Tuesday, May 22, 2012

In Dire Straights and Need a Short Sale? (Part 2)

The reasons that most people sell their homes short are: (1) they believe it is more ethical/moral to help the bank get back as much money as they can (instead of losing more in foreclosing on the property), (2) they can live there without paying the mortgage (but need to continue paying the HOA fees and utilities), (3) they believe it's better for their credit.

A short sale WILL have an affect on the seller's credit. Although experts believe that a short sale is not as devastating as a foreclosure, that remains to be seen.

When you find an experienced short sale agent, and provide that agent with the third-party authorization letter, this is just the beginning. Remember that time is VERY SHORT on these because a foreclosure can be looming overhead.

Once the agent has the letter in hand, he or she needs to fax (send) it to the bank. It takes roughly two to five days to get that letter uploaded into the electronic file that the bank has on your loan. Once that is done, some or all of these things can happen: (1) the bank can order an appraisal; (2) the seller will have to complete a short sale packet to be faxed to the bank; (3) both (1) and (2). If the agent is savvy, he or she can usually come very close to the listing price that is needed for the property. The comps should be those that have sold at short sale and foreclosure prices, taking into consideration the condition of the house.

If the bank quickly orders an appraisal, then the agent can help the seller price the house accordingly until the appraisal comes back. At that time, the appraisal amount will dictate the amount the bank is willing to accept. The listing price should reflect that amount PLUS all commissions, seller closing expenses, and any concessions that the buyers will need to buy the house. A little extra should be included to cover any property taxes that would be due for six or so months beyond the initial listing date.

Condition is a major factor in a short sale. I've listed short sales that were in very dogged condition with the need for a new roof, carpet, paint, etc. That home needed to be (and was) listed at the lowest point possible to get it sold. In another situation, the house was in a neighborhood where new homes were still being built and the house was in impeccable condition. The seller was able to finance a new kitchen floor (the vinyl had been burned by a dropped iron, and it also had rips and tears in it), and that garnered a much higher price for the property, close to what the new construction was selling for.

Each bank has its own policies and procedures for maneuvering through the short sales process. Reputationally, Bank of America is considered the worst, but they have actually gotten much better. BOA provides an Advocacy Line to agents to get help when the short sale rep does not return calls or move quickly on the sale. Thankfully, this agent has had the opportunity to work with two representatives in the short sale area who actually take phone calls and get things moving toward closing the sale. They are my "go to" people when I need to get the sale closed on time.

CHASE is another large bank dealing with multiple short sales right now. CHASE has its own way of conducting the short sale procees. Right now they have limited employees to handle the large number of short sales, so they will not honor a request to consider a short sale until there is an offer on the table.

Local banks move much quicker and are more apt to work with the incoming buyers. In one instance with a local bank, the sellers were bankrupt, so they negotiated a lease/purchase with a buyer. The buyers moved into the house (which they loved and wanted to buy outright), and they made their payments directly to the bank. The twist in the story is that the buyers had just come out of a bankruptcy and the agents negotiated with the seller's bank to give the bankrupt buyers a new loan. Since they had a glowing payment history with this bank already, the bank was more willing to do the loan to save itself from a severe short sale and a foreclosure.

Miracles like this do not happen every day. These are the types of things that agents just stumble on.

If you are going through a short sale right now, make sure that your agent is on top of it, and not just "hoping" the bank will allow it to be a short sale.

Later this week ... Short Sales part 3.

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