Rosemary Lankawel on How to be a Short Sale Buyer

These days a Short Sale is a fact of life for many people. The question I get asked the most is:

What is a Short Sale?

Basically a short sale is when a person must sell a property for less then they owe the bank.

Here are a few myths some Buyers and Sellers have had in reference to a Short Sale.

Buyers Myths: I can talk directly to the Bank and avoid the Realtors and cut this deal myself because they have to…...

Truth: Banks do not want to talk to you and if you are in the middle of negotiating a deal, your calling the Bank will do nothing, the Bank wants to only speak to the Realtor or the Mitigator. You do not have the authority or authorization to speak about this account. Banks get calls from people like you all the time. They do not want to talk to you.

Seller’s Myth: I will negotiate the transaction with the Bank myself. I do not need any help. I will control the situation.

Truth: Banks do not want to talk to you either. The Bank will only speak to you when you tell them you are going to pay the balance owed or you are going to refinance. If you think you are going to talk to the Bank and negotiate the transaction yourself you are wasting your time and that of your Real Estate Professional. The Banks do not have time for all of the emotion that goes into this process. They do not care how smart you think you are. These Negotiators are getting as many as 100 calls an hour and do not care about the sweat equity you put into the home. Unfortunately, your property is just a number on a sheet to them.

How does a short sale work?

The procedures are not always clear and can vary from Bank to Bank. However, here is an assessment of what I have experienced from short sales with several Banks. You as the Buyer or Seller cannot profit in any way from the sale of or purchase of the property in Short Sale.

Short Sale procedure:

First of all determine the reason for selling your home. If you can hang on to it do so. Any deficiency type action will have a negative impact on your credit for years. If you cannot afford your payments because of an ARM (adjustable rate mortgage) or because of some hardship that is out of your control, then consider this process very carefully. Remember this is your home not an investment. You have chosen to make a life here. It may not be worth what it was when you bought it but, neither is your car. If you love your home and you can afford the payments. Enjoy it. The Real Estate Market goes up and down all the time.

If you determine that you must short sell your home, here are a few guidelines you may want to follow:

1. Contact your bank and request the, “Workable Solutions” packet. This is a form that will outline what the Bank needs from you to approve the Short Sale. The sooner we get this into the Bank the sooner we can move forward when we get a contract. (Not all Banks have a form, in that case supply to the Bank the following and send it in whether they request it or not.)

2. Let the Bank know that you are going to be placing your property on the market.

3. Identify the Realtor you will be using.

4. Send in the, “Workable Solutions” packet which can contain any or all of these items to the one or more fax numbers that the Bank gives to you. After you send the Packet into the Bank, call the Bank within 48 hours to make sure they received it. Also make sure you turn in this packet all at one time. Here are some items that could be requested:

a. Letter of third party authorization giving your Realtor permission to speak to the Bank on your behalf

b. Your current bank statements,

c. Last two months pay stubs

d. Tax returns for the last two years

e. Hardship letter-this is the letter to the Bank explaining your reason for having to sell your house

i. Loss of job

ii. Marriage

iii. Pregnancy

iv. Divorce

v.  Death

vi. Change in hours worked or wages

vii. Job change

viii. If you are self employed, you may need to include a profit and loss statement demonstrating the slowdown in work.

5. Supply copies of all of this to your Realtor to be included with the packet when an offer comes in.

6. Keep your home in showing condition. I know this can be inconvenient, but, Buyers still want to buy the best home available.

7. Be available to sign Modifications to the Listing Agreement forms, to adjust pricing every few weeks to show the Bank the efforts we are making to attract Buyers. If it is not selling you are moving closer to foreclosure.

8. Make sure you have a clause in the contract to let the Bank know that you will not accept an offer if there will be a judgment against you or an in lieu of deed notice on your credit report. The Bank must list this transaction as satisfied or paid in full with no further judgment. This will help you in the future restoring your credit faster.

9. When an offer comes in and your Realtor tells you to sign it, Sign it. Your Realtor should have done their homework and they have an idea of what the Bank will take. This is not personal. It is a transaction. I know your home is special but not to the Bank.

10. Your Realtor will continue to show your property and will let you know that you will be accepting and getting back up offers. (It has been my experience that the first offer rarely goes through and having a second offer gives you piece of mind.)

11. Be prepared to wait. I have seen some of these deals take 6-8 months for approval once it is in the short sale department of the Bank. I just got off the phone with a major lending institution and they told me to prepare my Buyer for a 6 -8 month approval process. This is ridicules I know but, this particular institution is not very organized. On the other hand, another major lending institution approved one short sale in 14 days. Yes we are all aware that the property may not be worth the value of the original, but this is what is happening.

12. Answer all the calls from the Bank when they call. Remind them that you are attempting to short sell your home. Be polite. Ask them to check the system and have them make a notation while you are on the phone. Again Be Polite. The person on the phone is just calling a list and can with the stroke of a key move you to the next level toward foreclosure. Be Polite. I know this is annoying and makes you feel bad and you hate to be repeatedly interrupted but remember the old saying about fly’s and sugar…It really matters in this case.

13. When the approval for your offers comes from the Bank, be ready to move fast they will want to close in 30 days or less. They now want this off of their books and may be under the gun for quarterly balance sheets. Be packed and ready to move. Delaying the process due to your inconvenience is not the concern of the Bank and could put a monkey wrench in the whole transaction causing it to go to Foreclosure after all of this work.

Does all of this sound like insanity? Well it is. My Team has jokingly referred to this as Psycho-Selling, because none of this makes any sense. Every Bank is different and in the end we put in more hours for WAY less money.

Buyers:

After all of this is said, there are some really great deals out there. BUT, when you make an offer as a Buyer, be prepared to wait. It could be a while but it is worth it. Calling the Realtor every day or week does not help the process. They will give you an update when there is activity on the property. I know you think you will get a property for $.25 or $.50 cents on the dollar, however; Banks do not have to do a Short Sale. This is one of several options for them. They really have to do nothing. They have a specific process and we must all follow it. They have appraisals on every property and know its value. They will accept a low offer, but they can also turn it down too. Your Realtor will make a suggestion. May I suggest you follow it? They have an idea of what will be approved. If the property is the lowest in the community buy several percentage points, the Seller has already lowered the price to below market value and your 25%-50% saving is already reflected. Have your Realtor do a Competitive Market Analysis (CMA) of the property to give you an idea of what has sold there in the last 6 months. This will give you an idea of the property’s value. Remember the Seller does not have to sign the contract. If the Sellers Realtor does not feel that this offer will be accepted by the Bank, they may be advised to not take the offer.

Why do we Realtors go though this?

These Buyers and Sellers are still our customers. As a professional I will do whatever it takes to get the job done. Once we get these challenged properties our out of the inventories, the market will start to come back and the Sellers will then be Buyers again. Also like many of my Clients, they have become my friends and I will use my professional expertise to help them through these difficult times. If I walked away from them now, I would be a very bad friend.

Is there an end in sight?

I truly believe so. The end will come when the ARMS and all interest-only loans have expired. Unfortunately, a lot of families will be hurt in the process. Just be patient. There is always hope.

None of us like the dramatic housing situation we are in. But, we need to work through it to move ahead. I hope this gives you an idea of what is going on out there. By the way, this can all change tomorrow. Remember this is Psycho-Selling…