Why Short Sales Take a Little Longer

The deadline for a short sale is dependent on a number of factors, such as banks and brokers involved. From closing the first offer, it can take a quick short sale only 60 days. However, a short sale with problems along the way, might take up to a year to complete. According to Amy Simmons of Keller Williams Realty in Jupiter, Florida, the average short sale requires three to nine months.

Why It Takes Longer Than a Normal Transaction

A short sale happens when a homeowner sells a house for less than the amount due on the mortgage loan. They sell the House short of the outstanding balance, hence the term. In many cases, short sale is a strategy for avoiding foreclosure.

But homeowners cannot do this only on their accord. They need the lender’s permission, since the lender will likely be taking a loss in the deal. This is the reasons why a short sale takes longer than the regular transaction, generally speaking. In a conventional sale, the seller/homeowner doesn’t need the lender’s permission since they will pay off of the balance in full.

Short sales are usually more complicated for the reason that multiple approvals is usually required. There might be more than one lender involved. There may also be a private mortgage insurance protection (PMI) company that has a stake in the deal, and therefore some influence on the approval process.

Here is a closer look at the factors that slow down the short sale process:

  1. Responsiveness of the vendor

One of the biggest causes of delay in the short sale is the seller himself. Their mortgage lender asks for documentation during the short sale process, and many times the lender will ask for updates on paperwork that has already been lodged. Many vendors have been slow to produce paperwork because they are disorganized, emotionally upset, or confused about the purpose of the paperwork. The ideal short sale seller immediately responds to requests for paperwork without questioning why the lender wants it.

  1. Internal policies of the lender

Each lender has its own timetable for a short sale. Many borrowers try a loan modification first, and many lenders will not consider a short sale while a loan modification is being considered. Most of the time, the lender’s personnel is overwhelmed and that delays the process.

  1. Involvement of alternative lien-holders

If there are actually multiple lienholders, that might lengthen the short sale negotiation because everyone has to approve the sale. In most situations, each lienholder may seek to limit what other lienholders receive, which could complicate the negotiation.

  1. Involvement of a home loan insurer

If a loan insurer is needed, then they are required to agree on the amount of loss that the lender will take. That injects an additional decision maker into the process. The mortgage insurers sometimes have certain rules about what they would approve, and the lender may have to abide by those guidelines.

  1. Involvement of a Government Service Entity (GSE)

If Fannie Mae, Freddie Mac, the Veterans Administration (VA), the U. S. Department of Agriculture (USDA), or maybe the Federal Housing Administration are involved, then they too have to approve the short sale. That injects yet another decision maker into the process, and each unit has its own system.

The sort of short sale program. There are government short sale programs, similar to the Home Affordable Foreclosure Alternatives (HAFA). There are bank programs, similar to the conventional short sale and the cooperative short sale. Every program has rules on timing. One system might require that the property not have an offer on it yet, while another lender’s program might just consider a short sale if there is a marked contract with a purchaser.

  1. Involvement of a third party negotiator for the lender

Some lenders, particularly the Bank of America, prefer to use third party vendors to help negotiate with the seller. These third-party companies work for the bank and may have their own procedures in addition to the rules of the lender.

  1. Involvement of an authorized vendor or attorney negotiating for your seller

A third bash vendor or attorney working for the seller could possibly have their own suggestions. They may only advance the short sale if most paperwork is received from the seller upfront.

  1. The ability of your listing agent to help procure a buyer

Even if this short sale agreement process is switching along quickly, it is essential to get a ready, willing, and able buyer. Without a buyer, there is no closing. Some properties, such as houses in need of repair, may only entice a certain segment of the buyer pool. If a lender pre-approves this short sale at a certain price, but buyers believe that price to be too big, then there will probably be extreme difficulty in locating a buyer.

  1. Expiration of the appraisal or Broker’s Price Opinion (BPO)

Even if there exists a buyer and the process is going along quickly, a lender might possibly slowdown the negotiation because the valuation of your property is very old. Some lenders could possibly only consider some sort of appraisal if it occurred in less than three months, while others may well only approve a short sale if the particular appraisal is just less than 6 months old. Also, it may take days or weeks for the appraiser or BPO adviser to submit his or her report.

How To Speed Up the Short Sale Process

Hiring an agent who has closed many short sale deals will serve as leverage since experienced agents know how certain banks work, what could be expected and how to best work through the complex process. But even the most experienced short sale agent can at times come across brick walls or challenges they simply cannot overcome.

The long and short of it is that the sale of a home in a short sale can save your credit if you know how the process works, so make sure the professionals you work with have a lot of experience.

Foreclosure vs. Short Sale

There exists a lot of misunderstandings about foreclosures and short sales. Which should you use and why? Will your credit score be impacted just the same way by both of them?

When you buy a house, you typically make a deposit and then set up a mortgage amortized over a number of years. The house is used as collateral and if the homeowner is unable to make monthly mortgage payments, the credit institution has the right to seize the property in order to recoup their losses.

Now let’s compare these two options:

What is a Foreclosure?

