Several words come to my mind when I hear the words “short sale”.
Several aren’t fit for print… others include headache, excruciating, and “I quit”.
A “short sale” is one in which the proceeds will not cover the owner’s loan(s). The lender in other words, isn’t going to get paid the full amount they are owed. They are going to be “shorted” on the loan obligation.
One of the short sales we have listed is in Chandler. Nice little home, but the owners mortgaged it to the hilt, pulling out equity multiple times as home values skyrocketed in the Phoenix real estate market. Some refer to this practice as, “using your home as an ATM machine”.
That’s generally a very bad idea.
Especially when combined with sub-prime adjustable rate loans.
Facing foreclosure, we listed the home — well in advance of the Trustee Sale (often erroneously called a foreclosure sale). After much consultation with the lender, it was determined that they likely would accept a sale that netted them 70 cents on the dollar. The math was done to determine a list price of $162K on a home that comped right at $200K. (Note, some lenders won’t even broach the subject of a short sale until an offer is in hand. Others will pre-negotiate, sort of. Every lender is different.)
Now one would think a home listed 20% under market value would be flooded with people clamoring for a great deal.
Not really.
After three months, an offer close to what the lender might accept was received (they swiftly nixed an offer for $75K).
Then came the real negotiations, and the interminable waiting game.
The Arizona Short Sale Addendum states, and I quote:
Buyer and Seller acknowledge that it may take weeks or months to obtain creditor(s) approval of a short sale.
This did not deter the buyer’s agent from calling every third day to see if we had lender approval for the sale. They did finally grow weary and realized we were in for a long wait.
As the seller’s agent though, it was my job to “persuade” the lender to accept the sale. Copious quantities of data were supplied to them, and I talked to 13 different people in the loss mitigation department. Finally, after 10 weeks, we got a verbal acceptance.
Getting that acceptance in writing took another four weeks. And when we finally received the lenders written approval, we had two weeks to close.
Two weeks?!? No way Jose. The buyer was using down payment assistance from the Nehemiah Program on a FHA loan. Two weeks wasn’t going to cut it. We’d be lucky to close in four.
Back to the phones. Back to absurdly long times on hold (at this writing, my phone log shows I’ve spent 516 minutes on hold with this lender — 8.6 hours).
What a pain in the ass this lender has been (Ocwen, for those interested). The biggest crow bar in the negotiating tool box is the fact that while the lender was doing whatever they do while we wait for loan approval, the Notice of Trustee Sale was recorded. In a nutshell this means the home will likely be foreclosed on and returned to the lender 90 days after filing. This generally motivates lenders because they really don’t want to take back a home and have in languish on their books while they attempt to sell it in this market.
This generally motivates the lender. Many (most?) people working in a lenders Loss Mitigation Department have zero clue about local real estate markets. Here we had their approval for a short sale and just needed a couple more weeks to make it happen.
Getting that extra two weeks was like pulling teeth. Again.
As the deal appeared to be unraveling last week, the lender finally snapped into reality and it looks like we are a go for closing early next week.
At least that’s my story for today, and I’m sticking with it.
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Chris Butterworth 11.12.07 at 1:37 pm
We’re near the end of a similarly excrutiating short sale - I expect to find out in the next day or two whether the bank wants our reasonable offer on the table, or whether they want the house back..
I was waiting until the end of the road to post about it..
Carey 11.12.07 at 2:31 pm
I’m glad you you could keep the buyer in the deal. I just had one last week where the buyer bailed (after only 75 days) because we got no response from the bank. Today I got an email and it looks like the deal will be approved. Uh oh no buyer anymore since he is now under contract on a home that is NOT a short sale. Do banks really wonder why they get some of these properties back?
Doug Willis 11.12.07 at 3:00 pm
We also have a couple of short sale properties listed. Sounds like out market here in Pasadena, CA is much like yours. We did a short sale last year with the same lender. It finally closed after many repeated phone calls that went unanswered.
north carolina mortgage lender 11.12.07 at 5:26 pm
banks always take soo long to approve these deals!
it’s annoying when you know they have nobody else looking for that house
North Carolina Mortgage lender
Albuquerque NM 11.12.07 at 5:55 pm
I think Hell is an understatement when it comes to dealing with short sales. I wish we had something similar to your Arizona Short Sale Addendum here in NM. - Ashley
Jay - The Phoenix Real Estate Guy 11.12.07 at 7:58 pm
Ashley - it’s a great addendum, pretty new here. Here’s the link — take it to your board!
http://www.aaronline.com/documents/SSARPC.pdf
John Wake - Real Estate 11.12.07 at 11:00 pm
The longest I heard was a contract in July that was accepted in October.
