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.

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.

Legal Advice On Short Sales

If you’ve found yourself in a difficult situation when it comes to your mortgage and you’re considering foreclosure, rest assured you have a better option. A short sale or pre-foreclosure sale is an agreement between you and the mortgage company that you will sell your home for less than the balance remaining.

You should consider this option if:

  • You’re behind on payments
  • Your home is worth less than you owe
  • You haven’t been able to sell your home
  • You’re having financial difficulties
  • Refinancing is not an option

It’s true that foreclosure has a negative effect on your credit, so it is best to avoid it if you can. Not only that, you can see the bank coming back at you years later to recoup the amount you still owe on a past mortgage. They can take legal action and dock your pay to get the owed amount back.

Though a short sale may take up to 120 days, the benefits are worth it. Not only will you be able to sell your home at or around market value, when you seek legal advice on short sales from a professional, you’ll be able to agree upon the price with the bank and buyers and discover other helpful options to ease the stress.

Some acceptable reasons for a short sale include, but aren’t limited to:

  • Job loss or reduced income
  • Military service
  • Death
  • Medical bills
  • Divorce or separation
  • Incarceration

Because there are plenty of legalities involved that the average home buyer or seller won’t understand, your smartest decision is to work with a Corporate Counsel like Michael Benmira for legal advice on short sales. You want to be in the know about all the best options currently available to you during the process. In some cases you can even get help relocating, which is a burden many face after the final sale.

Don’t fall prey to the banks. Get help with negotiation of deficiency debt and come to an agreement that benefits you and your particular needs. Have help with hardship letters, current tax rules, and more. In addition, working with an individual who is CDPE, or a Certified Distressed Property Expert means that you have help from someone who understands all the complexities and give the best legal advice on short sales.

Name (required)

Email (required)

Subject

Your Message

Can I Short Sale An Investment Property?

Absolutely.

Some people erroneously believe that short sales are only an option for personal primary residences. This is not the case.

You can still do a short sale for investment properties as long as the house is worth less than you owe + closing costs and you have a documented hardship. Hardship for an investment property could be any situation affecting your finances and/or the profitability of your investment property. This could include a significant damage or unexpected expense for the property (such as HVAC, structural, or other replacement necessary), an extended unplanned vacancy, decrease in rents, etc, to the point that you can no longer afford mortgage payments.

Your credit will still be negatively affected, but short sales are an alternative to foreclosure or an opportunity to get out from under a struggling investment property.

To learn more about whether a short sale is right for you, call Rob’s team today at 703-212-3344.

My Short Sale Buyer Walked… Should I Panic?

Let’s say you are short selling your home; you are underwater on your mortgage and the payments have become next to impossible to make. You have a documented hardship, you’ve hired a qualified short sale agent who may even employ a short sale negotiation team. You’ve gotten your home listed, gotten a contract, and now you are just waiting for the bank to approve the sale.

At some point during the negotiations, however, the buyer gets cold feet. Maybe the bank countered at a number higher than they were willing to pay; maybe their agent didn’t properly prepare them for how long the process was going to take; whatever the reason, the buyer decides not to continue with the contract.

You think to yourself: oh, no! My buyer walked! Is it time to panic?

Short Answer: NO! It is perfectly common to lose one or more buyers during the short sale process. This does not mean your short sale is less likely to get completed. In fact, losing a buyer is normal and can even be helpful to justifying the price to a bank when the next buyer comes along.

Navigating a short sale without an experienced Real Estate Agent can be a scary and trying process. We recommend working with a Short Sale Agent who knows all the ins and outs of selling your home at a short sale. Rob and his team have worked with over 300 short sale clients in the past 10 years. For more information or to speak to him about your situation, you can reach him at 703-587-0995.