Accept an Offer
If things go well, you will get multiple offers from buyers on the property.
The seller has the right to choose the offer they are willing to accept. Some lenders want to see all offers, but there is some debate over whether a lender can require the seller to show all offers. Keep in mind you can only have one active contract on the property.
Picking the right offer
The right offer is not always the highest offer; it is the buyer that looks most likely to be able to close. You’re working against a ticking clock, the impending foreclosure. Expedience wins.
The strength of an offer depends on the buyer’s ability to get financing. The property has to appraise high enough to qualify for the loan amount. If there is an issue with meeting that number, look for a buyer that would potentially have the ability to make up the difference in cash.
In addition, a short sale comes with a laundry list of terms and conditions from the lender, who can play a maddening game of hurry up and wait when asking for the package, and then a game of wait to hurry up, taking months to produce the approval letter only to demand the deal close in a week. The buyer must be willing to jump through the hoops, but may not be willing to pay a premium for the privilege.
Be sure to include all the necessary amendments in the short sale escrow documentation. Contact your local Realtor® Association or look for documents provided online or in WinForms. Your broker may have some additional disclosures required by your brokerage.
Submitting the Offer
Include current MLS and Foreclosure Comps
When you submit the offer to the bank, include a traditional MLS-based comp report and a Foreclosure Comps Report.
Including both reports accomplishes two things:
- The bank may be thinking of valuation in terms of MLS prices. When they see the discounts at auction, it will help them to right-size their thinking in terms of the offer.
- It gives the bank a look into the future and all the other properties they will be competing with if they reject the offer and end up with an REO on their hands. Many Realtors have found that the banks are more likely to act if they see a lot of new competition coming.
Request an interior BPO
An interior BPO gives you, the seller, an opportunity to influence the opinion by controlling access.
Tips to speed up a slow process
The name notwithstanding, a short sale can take a long time. Here are a few tips for speeding up the approval process. Although it is a questionable tactic, some listing agents will remove the key from the lock box and require the agent selected by the bank to perform the BPO for the bank to contact them for entry. This gives the listing agent an opportunity to point out important information makes the short sale offer appear more appealing about the property to the agent performing the BPO.
- Always be courteous and professional, regardless of the delays.
- Some banks are easier than others. Focus on the deals that will be the easiest to get done.
- Get the names and numbers of the negotiator, the team leader, the manager, and as high as you can get. Call the short sale negotiator every three days. If you don’t get a response after the third call, move up to the negotiator’s team leader. After three calls with no response, move up to the manager, and so on. Once you have escalated to a responsive person, insist on them remaining in the loop of emails, internal emails, and voice messages.
- Write the loan number and the name of the borrower on every piece of paper, including the contract, you send to them. Call the department handling the short sale and let them know you are sending a fax. If you send a large file, number the pages (1 of 100, 2 of 100) to make it easier for them to determine if a page is missing and allow you to identify and re-fax only the missing page instead of the entire package. Faxing a page or two to them every few days with the loan number on it forces them to pull the file and add the fax, which then has the file going to the top of the pile. This tactic may also frustrate your negotiator. Be tenacious but not annoying.
Eliminating or minimizing seller out of pocket expenses
Lenders can still pursue homeowners for deficiencies in non-purchase-money loans, such as a refi or a HELOC, even after agreeing to a short sale deal. Not negotiating a free and clear payoff of all the debts can make a bad situation worse for the homeowner who, after losing their home in a short sale, might be forced into bankruptcy.The homeowner should always consult with an attorney and a tax professional before they decide to do a short sale.
For information about recourse in California, see the One Action Rule in List Distressed Properties.
You will work very closely with the short sale negotiator and your escrow officer. It is important that you select an escrow officer with experience in closing short sale transactions. The seller’s net sheet provided by your escrow officer is a key document. A mistake on this document can cause delays in the process.
Ask your escrow officer about their experience and success rate on short sales and whether they have the capacity to handle your escrow. Although experience is important, having the time to follow up with the negotiator can be a huge benefit.
A successful escrow means assembling your team, such as a transaction coordinator, escrow officer, and short sale negotiator. The homeowner also plays a huge role in the successful close of escrow. Make sure everyone knows what is expected of them so when a last minute document or another hoop to jump through appears, everyone works together to get the job done.
Caveats – Realtor Beware
When working with the seller, make they understand that a short sale is subject to lender approval. Without lender approval, the seller would be liable for paying the difference out of pocket to clear the liens. Everything in a short sale is subject to lender approval
Be careful not to give financial or legal advice
One value-add that you bring to the table for the seller, and the buyer, is your expertise in real estate, foreclosures and short sales. However, the answers to some of the questions you will get will involve financial or legal advice, which you should decline to provide unless you are also a CPA or an attorney. Include a statement in your agreement that clearly states that the owner should consult the proper professionals for advice that lies outside of the real-estate part of the transaction.
It is always wise to have a list of attorneys and qualified tax professionals to refer your clients to. These business partners can be a key ingredient to the successful close of a short sale. Always make sure your clients understand the potential consequences of every aspect of a short sale. The truth is that a short sale may not be in the best interest of every client.
Arm’s length transactions
Some owners try to game the system with a short sale to a family member or acquaintance for a low price in an attempt to keep the house while walking away from the outstanding debt. This may or may not be illegal, depending on the state and the situation. However, most lenders include the condition in the short sale agreement that the short sale be an arm’s length transaction in which the buyers and sellers act independently and have no relationship to each other.
Title companies may refuse to insure the title in non-arm’s-length transactions. It is important to read the terms of the short pay demand and release very carefully. Most reputable title companies refuse to handle a double escrow, where the short sale is combined with an immediate flip of the property. This tactic was promoted in a late night infomercial on how to make money in real estate. Lenders are on the lookout for this type of activity and it will be very hard to find a title insurer that will insure the second leg of the transaction. There may also be language regarding this type of fraud contained in the short payoff agreement.
Lenders when approving a short sale are approving it based on the fact that the purchase price is the fair market value of the property. A lender may have language in the payoff demand that if there is another concurrent escrow for a higher sales price they may hold the escrow company liable. It is difficult to prove that a seller knew the buyer intended to immediately sell the property for a much higher price. Lenders often consider this fraud since the seller is representing that this is a fair market offer for this property. The lender is taking a huge loss on this and if there is any additional amounts available then that should be paid to the lender. The potential fraud exists when a seller agrees to sell the property for a much lower price, maybe taking some sort of kickback from the buyer and then the buyer resells it for a much higher price. You can see how a seller and a buyer could potentially work together to defraud the lender.