Florida Short Sales

By
Real Estate Agent with RE/MAX Coastal Properties Destin Florida

Most of the qustions that we receive through our websites these days are pertaining to short sales, buying and selling ... A little background - I have been doing short sales here on Florida's Emerald Coast for 21 years. Back in the early days, the process was much less formal and in fact, many banks back then refused to negotiate at all. Their attitude was pay me or we foreclose, period. Remember the S&L crisis?  

At any rate, over the years, most banks have gotten much smarter and have begun entertaining short sale offers, committing significant resources to their "loss mitigation" departments. In the final analysis, the bank's primary concern today is stockholder satisfaction. Stockholder satisfaction comes from positive, not negative numbers. If the bank can mitigate a loss, realize a greater net by accepting a short payoff, then the bank's goal is being better realized.

In a short sale, the seller will accept an offer based on the agent's (or loss mit) recommendation. It is submitted as part of a much larger package to the lender for approval. Some lenders are unnecessarily concerned with regard to specific closing costs involved, while most are only looking at the overall net, the bottom line. Often, the lender will not try to adjust the price.  If the listing agent knows the ropes, they will not waste everyone's time by submitting an offer that has little or no chance of approval.

Case in point - A buyer approached us not long ago, wishing to make a ridiculous offer on a short sale that we knew had no chance of ever being accepted. We wouldn't touch it, and they found another agent to submit it for them - Three and a half months later, the bank had not even responded. Of course not ... Why would they? The lenders have thousands of viable offers on their desks that require their attention. Also, some lenders prioritize based on foreclosure date. The sooner the date, the closer to the top of the stack you will be. Many bank loss mitigators are juggling hundreds of files at one time. They are working very long hours and often on weekends. Their time is very extremely valuable.  

We usually have a good idea what the Loss Severity Rate is for the various major lenders. In other words, we know what their tolerance level is regarding the degree of loss they may be willing to suffer on a particular deal. Much has to do with the status of the owner. If the owner has significant income and assets, there is little likelihood that a short sale would be approved. If the owner is not at least three months behind in payments, same deal. Why would the lender just agree to flush money down the toilet? Answer- They would not. You have to make a strong case for the low property valuation as well as the owner's inability to make payments. The package that we submit to the lender may be 150 pages or more. It is highly detailed and provides the lender with everything they need in order to make the appropriate decision. 

On the flip side, we are helping many people out of very bad situations. Not every case is a short sale candidate. If it's not, we tell the seller so. Some of the people we meet with need some direction in understanding how they may actually keep their home or property. In many cases, they do have some options. When the conditions are right and both the property and owner are good short sale candidates, it's a win-win for everyone... Buyer, seller, lender and stockholders!

Comments (2)

Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Ed, this is a very informative post on short sales with insight into the mindset of the lenders and negotiators. One thing that has been controversial here in Active Rain is the idea of hardship. Are you beginning to see situations where the banks will negotiate a short sale when there is not what we would define 'hardship'?

Sharon

Aug 23, 2009 02:20 PM
Ed & Terri Smith
RE/MAX Coastal Properties Destin Florida - Destin, FL

Wow, there has been a lot of water under the bridge since that original post ... Many changes have occurred in the short sale arena over the past 1.5 years. While most of that original post still holds true today, the length of time required to complete a short sale has changed, and not for the better. That 3.5 months that I referenced would seem like a gift from Heaven today!

In answer to your question though ... The definition of "hardship" is changing. We have successfully closed a number of short sales in which the mortgagor did not fit the typical profile. That distinction being assets but no cash. We tell our short sale clients today that they don't have to be dead broke to qualify, but it helps :-)

In those cases, we have seen lenders attempt to secure part of the deficiency with a mortgage on another property. If the seller owns no other properties, the lenders will sometimes attempt to bridge the gap with a promissory note at zero interest. An aside, we have found that retirement funds are not typically considered "fair game" for short sale purposes.

Ed

Aug 24, 2009 03:49 AM