Tough Real Estate Transactions
I’ve negotiated a few short sales that have fallen into a downhill spiral. And, each time, I have been fearful (or realistic) that the whole deal could implode before my eyes.
Sometimes these implosions are not the fault of the mortgage lenders, although you may find that fact hard to believe. In fact, in both cases that I recall, the banks have been extremely cooperative and approval letters were obtained in record time.
The implosion that I am referring to has to do with the approval letter, specifically when two lien holders are involved.
If you have experience with short sales, then you know that it is difficult to obtain approval letters from two different lien holders with the same closing or settlement date. In fact, it is not uncommon for a second lien holder to require a copy of the approval letter from the first lien holder before even moving forward with the short sale transaction. So, as a result of the tedious negotiating process, you may have one letter with a closing date in two weeks and the other with a closing date in four weeks.
The implosion occurs when people drag their feet—when buyers or their agents say they will not move forward with inspections or appraisals until they have two approval letters with a specified date.
While I certainly understand where the buyer and buyer’s agent are coming from, a bit of flexibility is always required in short sales. I agree with the buyers that it would be ridiculous to pay for an inspection or an appraisal for a property where you do not have the approval letters. After all, what certainty does the buyer have that the bank will move forward and approve the closing?
At the same time, the banks and their employees have a different perspective. Why should I bother issuing the approval letters yet again if the buyers cannot even prove that they are moving forward with the transaction? After all, the success rate for short sale closings is so low that bank employees want to put their time in on deals they feel are actually going to close.
Additionally, sellers can drag their feet and aid in the implosion of the transaction. Once the reality sets in that the short sale is actually going to close in thirty days, the seller needs to make his or her plans and pack the bags. This is also frequently met with resistance. The seller wants more time in the home and requests an extension; the bank is irritated and wants the seller to move posthaste.
The head butting begins.
As a result of these factors, all parties to the transaction butt heads. Nobody bends. The deal implodes because there are too many stubborn or inflexible parties involved. Hence, you have a vicious circle.
So, what can be done to avoid this implosion or this vicious circle? The most obvious thing would be for all parties to become well-educated on the trials and tribulations of short sale process. Listing and selling agents should connect with their clients and clarify their role and the unique factors involved in the short sale process, making clear that a fair amount of flexibility and trust is required if the short sale is to close. For whoever is doing the short sale negotiating, I would recommend yoga, martinis, and chocolate cake. Sadly however, those three treats will not close the short sale transaction.