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A bank short sale is when the Seller of the home is currently in financial distress and is at risk of getting foreclosed on by the lender. The Seller is essentially asking the Lender to take less than what is owed to avoid having to foreclose and take the home back. It is costly for lenders to foreclose on a defaulting borrower so banks have been willing to work with Seller’s that can prove they are in financial distress.
The idea is that the Seller is trying to do everything to help the bank reduce loss. Banks appreciate this attitude and have grown more accustomed to dealing with this type of situation since the market has been in a steady decline.
The banks take their time responding to offers and make it a pretty uncomfortable position for a buyer. The wait can last up to 5 months for a response on any offers. This amount of time is taken because the bank has to go through a series of steps to agree to take a loss on a property. I won’t go into the details but just touch base on the process.
The bank first reviews the Seller’s financial documentation to see if they are really in financial distress. If they are not, the bank certainly will not take a loss if the Seller is capable of making the payments. The financial information goes through review and approval with the bank. This is a step that the homeowner generally handles direct with the bank, before listing the home on the market with a Realtor. A borrower should ask about the HAFA, 2MP, HAMP, and HARP programs to see if they qualify.
The following are usually required from the bank for consideration:
A hardship letter should include the reason for the hardship. Examples of hardships may be:
The Questions a Realtor should ask a Short Selling Seller before listing the home on the market.
Once the bank decides they will complete a short sale, it is time list the short sale on the market. It is important to list the home on the market with a competent and experienced short sale Realtor. The Realtor should be very familiar with value and help the home owner price the home to get bank approval.
When an offer is received, the short selling bank hires one, or many independent contractors to complete BPO’s, Broker Price Opinions . They want independent contractors to tell them the approximate market value of a home so they can take the best action for that situation. Remember that the banks are generally outside of the market area and would otherwise have no concrete idea of the current market value. Short sale BPO’s are crucial in getting short sale approval.
Once they receive the Short Sale Broker Price Opinion, they look at the offer that is in. They look at the net proceeds and determine which sale will result in less of a loss and determine whether any loss is necessary. Certainly, if the bank determines that the market value would actually allow for a profit and a short sale not needed, they would likely just foreclose on the property and put it on the market themselves.
The entire process is generally based on priority. Priority is given to those that are about to go to foreclosure auction. If the auction date is creeping up, then that sale gets moved up in the priority ranking. Because so many short sales are being considered the process is extremely time consuming. A bank may choose to delay the auction date to accommodate a short sale, they may opt not to.
Bank short sales are very tricky and can cause a lot of grief and wasted time. If a bank short sale is listed on the market, it needs to listed at a reasonable price. If they are priced WAY below market, it can be assumed that a bank will reject it. However, even a rejection can take months, so help your Clients list their home at fair market value.
Short Sales require experience and tenacity. If you lack experience, it is smart to enlist a co-agent that can help you and your client through a tough situation