Wait until they become REOs. I hear banks are much more responsive when they own it.
I called on a listing and the agent in Mesa said she had 60+ REO listings. She promised a 48 hour turn-around time from the banks on offers.
Jack LeVine 11.13.07 at 5:43 pm
I’ve lost 4 buyers on short sale listings that just wouldn’t wait it out. And for that matter, why should they?
Banks are their own worst enemies!
San Jose CA Buyer 11.14.07 at 12:06 am
We have been waiting 6 weeks now and no word. We want to pull out of the contract but have put Earnest Money in the contract that the owners will go after if we pull out. The offer was made on Oct 2nd and stated that closing would take place by Oct 31. We felt this was our out, but the sellers realtor says his clients will go after the money we have in escrow ($18,900). Any comments on our options?
John Wake - Real Estate 11.14.07 at 1:09 am
Get a real estate lawyer ASAP and get out of the contract.
Paula Henry 11.14.07 at 5:37 am
Jay - Short Sale is a word which causes many different emotions. I always feared a buyer who was approved by Ocwen and can imagine they would be just as difficult in a short sale.
I do miss the wonderful addendums the Arizona Association provides it’s agents. Here in Indy - nothing. When I ask my broker - he suggests I join the forms committee. Maybe I should. They need these forms, documents and addendums which protect everyone.
Hope this closes for you. And how much did you make per hour?
Late Night Austin Real Estate Blog 11.15.07 at 4:16 pm
I have been totally surprised about this as well. We got a referral for a short sale for a condo dealing with Countrywide. With all their recent problems I would expect them to be a little more interested in making a deal work. It took 45 days to just get assigned to a person. Its bizarre. It seems their systems are frequently down. I really makes me wonder if they deserve a govt bailout if it comes to that.
Lydia Taylor 11.18.07 at 4:52 pm
That waiting time on the phone made me laugh. Sometimes I want to give my speaker phone I gift. After all, without it, I would wither away and die while in waiting-line hell.
Nice post, Jay!
Michael Spickes 11.27.07 at 10:32 pm
Short Sales: Knowing Lender Thresholds for VA, FHA, and Conventional Loans = Saving Your Commission!!!
In working Short Sales, there are some numbers and calculations that are especially critical and knowing how to run these calculations will ultimately save you many headaches in the long-run. For instance, the initial list price for the Listing Agreement that is submitted to the bank, the initial list price for MLS, the net amount that banks typically require in a Short Sale given the type of loan, the bottom-line offer that will be necessary to cover the bank’s required net, as well as all broker commissions and Seller closing costs. In addition, you need to know how the numbers are affected if there are multiple mortgages on the property. All of these numbers are critical for you to facilitate the transaction effectively, gain credibility with the bank, and best represent your client.
Determine the Lender’s Discount Threshold
Banks have a threshold at which they will accept or reject on offer in a Short Sale. And knowing these approximate discount thresholds is imperative in determining your list price for MLS, so that you are able to generate an offer that will meet the bank’s requirements, as well as cover all the Seller closing costs and protect your commission. When we refer to the banks “discount threshold”, we are referring to the net amount that the bank requires in the transaction after all approved closing costs and commissions have been paid in the transaction. As a reminder, when it comes time to go active on the market in MLS, you need to adjust the price in the Listing Agreement and have your client initial off on this price change.
Calculating the initial list price for MLS is a critical part of setting up the Short Sale. We all know that when considering market comparables for a specific area, if the price per square foot of your client’s property is equal to or higher than any other property in the neighborhood, your chances of getting an offer quickly are pretty slim and the whole goal in a Short Sale is generating an offer quickly so that the house doesn’t go to foreclosure. In many states, the foreclosure process is a very aggressive one, so knowing how to calculate your initial list price for MLS is imperative. To do this, you must know what kind of loan you are shorting and have a good idea as to what the lender’s discount thresholds are for each type of loan.
Currently…
FHA loans are insured at 82% of the current market appraised value
VA loans are guaranteed at 88-91% of the current market appraised value
Conventional and Home Equity lenders expect net proceeds of no less than 85-92% of the current market appraised value.
Note: These thresholds represent a percentage of current market value, not the loan balance. Currently, the Conventional threshold is 85-92% of current market value. This threshold fluctuates with the market and is lender-specific. We have been working Short Sales for almost 5 years and FHA and VA thresholds have not changed during this time. Know that changes in market conditions, bank policy and/or the passing of legislation can effect these thresholds. If the market takes a turn for the worse and property inventory increases for lenders, you will most likely find that Conventional thresholds will decrease.
Know the numbers, save your commission, and enjoy building a commission-generating machine in Short Sales!