Foreclosure is the means by which a lender gets title to a property because of homeowner’s loan default. The lender recoups their own loan investment by simply selling it at the trustee sale. If there are usually no other potential buyers, the bank takes the exact property into inventory as real estate owned (REO). Banks are not in the business of property proprietorship nor management, and they are legally obligated to sell off these kinds of non-performing assets.

What is a Short Sale?

On the other hand, short sales are properties sold before foreclosure at a discount for the reason that current market value is lesser than the loan amount. The homeowner still has the title but the sale must be endorsed by the bank, who endures a capital loss upon sale. To keep away from the extra cost of the foreclosure process, banks are willing to sell properties at or below market value.

Foreclosure Facts

According to Re/Max, the average price of foreclosed houses was $185, 000 while that of other regular properties was $267, 300 in May 2011. In addition to prices, bank owned properties can be bought much more quickly over a typical short sale made.

Despite the low price, bank owned properties have their share of problems. These foreclosed properties typically sit vacant for weeks or even months, lack regular maintenance, attract squatters as well as copper thieves and need repairs. Most banks promote their foreclosed properties in an “as is” condition. So, anyone who will buy must find what repairs are essential and invest money and time to fix those difficulties.

Short Sale Facts

This type of distressed property is in relatively better condition, and often repairs are not necessary. Since properties are still occupied by homeowners, the house is usually maintained. Roughly 80% of these properties are of good quality.

However, short sales have their drawbacks. This type of foreclosure may take a long process, requiring months to complete. You need to be qualified and have a much longer time horizon to buy the property. Reason for the long process is that all pledgees must approve the sale. But, the short sale process can be sped up if the seller’s agent is experienced in negotiating with the bank and closing short sales.

Foreclosure Process

Depending on the state a borrower lives in, foreclosure may or may not involve the judicial system. Following three to six months of missed installments, a loan specialist will record a notification of default, which informs a borrower that he is confronting foreclosure and gives him a reestablishment period to make things right by paying off obligations or settling any dispute. The length of the reinstatement period changes by state, with a few states giving borrowers a negligible five days to settle disputes and obligations and others giving up to 90 days.

If the home loan’s unpaid balance is not paid off within three months, the mortgage holder gets a notification of sale. The property is then sold at a trustee sale to the highest bidder, who must pay in real money inside of 24 hours. The opening offer is generally equivalent to the outstanding balance and any extra lawyer charges the bank might have incurred.

Short Sale Process

When the market value of the property is less than the outstanding mortgage principal, and the borrower cannot afford to pay the loan, the lender (one or more banks) can choose to accept a short sale. In a short sale, the proceeds from sale of the property falls short of the mortgage balance, which is one reason lenders may hesitate to accept the offer for a short sale. Any unpaid balance owed to the lenders after a short sale takes place is known as a deficiency. Short sale agreements are not necessarily borrowers releasing themselves from their obligations to repay any shortcomings of the loans unless explicitly agreed between the parties.

Distinctions Between Short Sale & Foreclosure

  1. For borrowers: The current government is actively trying to halt the tide of foreclosures in the United States. For this purpose they began the MHA program, which stands for Making Homes Affordable and is an attempt to reduce the mortgage payments on both primary and secondary mortgages. The hope is that more people are able to stay in their homes will be.Those borrowers who are still unable to keep their homes, even with the help of the MHA program can use a short sale as a way to get out from under their obligations to the lender. If this was the primary residence of the homeowner, they are not liable for taxes on the forgiven debt, and may even be eligible for a $ 1,500 to help pay for moving expenses.
  2. For Lenders: Lenders participating in the MHA program are required to reduce the mortgage payments in an effort to make payments affordable. Under this program, lenders can also get up to $ 1,000 in incentives, even without loan modification. To make this possible, the lender must allow a short sale if the borrower prefers this option.
  3. Credit Scores: Neither foreclosures nor short sales offer an advantage over the other in terms of the negative influence on a person’s credit score. Industry experts along with Freddie Mac and Fannie Mae say that this decline in credit ratings will be between 200 and 300 points.
  4. Waiting time between mortgages: Freddie Mac and Fannie Mae guidelines stipulate that a borrower must wait for 5 years before qualifying for any new mortgage following a foreclosure. In the case of a short sale, the waiting period for a new mortgage is merely 2 years.

Conclusion

As a homeowner, if you qualify for aid that will lower your payments, maybe you will be able to avoid a foreclosure. If not, trying to work out a short sale with your lender probably is your best bet.

From the lenders standpoint a short sale might be best because foreclosures might be both costly and time intensive. Ultimately the impact of your foreclosure to your credit rating and ability to borrow later on is reason to choose the short sale above the foreclosure. Lenders will look more favorably on the borrower that tried to cooperate with the bank (via short sale) than one who just walked away.

 

11 Reasons Why Most Short Sales Aren’t Approved

A short sale in real estate is when a property is sold at a price less than the amount owned by the homeowner to the mortgage company, and the mortgage lenders accept the short payoff. A mortgage lender will take the ‘short’ payment if the borrower can continue making monthly payments on the loan if they do not have money to pay the loan all at once.

So why do homeowners opt for short sales?

