This is a follow up to my article from last week in which I reviewed the definition of a short sale and addressed the issue of multiple lien holders and short sales. While all of that may be very elementary for many readers, I wrote that post after receiving multiple questions on the same day from agents throughout the United States about the basics.
And then, I got a few more questions in my inbox…
Once you have identified that the subject property is a short sale (that the seller owes more to the lender or lenders than the property is worth), there are some other issues on the table that need to be dealt with at the very beginning of the short sale process in order to see the light at the end of the tunnel–the short sale closing.
It is common knowledge that the short sale transaction is riddled with problems. Many times junior and senior lien holders cannot agree or are non-responsive, and other times buyers get impatient during the short sale process and walk away midstream. Another problem, believe it or not, is a seller (or borrower) who lacks motivation.
A seller who wants to sell in a short sale transaction needs to understand the process, and needs to be certain that he (or she) is ready to move on. One common problem that occurs is that sellers suddenly decide that they want to attempt a loan modification after the short sale is well on its way to completion. The question of whether a seller would like to participate in a loan modification should be identified before the short sale process has begun. Of course, some sellers are unemployed so a loan modification may not be an option. But, in other cases, it may be best to assure that the issue of whether the seller is remotely interested in a loan modification is addressed prior to taking the listing.
Another key issue which relates to seller motivation is with regard to the paperwork requested by the bank. The mortgage lenders request quite a bit of paperwork. If the seller hems and haws about providing paperwork (such as bank statements, tax returns and pay stubs), it is going to be extremely difficult to obtain a short sale approval. Just as your own real estate transaction file needs to be complete and fully compliant, the short sale file at the bank needs to meet those standards as well. If sellers do not want to provide the necessary paperwork, it may be nearly impossible to obtain short sale approval.
Not everything is free.
Lately, I have seen a lot of advertisements where agents are advertising their short sale services at no cost to seller. The advertisement may state that the seller can short sale their home without paying a penny. While that is frequently the case, it is not alway true. Sellers need to be provided with a proper education on the short sale process at the beginning of the transaction or prior to taking the listing. For example, there are certain fees associated with the transaction which the bank may not pay, but must be paid in order to close . Many banks will not pay Homeowner’s Association Fees including missing payments. So, if a seller abandons payments to the HOA, the seller needs to be advised that s/he may need to square up with the HOA prior to close of escrow.
Sellers may also need to bring some cash to the closing table. In many cases, this is not true. But, sellers need to be reminded that the short sale is a settlement of debt. And, if the banks loss is significant, it may make sense to bring a couple of grand to the table in order to obtain forgiveness of an 100k loss.
Each situation is unique and sellers should always consult with a qualified attorney and accountant. That being said, it is important for the listing agent to qualify the seller and make sure that the seller is motivated and interested in the short sale transaction as a realistic way to avoid foreclosure. Otherwise, the listing may never be a closing and you will not see the light at the end of that tunnel.
