I have some good experience on handling Short Sales in Incline Village Nevada, here is some good solid advice.  Paperwork??  You bet..  Read on....  Tim Lampe, Realtor, Incline Village.

 

Common Mistakes

* Seller hasn’t signed offer
* Closing date to soon
* Seller concessions
* No Short Sale addendum

Let’s examine these mistakes one by one and offer some solutions:

Seller hasn’t signed offer: Honestly, this blows my mind.  I have heard all kinds of excuses such as “I don’t want to have to collect earnest money” (What?!?) “I want to continue to market the property,” “It doesn’t matter until the lender accepts.”

Seriously.  Why would you not want to lock up a contract by not accepting earnest money and having a seller accept an offer?  First of all, the lender will require the offer to be signed-that’s just common sense.  Second, if your seller doesn’t execute the contract, you have no contract! Buyers can and will walk from the deal at any time!  Why tie up a property, put the extra 110% into getting lender approval, then have a buyer walk away because they bought something else, got tired of waiting, etc.  Same thing with earnest money.  The purpose of earnest is to show buyer commitment!  The issues we have with buyers pulling out of contracts are because they are not, and were never committed to the contract.  Why waste yours and your seller’s time?  You don’t think that a deal falling apart because you failed a basic tenant of fiduciary responsibility to the seller (making sure contracts are properly executed) can open you to consumer liability?  Think again.  And thinking that the lender needs to approve?  What’s that have to do with your seller properly executing their contract?  Nothing.  The lender is not the seller!  I remember one deal that we worked long and hard to get an approval (The contract hadn’t expired) I called the listing agent with the good news, a written lender approval.  She informed me after calling the buyer’s agent that the buyer had offered on another property.  I quickly called the buyer’s agent and he simply told me that I could go pound sand because we never had a binding contract, because the seller had never accepted.  Guess what, he was right.  Bottom line: The lender is not the seller.  The seller is the seller and a Short Sale is like any other transaction except that the seller has a contingency (Lender approval)

Closing date too soon: If I see a purchase contract on a short sale with a closing date any less than 60 days, I immediately reject the contract.  Why even bother?  Now, we are really good at short sales, and we have closed several in less than 30 days, but 90 and preferably 120 days are more realistic.  By agreeing to short closing dates, you are giving the buyer an “out.”  If I am a listing agent, I always make sure the contract read “Closing less than 30 days after lender acceptance, or___ (a date at least 120 days away) .”  This is important on two levels.  First, this locks the buyer in to whatever time it takes to get an approval, and sends a message that the buyers should expect a long wait.  Second, the reason why I demand the less than 30 days after lender acceptance is because most lenders will only issue an approval good for 30 days.  These can be extended, but it is not guaranteed and some lenders are charging extension fees.  A good number of deals die because the buyers wait until the seller gets a lender approval to start their mortgage application process.  BIG MISTAKE!  Many buyers’ agents and attorney’s advise their buyers to wait, but this is a deal killer because in today’s lending market, it will take longer than 30 days, on average, to get a clear to close.  If our approval is good for 30 days, and it takes 45 days to close, and the lender charges a $600 per diem to extend, and the buyers refuse to pay…see where this is going?  Now, I understand that buyers may be reluctant to pay for an inspection or appraisal before lender acceptance, but they absolutely should have their mortgage in processing with the lender.  The goal is to get a conditional loan approval.  Not a “Pre Approval.”  A conditional loan approval means that the buyers entire loan application has been underwritten and is approved subject to…(conditions, such as appraisal) In other words, once we get a short sale approval, all the buyer has to do is order an appraisal and they should be ready to close in 10 days tops.  Make sense?  Making sure that this is done will greatly increase your short sale closing percentage.

Seller Concessions: I do not allow them.  Do to lender guidelines, we simply cannot guarantee that we can get them approved, so why waste time with an offer that may not close?  If you get an offer that asks for seller concessions, ask the buyer if they need them to close.  If they do, reject the offer because those buyers are simply not qualified to make an offer on a Short Sale.

