A Few Tips To Help You Navigate A Short Sale Purchase

Not all that glitters is gold… and not all homes that are marketed as short sales can actually be sold as such.

I received a call this morning from a buyer who couldn’t understand why she couldn’t buy a particular home that was offered as a short sale. She was told that the bank would not approve the short sale and the home went to the county courthouse steps for auction.

While I couldn’t tell her exactly why her particular deal fell through, I could give her some possible reasons as to why it might not have been approved. The price seemed reasonable, but there were several variables that she could not address.

The first variable was that of hardship. She had no idea as to why the seller could not keep the home. If the seller can not demonstrate hardship, why would the lender help the seller avoid a foreclosure by permitting a short sale? Think of a short sale as the opposite of getting a mortgage - you must prove you can no longer afford the property.

Another variable was that of time on the market. Most lenders prefer to see that a home was marketed - by a Realtor - for at least 90 days. In this particular instance - it was not. It’s not a deal killer by itself - but  it’s also not helpful.

Most lenders - particularly with FHA loans - want the owner to occupy the property during the process of negotiating the short sale. When lenders discover that a property has been abandoned, they are likely to enforce a provision of the mortgage that allows them to secure the property after 15 days of observed abandonment. This property was indeed vacant.

When second mortgages are involved, it can sometimes be difficult to negotiate the release of the second mortgage. The second lien holder usually wants more than the first lien holder will allow - and the matter is complicated if the second mortgage is a HELOC (home equity line of credit), as the nature of that particular loan allows the debt to follow the borrower after foreclosure just like a credit card.

This buyer also had no idea as to what the foreclosing lender’s valuation of the property might have been. When a short sale package is delivered to the seller’s lender(s), the lender(s) will order a BPO (broker’s price opinion) to help establish the market value of the property.

Sometimes, the BPO comes in high - as the BPO agent might be hoping to get a foreclosure listing by showing the lender that they believe they can get more money for the property if the lender decides to foreclose. Sometimes it comes in high because the BPO agent - who earns just $45 - $90 to do this valuation - is simply in a hurry and is careless.

Since I was not involved in this transaction, I can only speculate as to why the lender did not accept this particular agreement.

As a buyer, you can get a very good deal when purchasing a short sale, but your agent needs to understand the mechanics of a workable deal for the bank - lest you waste a few months of your time. If your agent is not well-versed in short sales - you might consider finding another agent to represent you.

If the listing agent is not proficient in performing short sales, there is no law that prohibits the buyer’s agent from selecting a short sale negotiator and specifying that this selected negotiator be permitted to conduct the negotiations. While there is no guarantee that the seller will agree to this - a reasonable offer and an rapidly approaching foreclosure date can sway an otherwise reluctant seller.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.