Short Sale information with Question and Answers from Craig Wilson, www.WilsonHOMETEAM.com, with the Short Sale Process spelled out in common language.

SHORT SALE INFORMATION KIT by Craig Wilson 1/8/09

This following general information regarding the SHORT SALE PROCESS is provided as a background for potential buyers that may be considering the purchase of a Short Sale property, and for homeowners considering Listing their property as a Short Sale listing. Answers to commonly asked questions are also included. If you are a SELLER, Please contact Craig & Brenda directly for more information about your options as a SELLER of a distressed property.

Distressed Properties – Today’s inventory saturated Sarasota-Bradenton market place offers many types of choices for available properties, many of which are offered as BANK OWNED or SHORT SALE properties.

Short Sale Listings: are properties listed at a Sales Price that is reasonably expected to be insufficient to pay the total outstanding mortgage balance owed to lien holders (including outstanding Property Association dues, Property taxes, and other liens) together with the associated sales costs. The shortfall will require the approval of the Seller’s lien holder(s) for the amount. This process can often take from 45 to 90 days to receive a response from the Lender if this is the first offer on the property. If the Lender has had previous offers on the property, then the timeline can be shortened for future offers.

The Short Sale Process usually includes the following basic steps:

1) Seller submits their Hardship letter & financial package to Lender/Lien Holder for review.

2) Seller lists their property for sale. In many cases, the Lender often has NO knowledge that the home is for sale until an offer & package are presented.

3) Buyer makes an Offer which is then presented, together with an estimated closing statement to Lien holder for their consideration,

4) Lender orders a Broker Price Opinion (BPO) or full appraisal of subject property to try to evaluate the current market value of the property,

5) Lender reviews Offer, HUD-1, together with Seller’s current financial information & hardship letter,

6) Lender then responds to Offer in one of several ways: a) Accepts Offer, b) rejects Offer, or c) Counter Offers with different terms or conditions which may include an additional agreement with Lien Holder(s) for Seller to pay a specified amount at closing, or Seller to sign note for portion of shortfall.

7) If successfully negotiated, a closing is scheduled, usually within 30+/- days of the approval by Seller’s Lien Holder of the final negotiated offer.

This process can often take from 45 to 90 days to receive the first response from the Lender if this is the first offer presented on the property. If the Lender has had previous offers on the property, then the timeline can be greatly expedited for future offers due to the work already completed – including the BPO or appraisal. Most closings for Short Sales may take an additional 30-60 days to close AFTER the Lien Holder’s approval. Properties with more than one lien holder (1^st & 2^nd Loans) are much more difficult & complex – AND will require more time and patience for all parties.

COMMON QUESTIONS & ANSWERS:

ARE THERE SET RULES FOR ALL LENDERS TO FOLLOW FOR SHORT SALES? NO. EVERY Short Sale is unique – because every lender has different systems that they follow, and often different Loss Mitigation departments or Short Sale Negotiators have varied methods of handling Short Sales. The largest variables are the individual Seller’s circumstances. Some Sellers may still have assets & a steady income, yet others may have met with very unfortunate circumstances that have virtually left them with no assets and no income – possibly facing bankruptcy as an option.

WILL THE SHORT SALE LIEN HOLDER AGREE TO PAY FOR MY BUYER CLOSING COSTS? Typically, the Lien Holder will NOT pay for any of the Buyer’s closing costs, however in many cases they usually pay for the recording fees for the sale (for the recording of the Deed ($7 per $1000 of sales price), and they may also pay for the Owner’s Title Insurance Policy ? But most lenders shy away from paying other Buyer closing costs, which also include a Home Warranty.

WILL THE SHORT SALE LIEN HOLDER AGREE TO PAY FOR REPAIR COSTS FOR ITEMS DISCOVERED DURING INSPECTIONS? Typically, the Lien Holder will NOT pay for ANY repairs, nor will they pay the cost to have utilities turned on for inspections on vacant homes.

CAN THE SELLER RECEIVE PROCEEDS FROM THE SALE? The Seller’s lenders will generally not allow the Seller to receive ANY proceeds or otherwise obtain any monetary benefit as part of a Short Sale. Many Sellers with Short Sale properties are struggling financially, and often facing extra financial pressures from many sources.

IS A SHORT SALE A “BETTER DEAL” THAN OTHER PROPERTIES? In many cases, a property listed as a Short Sale is already listed at an aggressive offering price, however not ALL listings are priced realistically, so having “a pulse on the market values” is essential. Buying a property through a Short Sale can be a “good deal” but any property purchase should be met with due diligence.

