Lately, homebuyers are seeing more and more short-sale opportunities, but it seems as if fewer purchases are actually being completed. The perception in this case is correct. The short-sale process has become a nightmare: it goes on forever, sometimes never coming to a satisfactory conclusion even after months of effort.
All I can say is, "Hang in there, folks, help is on the way."
According to industry sources, the playing field will soon begin to make more sense to buyers as servicers (the folks who actually handle your loan) will either move at-risk loans to special servicers that are experienced in this field and/or set parameters ahead of bids.
"There are going to be a lot more short sales coming into the system," predicts Scott Thompson, a principal in Mortgage Resolution Services Inc. in Rancho Cordova, Calif. "Servicers have done a lousy job. They know it and are now looking to solve the problem."
This is a necessity, Thompson adds, "as right now the queues are long and getting longer day by day."
The short sale seems complicated — mostly because it takes so darn long to accomplish — but it’s not. The basic short sale happens when the proceeds from the sale of a property are less than the balance owed on the loan (secured by the property being sold). The key in all of this is the lender accepting a price that is less than the amount owed on the property — and the lender would do that to avoid a foreclosure situation, which can be a lengthy and sometimes costly process.
For buyers, a short sale is the chance to acquire a property at discount.
More often than not, however, the process has been gummed up. The numbers I hear are: just one to three out of 10 applications get accepted; and while the process can take as little as 45 days, it has been taking on average 90 to 120 days with some wayward dealings going on for nine months.
The principal difficulties in the process can be isolated to the agents (especially the listing agents!) and banks. Let’s start with the latter first because things on this side of the process are changing.
According to Thompson, a number of major servicers including Fannie Mae, JPMorgan Chase & Co., Citigroup Inc. and OneWest Bank Group (formerly IndyMac Bank) are putting systems in place to more easily identify which borrowers have attempted loan modification programs and failed or are well into the default process. Secondly, and this is a key point, they are going to give price certainty in the case of a short sale; the servicers will give price guidance, telling the agents a price range for the short sales.
Finally, many of at-risk loans will shift over to a special servicer, an asset manager experienced in handling REO situations.
"The special servicers will run a determination on these properties as which should come to market, engage in an outreach effort to the homeowners so as to avoid foreclosure and if all else fails to bring the property to market with pricing guidance where the buyer will know that a deal won’t fail because of price," says Thompson. …CONTINUED
The short sale is different from a common house acquisition, and, unfortunately, not enough agents have experience in this type of deal — and many just don’t get it right.
Two things agents often get wrong are buyer education and packaging, says Speare Valasakos, a principal in The Frontline Group in San Diego. "Part of the challenge is, a lot of agents are not educating the buyers upfront as to what the process will be, so they go through it, get the buyer, get an offer, package and submit, and the buyer eventually gets nervous and by the time the sale is accepted they go away."
Secondly, the seller’s agent needs to be able to put together a proper package of documents to get the lender to look at the file.
"A loss mitigator is dealing with hundreds of files, so if you don’t have a complete package and it is not done professionally, it goes to the bottom of the stack," says Valasakos. "An inexperienced agent doesn’t give the lender the tools to get a short sale completed."
All that being said, here are some things that can be done to smooth the process:
1) Prequalify the listing agent. If the listing agent hasn’t even started getting from the seller the key documents — tax returns, bank statements, pay stubs, in short, the completion of the "hardship package" — then the property should not be listed because the agent is nowhere near ready to close a deal.
2) When a property is found, demand a commitment from the seller. In lots of areas, such as California, there is a provision in regulations that allows the seller to continue marketing the property during the short-sale process. However, your agent should have written into the contract that you are the primary buyer and any other offers that come in are backup offers.
3) Many lenders don’t look at a short sale unless there is a viable offer in hand. Every agent should have an arsenal of investor clients. If the agent representing the investors can’t bring them to the table, she can then go to her investor base and say, "Would you make a fair offer on this property? That allows us to start the foreclosure process. We will give you a 72-hour clause to perform and then substitute a higher offer in there."
4) Broker price opinions are needed for sales, but since brokers doing the valuations are paid so little, they often do no more than a drive-by. However, if you can give the broker background on the property, list what repairs are needed and offer comparables, the valuation can be more accurate.
"The agent," says Valasakos, "is the gatekeeper to getting the short sale accepted."
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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