  • To avoid foreclosure – If a lender cannot make their mortgage payments, they are likely going to face foreclosure, and they can undergo the proceedings of a foreclosure. They opt to sell the property at a lower price than go through foreclosure.
  • They do not have money to continue paying the mortgage – If a homeowner does opt to have money to pay their mortgage, they choose to short sales the property and use the money to pay their loan debt. If the money is not enough, they can continue making monthly payments until their debt is cleared.
  • The homeowner may be moving to a new location – Sometimes a homeowner may want to move, but they cannot find a buyer to buy the price at its original buying price or higher. This may lead them to opt for a short sale. Since they will be selling at a lower price, it will not be difficult to find a new buyer.

11 Reasons Why Most Short Sales Aren’t Approved

1. The homeowner does not have a valid reason for not paying the mortgage
For a mortgage lender to accept a short sale, the seller must have a valid reason for selling. Usually, it could be they cannot afford the mortgage payment, or they are moving and want to sell the home. If the seller does not have this kind of reasons, it will be difficult to convince a mortgage lender to a short sale, and undergo the losses.

2. The mortgage lender prefers foreclosure
Sometimes the prices of the short sale may be too low than the original price, making the lenders opt to foreclose. If the lender determines that the payout from a private mortgage lender will be a much larger loss, they prefer foreclosure. This way your short sale will not be approved.

3. Property title is unclear
The property title must clearly state that you are the homeowner. If the details are unclear, the mortgage lender will not approve your short sale. You could be running a con game. You as the seller must have all the necessary documents, title inclusive that prove you are the homeowner, the buyer or someone left that particular property in your name, making it yours.

4. The homeowner has filed for bankruptcy
Bankruptcy declaration is grounds for disapproval. A lender will not approve the short sale if you are declared bankrupt. This is because in the case that you cannot pay the full amount at once you are expected to make monthly payments. If you are bankrupt, you cannot make these payments. Therefore, your short sale request will be denied. The lender must be certain that you can pay your loan balance.

5. The mortgage lender may have approved the short sale by the homeowner refused to make payment to reduce loss the bank will incur
By approving a short sale the lender will be making a big loss since the property is being sold at a lower price. However, the homeowner and the bank could agree that the homeowner will make payments to cover the loss the lender will suffer after the short sale. If the homeowner is not willing to make these payments, their short sale will not be approved.

6. Unreasonable second lenders
It is important for the bank to meet with the second lender who in this case is the buyer. All property details will be smoother if the two met and discussed terms, including the prices. Sometimes the second lender is too difficult and refuses to meet the first lender. The first lender has no choice but to deny the request for short sale.

7. Tax liens, UCC filings and judgments
The homeowner must pay all liens before they can short sale because any liens under the homes name or the seller’s name will follow them even after foreclosure or short sale. The bank/lender will deny short sale until these liens have been paid.

8. The home is not in good condition
If the home is damaged and requires too many repairs, the mortgage lenders will not approve a short sale. If you are planning to sell it’s important to ensure you repair all damages and leave the home in good shape for the next homeowner.

9. Short sale price is too low
Sometimes the short sale price is too low and too big of a loss that the lender refuses to short sale. If they think they can make more money and avoid the losses by going through the foreclosure process, the lender will often opt for the latter.

10. The bank/lender sold the loan
Sellers fail to understand that at times the bank/lender that gave them the loan could have sold it to another bank/lender. This means that the bank may be servicing the loan and sending payments but not own it. If the bank sold the loan it has no authority over the loan, therefore, it could not approve the short sale.

11. The seller does not qualify
The bank requires a hardship letter from the seller to state why he/she cannot afford to continue paying their debt. If the seller refuses to work out a plan to pay the bank, then the bank will deny the short sale.

Conclusion
A short sale could succeed if the homeowner meets the necessary conditions from the bank. However if not they will be due for foreclosure unless they van manage to make the payments required by the lender. If you intend on short selling, ensure you go through each small detailed that you will require for your request to succeed. Pay your taxes, repair all damages and look for a second buyer that will not be impossible to work worth. Also, ensure the offer made by the second buyer is reasonable enough for the lenders to accept.

Letting your property go into Foreclosure will come back to haunt you.

Don't let this happen to you!
Don’t let this happen to you!

I talk to people everyday that are contemplating their options.  Should they go through the hassle of doing a short sale or just let the property go into Foreclosure?  The benefit of doing a short sale is that you know where you stand with the bank regarding any deficiency debt that they may try to claim.  The reality is that the banks want to do short sales and in doing so they are waiving their deficiency debt rights in order to get them done. Read the Washing Post Article below, it reveals what can happen if you just give up the fight.

Lenders seek court actions against homeowners years after foreclosure

http://www.washingtonpost.com/investigations/lenders-seek-court-actions-against-homeowners-years-after-foreclosure/2013/06/15/3c6a04ce-96fc-11e2-b68f-dc5c4b47e519_story.html?hpid=z1

 

Take action today but just giving me a simple call at 703-587-0995. I can go over your options and help you determine if you qualify for a short sale.

 

Rob Chevez, CDPE  rob@robertchevez.com 703-587-0995