The Team at America’s Home Rescue
Michael Spickes ~ America's Home Rescue 11.27.07 at 10:56 pm
Jay,
Only one post was meant to be placed on your blog regarding the lender thresholds. Please disregard the second post.
We hope this email helps you and all the agents out there working short sales. Our company just recently returned from the NAR Convention and, who knows, we probably met you. We had an exhibit (#4523). We have partnered with First American Title to bring the first fully-comprehensive training program for agents working short sales and we will be taking this program to 13 states in the next 3 months, including the Phoenix area. After five years of working hundreds of short sales and documenting everything that has ever occurred, both good and bad, including lender net thresholds for every FHA, VA, and Conventional short sale, our class is one you can’t miss! Too many agents are working short sales that will never close to begin with. We provide many resources and training materials for real estate agents (not investors) who have the desire to build a niche in short sales…the right way! We have even introduced the first short sale calculator program for Windows and Macintosh in the nation. It calculates what your initial listing price is for both the MLS and your listing agreement, what the 1st lien holder should net based on what type of loan you’re shorting, what the 2nd lien holder should net if there is a second lien, and what the lowest offer is that you should be entertaining. Please check us out at http://www.ShortSaleSolutions.biz when you have a chance. Have a great day!
Roberta Murphy 11.28.07 at 6:23 am
Jay:
In the San Diego short sale market, we are finding short sale pricing needs to be under market, because many agents and buyers don’t want to waste time and opportunity with non-responsive lenders.
That non-responsiveness is costing lenders and their investors real money.
516 minutes on hold? They’re also costing you real money.
Joel 11.29.07 at 10:30 pm
How come everyone including get rich overnight using short-sales material tell you can make a boatload of money but NEVER has anyone said that the borrower ends up having to make up the defiency or what’s left owed to the lender known as the “Promissory Not Modification”. I’ve just successfully negotiated a short-sale and the lender will take 92K on a property possibly worth 155K. 130K is owed and their willing to accept a 30K loss. Unfortunately, the borrower will have monthly payments of $280 for 30yrs. Am i missing something here??? What gives? I need help. I’ve done research, studied books, publications, websites on short sales and no ones ever mentioned they the borrower ends up LOSING in the end. If there is a way to do this. I’d be happy to to Mentorship arrangement. torojd@yahoo.com
Joel
Jay - The Phoenix Real Estate Guy 11.30.07 at 6:55 pm
Joel - not all lenders require borrowers to sign Promissory notes for the deficiency. Many do not. They will 1099 the borrowers, and Uncle Sam will tax this as ordinary income. There is a bill currently in the Senate to end this practice.
Chris Butterworth 12.03.07 at 9:42 pm
The tax on the lender’s portion of the write-off (debt forgiveness) gets a lot of publicity, but from my experience the majority of the short sales we’re coming across are from investors who bought near the top of the market. These people will most likely get to write off the loss taken on the sale of the property against the income earned in the form of debt forgiveness, so there shouldn’t be much of a tax bite. (disclaimer - I’m not a CPA, nor am I licensed to give tax advice. You may want to ask your tax professional about this topic, however. I’m just putting it out there as a heads up..)
Frank Borges LL0SA- Broker FranklyRealty.com 02.20.08 at 9:52 am
Hey Jay,
I tried to look for an update, did you ever close?
I just wrote a post on Short Sales and all the tricks the banks do. My favorite is “Keep making payments, and we might consider a short sale.” Then they… delay it 3 months to make that extra cash, and let it go into foreclosure.
So as a Buyer’s agent, do you avoid showing the “sexy, FAKE priced” short sales?
Short Sales Are “Fake Listings.” Only 5% Close!
http://blog.franklyrealty.com/.....sales.html
Frank
The Phoenix Real Estate Guy 02.20.08 at 11:06 am
Hi Frank - Yes, it closed. I posted a follow up post here:
http://www.phoenixrealestategu.....tinues/571
And don’t get me started on the “fake priced” short sale listings. They are rampant here.
Sheryl Willis 06.07.08 at 2:42 pm
Check out IShortSale.com, they enable me to close about 5-10 deals a month! Wait to price your properties at the smoking hot price UNTIL you have the BPO completed and then you don’t have to hope and pray that the Buyer holds on. Because so many people don’t do it this way, they are forced in to taking multiple offers in order to try and hold on to just one decent Buyer…how about getting just 1 great offer and locking it in…allowing all those other Buyers to go actually buy another home. I would say close to 50% of the Active Phoenix listings under $250,000 have multiple offers…do you now how much the market would change if it were one offer to a property…one good offer?! STOP TAKING LOW BALLS!
Mortgage Samson 08.10.08 at 11:29 am
That story makes me not want to do short sales. Congrats on finally closing it!