Shortcuts To A Successful Short Sale
Tuesday, July 3, 2012
From the July/August issue
Direct routes to closing these
long and winding transactions
By Joe Kirby and Max Rosenblum
A successful short sale is estimated to yield an additional 30 to 40 percent to a lender’s net proceeds than an REO sale. This statistic has been true throughout the real estate crisis, and the negligible disparity between closed short sales and REOs has been a reflection of operational, resource, volume, and communication challenges at the lender level.
Recent announcements regarding streamlined platforms and shorter timelines for short sales offer REALTORS® an opportunity akin to the REO wave (and possibly even greater based on shadow inventory estimates). To help stack the odds in your favor, here are some tips and recommendations for shortening the notoriously open-ended short-sale process:
»Pre-screen short-sale listings
Before taking a short-sale listing, carefully consider the likelihood that the transaction will close successfully. Consider, for example, how much of a shortfall the lender must approve; the nature of the seller’s hardship; the time you have to sell before the homeowner potentially loses the property through foreclosure; and the number of liens against the property. Remember, engaging in short-sale negotiations with a lender does not automatically stop the foreclosure process.
»Assess the homeowner’s considerations up front
A short-sale transaction may have significant tax, credit, personal liability, and other consequences for a homeowner. As a listing agent, encourage your seller to seek up front the advice of an attorney, accountant, or other professional regarding those consequences and be certain that the homeowner has come to terms with the possible results and timelines. Assess, for example, whether adequate consideration has been given to alternate solutions such as refinancing, loan modification, foreclosure, deed-in-lieu of foreclosure, and bankruptcy. After a long arduous short-sale process, a lender’s last minute refusal to release the seller from personal liability, or a seller’s decision to file bankruptcy to wipe out tax liability, are not surprises you want right before closing.
»Submit a complete short-sale package
An agent’s proficiency in putting together a short-sale package may improve the likelihood that it will not only get approved, but get approved quickly. Do not be cavalier about the approval process just because the seller isn’t realizing a profit. A lender may want you — as the listing agent — to demonstrate that you have actively marketed the property for sale and that you have aggressively negotiated for the best possible price and terms.
»Watch out for multiple third parties
A transaction where only one lender must approve the short sale is usually much less problematic than a transaction where senior and junior lenders, other investors, creditors, or insurers must also approve the short sale. When handling a short sale with multiple liens, make sure you submit a short-sale request to all parties simultaneously. The absolute best way to avoid this common pitfall is to have the home’s title examined as early in the process as possible.
»Do the math
Check up front whether there will be enough money to go around. As either the listing or buyer’s agent, make sure that all transaction costs are included in the estimated HUD-1 Settlement Statement submitted to the lender: buyer-required repairs, taxes, association dues, and lender incentives, if appropriate. Also encourage your client to have a back-up plan in case the lender doesn’t approve these expenditures.
»When in doubt, disclose
Oftentimes you may know certain things that one or more of the lenders do not know. In situations involving multiple lenders, you may find that lenders communicate through you and not with each other. Do not risk unknowingly committing loan fraud! It is very broadly defined under federal law and carries punishments of up to 30 years imprisonment plus a $1 million fine.
In summary, good short-sale agents often attribute their success to being proactive. Start the short-sale approval process as soon as you can. Monitor its progress frequently. Carefully document your conversations with anyone associated with the transaction and ask questions. Your timing is your most effective means to short-sale success, and timing is everything.
ORRA members Joe Kirby and Max Rosenblum, Time Realty, LLC, can be reached at firstname.lastname@example.org and email@example.com.