preapprove letter from the our lender they requested.  Since then we never heard back from them, no update.  Now it's May 12 and still waiting.  I would like to know what should I expect and should I expect to wait longer.  They already had a failed deal with another buyer, I guess the short sale was approved by the bank. 

May 13, 2010 04:40 PM
#71
Anonymous
neileaque

This is Superb blog.It helps me a lot.I have no knowledge about short sale.

Thanks for valuable information.....

===

Mortgage Loan Lender

Oct 28, 2010 06:37 AM
#72
Anonymous
Not an Agent

My home just sold to a buyer who has been awaiting my lender's short sale approval. The process took 7 months but was well worth it to me, the buyer, and the agents. Getting a short sale pre-approval only signifies the lender's willingness to sell short of the purchase money loaned. It does not hasten the process, or guarantee the offer will be accepted by the lender. So, the better advice is to get the okay from the bank, get a contract, and thereby locate the lender's baseline. Your piece sounds like the process is miraculously quick with a short sale pre-approval but it is not.

Sep 09, 2012 08:28 AM
#73
Anonymous
Tiffany Cloud

Thanks for the comment.  This piece was written 4 years ago and as you can imagine the short sale process has changed quite a lot over the last 4 years.  There are many banks where the transaction is very quick and easy to close.  I have closed them in 3 weeks from offer to close of escrow on a pre-approved short sale.  Obviously the particular bank you were working with did not have their process stream-lined, but many of them do, especially in 2012.  As a Realtor, we have to work with many banks and they all have different rules and timelines.  Fortunately, many of them have streamlined things quite a lot.

Thank you for your comments and I am happy to hear that over-all you feel like your short-sale was a beneficial experience even thought it might have taken longer than anticipated.

-Tiffany Cloud

Sep 09, 2012 08:37 AM
#74