Set proper expectations
The short sale process takes time, requires patience, and often some flexibility and compromise. One of the most important things that you can do is set proper expectations with your buyer about the process and time frame. Short sales can easily take over 90 business days to complete. The reason for the long wait is because of the complex nature of the mortgage backed securities industry and what it takes to get investor approval for sustaining losses. Add to this the sheer number of short sale requests and banks have are having a difficult time keeping up.
Be sure to remind your buyer that the investor’s loss is their gain and for waiting:
- They can get a great deal on a property
- Unlike at a foreclosure auction or an REO sale, they won’t have competition (so long as in the contract it indicates that no additional offers will be submitted to the lender)
Provide a usable pre-approval or proof of funds letter
For the short sale package we require a signed pre-approval letter. This letter must have the property address and the amount of financing the buyer is qualified for. Gone are the days when a generic prequal letter satisfied a lender. If the buyer is paying all cash please provide us with either a bank letter or a monthly statement indicating that the funds are available for the closing.
Return the Loss Mitigation Service Agreement form
For all transactions processed by MH Solutions Inc, it is the buyers responsibility to pay the $2,500 loss mitigation fee. This fee is due from the Buyer at closing and only if the closing takes place. It is important to note that our fee must be paid by the Buyer and cannot be financed into their new loan.
Understand the pitfalls
Often buyers want to know what can prevent a short sale from going through. Here are the usual suspects:
- A high BPO/Appraisal. When the bank has an unrealistically high perception of the value of the property they are more likely to take the property back through foreclosure. We always recommend that the listing broker be present at the BPO to insure the BPO agent has all the necessary information to support the offer price.
- A seller that will only agree to a short sale that removes their liability completely. Most lenders these days will release the lien on the property so it can sell with clean title, but will either issue a 1099C or hold the right to pursue for a deficiency, or both.
- A mortgage company that won’t release the lien without additional funds. This is where compromise comes in. Sometimes a buyer or another party involved may have to chip in to facilitate the closing. This is particularly likely when a second mortgage company requires a few thousand more than what the first mortgage company will give them out of the deal. Because of this, it often is better for a Buyer to commit to a paying off “X” dollars of outstanding liens if needs be, rather than increasing their offer price by “X” dollars. Please note that any payment to these sorts of liens will not be able to be financed, so the buyer will need to have accessibility to cash if the chose to offer this
- There is Private Mortgage Insurance (PMI) on the loan. The lender may be able to make a claim against the PMI and get more than they would by accepting the offer. Since PMI pay outs are often tied to appraised value of the property, the appraisal holds extra weight when there is PMI.
- Buyers get tired of waiting. This is by far the number one short sale deal killer. Proper expectations reinforced by open communication and a great deal are the best remedies here.
- The Investor. A junior investor of a mortgage that has been bundled into a security instrument faces getting little or nothing in a short sale. They could prevent the deal from going through by refusing to take nothing in the sale and thereby resigning to take nothing in a foreclosure. This is a classic example of a jaded investor.
Know how your buyer can improve their chances of a successful closing
First, they can have their inspections done before the short sale package is submitted to the lender. This way if there is any property defect it can be identified up front and MH Solutions can negotiate with the lender or lien holders based upon this information. It is very hard to go back to a lender to have them adjust an approval letter. Bare-boned home inspections can often be done for $200.
Second, the Buyer can use a mortgage broker or lender that is well versed in short sales. We have seen some loan officers nearly kill short sales because they didn’t know what they were doing. We have had others that helped facilitate the deal by keeping an eye on rates, monitoring the Buyer’s credit, and rate locking at the appropriate time.
Third, they can choose a skilled title company versed in short sales. Not all title companies are versed at closing short sales. Short sale closings are handled slightly differently than regular closings. Lenders are very specific about requiring documents at specific times and if they don’t get them…. game over. We would be happy to recommend some title companies to you.
Fourth, prepare for the closing. Make sure to have the trigger ready to pull. When the approval letter is issued by the lender they rarely give over 30 days to close. This may seem unfair to your Buyer after they have patiently waited for months. To the investor though, a lot of money is probably being lost in the transaction and if they are going to be giving it away then they will want quick performance. This means an appraisal must be ordered and any last minute details must be attended to quickly. It is very difficult to get an extension once an approval letter is granted. If an extension is granted it will often be done at the buyers expense.