Short Sale Addendum's: Many MLS and Realtor Boards have developed short sale riders, but I go beyond this and employ a Short Sale Purchase Contract Addendum.  I retained a highly regarded attorney to craft this addendum for what I call “The Rules of A Short Sale”, and it’s purpose is twofold:  One, to bluntly and repetitively disclose to the buyer of what to expect when purchasing a short sale property, and two, to commit the buyer to the possibility that they may need to bring cash to the table to cover any seller closing costs that the lender may not cover.  Screeech!  I see a lot of agents and Attorney’s gasping at the very thought!  Asking buyers for money!  It can’t be done!  Please… 

The sad and sorry truth about short sales is that while lenders are starting to approve these transactions faster and more regularly, they are cutting corners.  More and more lenders are not allowing:

* Attorneys fees
* Third party negotiator fees
* Tax proration’s over 100%
* Survey
* Water Bills
* HOA Liens
* Tax redemptions
* Second liens over 1% of balance
* Any other fees or costs that they feel like rejecting

The Rules of a Short Sale

Quite simply, if a buyer does not want to commit to the possibility that they may have to cover something like this, then they have no business offering on a short sale!  Period.  Full stop.  End of story.  Why would you waste your sellers and your time jumping through hoops only to have a buyer walk because the lender won’t pay survey and water and the seller is short $700?  As an agent, you should be educating buyers that short sales are AS IS, WHERE IS, the seller is not paying for ANYTHING, the short sale can take a long time, the end closing price may bear little or no relation to the listing price or offer, there may be lender counter offers, etc. ECT, ECT!  Seriously, it’s OK to tell a buyer that maybe this property isn’t for them in the beginning, and finding another buyer rather than accepting an offer where the buyers will never close.  The reward for the seller for putting up with all of this is a GREAT DEAL!  My Addendum asks that the buyers agree to pay Any Seller fees and costs not approved by the lender.  If they do not agree, we simply reject their offer.  Period, because if you do not get this commitment and the sellers end up being $1,200 short at close, who is going to pay it?  The seller?  Good luck they are probably broke.  The agent ends up giving away their commission, and then I read the sob stories by agents complaining about the horrors of short sales and the bad banks.  It’s not the banks fault, IT’S YOUR FAULT.  So do something about it and properly prepare your buyer for the rigors of buying a short sale. 

Speaking of second liens, the number one deal killer on short sales are second liens.  Look at this scenario and tell me if it sounds familiar:

First Lien is WAMU for 400K.  Second Lien is NatCity for 50K.  WAMU’s policy is not even to look at your short sale unless you have a written approval from the second.  NatCity has default insurance on all of their second lien products.  This means that their insurance will reimburse them 10% of the balance in the event of a default.  If the balance is 50K, then NatCity will demand a minimum of 5K to release the lien.  Guess what, send this to WAMU and you will find that WAMU’s guidelines prohibit allowing a second to receive any more than 3K.  Whoops.  You are now 2K short, so you go back to NatCity and try to reason with them, “NatCity, if the property goes to foreclosure, the second lien gets nothing…”  Wrong.  They have insurance, remember?  They could give a flying you know what if it goes to foreclosure or not, because either way they are getting their 10%.  NatCity tells you to go pound sand, so you go back to WAMU and cry to your negotiator that NatCity is mean and demands their 5K.  Do you know what your WAMU negotiator will do?  Roll her eyes and close the file because she knows that she is dealing with an amateur and that this file will never close.

Now you’re saying, “Thanks Joe, you are causing me great pain right now, what is your solution?”  I’ll tell you:  Get your addendum signed, because if you did, you simply get inform the buyer that “you have great news!  The short sale is approved.  Please bring an extra 2K to the closing and we are all done.”  If they signed the addendum, they won’t have a freak out because you disclosed to them early that this was a possibility, and by committing to it, they will be OK with it.  If you have no addendum, you either give up your commission, or you have yet another short sale horror story.  Hope this helps..

 

Call Tim Lampe at Lakeshore Realty for more information or comments.