A Little Recon Work Goes a Long Way
I’ve had quite a lot of experience with short sales throughout the nation, and I’ve closed tons and tons of ‘em in California (where I work and reside). One thing that I’ve observed and blogged about before is the importance of pre-qualifying the property and the seller at the very beginning of the short sale process. Pre-qualification is crucial to a successful closing.
In keeping with that theme, today I am going to advise you about how to do just that: how to be a better detective than Maxwell Smart or Inspector Clouseau, and how to sniff out clues as to whether your short sale listing is going to be smooth sailing or a sinking ship.
When you get a call from a potential seller in financial distress, listen intently and take down some key information: 1) What is the name of the person who has called you? 2) What is the property address? 3) How many mortgage loans are there on the property in question?
No doubt you have set an appointment to meet this disheartened individual within the next few days. Now, before that appointment, it’s time to do a little bit of detective work. You are about to go on a reconnaissance mission, per se.
The first thing you need to do is obtain some sort of property profile or preliminary title report.
Some agents may be able to access property profiles through their local MLS; others may have access to title company websites. Then, once you have the information at hand, you need to read carefully. (Don’t just throw the paperwork in the file.)
Is the name of the individual who called you the same person whose name is on the title report as the rightful owner of the property? What other names are listed on the title report or property profile? In a short sale, you will need to collect authorization, financial information, and other necessary items from all of the individuals on the title report. If Uncle called you about the short sale and Grandma (the owner) is in Europe for three years, you are still going to have to work with Grandma. So, this means that you may have some upcoming challenges.
The second item to review on the property profile or preliminary title report is the number of liens that currently exist against the property.
Is it just as owner stated in your phone conversation, or are there also other institutional and non-institutional liens currently on the title report? The first lien holder will usually pay junior lien holders (if they are banks) a little bit of money to release their liens. But, if there are non-institutional liens against the property, you are going to have to speak with the seller to see whether s/he will be willing to participate in obtaining the release of those liens. A significant number of liens would be your second clue that you have some additional work cut out for you.
A third item to review on the property profile or preliminary title report is whether some sort of pre-foreclosure proceedings (such as a Notice of Default) have been filed against the property.
Each state has different foreclosure laws and time frames, and it is important to be familiar with the time frames in your state. If pre-foreclosure proceedings are listed on the preliminary title report, check the date that these proceedings were recorded. Was it yesterday? Was it three months ago? Know that if it was three months ago, you do not have much time before the actual foreclosure. This may be your third clue that this short sale transaction may not be smooth sailing.
None of the advice I have provided here is rocket science. Truth be told, I was never very good at science in school. However, this is the level of detail required to pre-qualify a short sale seller and a short sale transaction. Paying attention to clues such as these will help to protect the seller and to assure that you will see a successful short sale closing in your future!