Coaching
If I had a dollar for every short sale that didn’t close on time…
Buyers and Short Sales
If I had a dollar for every short sale transaction that didn’t close on time, I’d be rich. Rich, I say. I’d be able to pay the mortgages of all of the folks having trouble making ends meet in San Diego County.
Every real estate caravan or meeting that I attend, I hear lenders and loan officers discussing the ever-changing guidelines for mortgage qualification. Mortgage lenders are adding additional reviews to their underwriting process. Employers are checked through a third-party verification system. Appraisals are sent to appraisal review. And the list goes on and on.
Because of all of these new hurdles on the road to obtaining a mortgage, it has become increasingly more difficult to close a transaction in thirty days.
However, the short sale lenders frequently only allow for thirty days on their short sale approval. I had three short sales that were supposed to close on Friday. On one, five days before the closing date, the underwriter requested an additional item in order to provide final loan approval. On another, the underwriter felt that a signature was too light and then requested further proof of the legitimate signature. On the third, the loan documents were generated with the incorrect purchase price.
In a traditional transaction, these issues can easily be conveyed to the seller and the seller’s agent who will be irritated but will understand. Short sale lenders also get pretty irritated when they hear the news. Some will tell you that they are closing the file and you have to start over and process the entire short sale all over again. Maybe it’s because they are mad because you have impacted their quota or their closings for the month. Or, maybe it’s because they are tired of the short sale transaction because it has taken so stinkin’ long to close. But, if I had a dollar for every short sale transaction that didn’t close on time, I’d offer to give the short sale negotiator fifty cents. Perhaps that would do the trick.
Coaching
Disputing a property’s value in a short sale: turn a no into a go
During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!
It’s about getting your way
Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?
When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.
After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.
Value Dispute Process
While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.
- Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
- Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
- Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
- Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
- Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.
It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.
Coaching
Short sale standoffs: how to avoid getting hit
The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:
What is a short sale standoff?
If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.
Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.
Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.
How to Avoid the Standoff
If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.
Here are some ideas for how to get out of the situation:
- Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
- Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
- If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
- Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
- In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.
One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.
Coaching
Short sale approval letters don’t arrive in the blink of an eye
Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.
Short sale approval: getting prepared, making it happen
People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.
Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.
Experience dictates that agents that learn about the short sale process
have increased short sale closings.
Short sale education opportunities abound
There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:
- Classes at your local board of Realtors®
- Free short sale webinars and workshops
- The short sale or foreclosure specialist designations
As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.
The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.
Don’t take on too much
And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!
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Jacksonville short sale
May 3, 2011 at 6:41 am
Amen! Just had a BOA short sale approved, sent the docs to the buyer's side, and they forwarded to the buyer's lender….BOA. Same bank, both sides.
Short sale BOA wanted closing in 45 days after much arm twisting to move it past the standard 30 days. Buyer's BOA instantly asked to extend the term from 45 days to 60 days. We were on day 1, but they already knew for sure they couldn't pull it off in time.
Liz Benitez
May 3, 2011 at 8:14 am
I always try and have my clients prepared for a very short time frame to close once the Short Sale is approved. Unfortunately you are right about the lenders. There is nothing my clients can do to hurry them up.
LesleyLambert
May 3, 2011 at 10:15 am
I didn't know they ever closed on time 🙂
MH for Movoto
May 3, 2011 at 11:29 am
We recently did a survey of our Movoto Partner Agents and we asked them about their experiences with short sales. Everyone agreed that it took forever, but significantly more of them said that it took forever and worked out than said that it took forever and fell through. So that's something, I suppose.
Elizabeth
May 3, 2011 at 4:53 pm
Interesting… thanks for the tips!
Ken Bryant
May 12, 2011 at 10:03 am
Great Post! I'm closing my first "short sale" and even though the time frame was pretty quick (less than 60 days)I have a seller that doesn't want to leave and we're about to record…