WHAT DIFFERENCE DOES IT MAKE IF THE SELLER HAS MORE THAN ONE MORTGAGE? Short Sales with more than one lien holder often have the second position lien holder sitting in a worthless position – if the market value of the property has fallen below the amount first lien’s note value. This unfortunately takes the incentive out of the 2^nd lien holder’s motivation to try to help negotiate the sale. In many short sales that have two lien holders, the first lien holder may offer a small amount to the 2^nd lien holder – just to save the time and expense of foreclosing on the property (in which case most 2^nd lien holders receive nothing…) or the Seller may be required to pay part or all of the 2^nd Lien shortfall back – in the form of an unsecured note. This is all negotiated between the Seller and Lien holders – and this is also a time when the Seller should have legal representation helping them through this process. Short Sales with more than one lien holder are much more difficult to close – and often take much longer to negotiate.

CAN A BUYER STILL HAVE SHORT SALE PROPERTY INSPECTED? Certainly. But most Short Sales are written up on a contract that is AS IS with RIGHT TO INSPECT. Most lenders will not pay for the cost of any repairs to the home, which means the Buyer is effectively purchasing the home “As-Is”. (but with the Right to Inspect which allows them to inspect the property and cancel the contract if repairs exceed an agreed upon amount).

HOW LONG WILL IT TAKE TO GET A SHORT SALE APPROVED? (Often 4-8 weeks response time) Every Short Sale situation is different and depends upon many different factors such as the Seller’s individual circumstances, the nature of the loan(s) and other liens against the Property, and the Seller’s lender’s criteria and staffing. Many lenders will not even begin to review a Seller’s request until a contract for sale has been executed, which may further delay the process. In addition, lenders will require the Seller to provide detailed financial information and may also perform appraisals of the property to determine whether it is in fact worth less than the outstanding mortgage amount. While some lenders are able to review Short Sale requests quicker than others, many lenders often require at least 4-8 weeks, to respond to the first offer on a short sale property.

IS A BUYER LOCKED INTO A PURCHASE CONTRACT ONCE THE OFFER IS MADE? Once the Seller and Buyer have agreed to a Purchase Contract, the parties are bound to the contract. It is important that the Buyer have a provision added within the offer that allows them to walk away from the offer prior to lien holder approval – which often times can take many weeks. This provision should allow the Seller to obtain lender approval while not keeping the Buyer in a contract indefinitely waiting on the lender to decide on approving the sale. In addition to working with an experienced real estate agent, you should have a real estate attorney representing your interests – who can also answer any questions about the process, and make sure that your Offer contains the proper language.

ARE SHORT SALE PROPERTIES OWNED BY THE BANK? No. Short Sale properties are still owned by the Seller, but the Seller’s lien Holder may be required to accept less the mortgage balance(s) so they are an integral part of the process, although they are not technically a party to – nor are they required to sign the purchase contract.

IS A BANK OWNED PROPERTY A SHORT SALE? No. A Bank Owned property is typically a property that has already been foreclosed on, and the lender has taken the property back due to a mortgage loan default. The Lender usually lists their foreclosed property with local real estate brokers to obtain a fair market price for the home, usually set slightly below “Market Value”.

IF I PURCHASE A SHORT SALE PROPERTY, WILL I HAVE TO PAY BACK TAXES OR OUTSTANDING FEES OWED TO PROPERTY ASSOCIATIONS? In most cases, all back taxes, association fees and other outstanding liens should be paid at closing by the Seller (or in reality – they are paid by the Seller’s lien holder). Current period taxes and association fees are typically prorated at the day of closing. It is ESSENTIAL to make sure that you utilize an experienced closing company, preferably a real estate attorney, that can make sure that you are purchasing the property – free of any liens and encumbrances, and to make sure that all liens are paid - so there are no surprises after closing. Also, purchasing a Title Insurance Policy is always recommended for all property purchases.

WILL ANY OFFER ON A SHORT SALE PROPERTY REQUIRE BUYER TO DEPOSIT $1000s OF DOLLARS AS A DEPOSIT? Normally, any purchase contract will require a Deposit of a reasonable amount, from 1 to 10% of the purchase price. For a Short Sale offer, we would normally recommend having the Buyer’s DEPOSIT AMOUNT due within 2 business days of the Seller’s Lien Holder Approval. By doing this, the Buyer doesn’t have thousands of dollars tied up until they know they are purchasing a home. Typically, if the Lien Holder approves an offer, the Buyer will be closing within the next 30-60 days, so directly after Lien Holder’s approval, it makes sense to get the DEPOSIT turned over to the closing agent.

IS ANYONE LIABLE TO THE BUYER FOR ANY DELAYS WITH THE OFFER ACCEPTANCE? No. Since the short sale process involves many moving parts, a Buyer may be tied up for months waiting on a response, and may find out later that it was a waste of time due an inflexible lien holder, or Seller being unwilling or unable to work with their lender. Short Sales require much patience, especially if you are the first buyer to make an offer on a Short Sale property. Many times, a Short Sale Buyer will run out of patience and withdraw their offer – and then seek a regular sale property or Bank Owned property where they can obtain a more immediate response and closing timeframe. Buyers need to make sure their short sale offer includes a provision for withdrawal or cancelation that is acceptable to them.

14 Reasons Why the Lender will negotiate a Short Sale

Lenders are motivated to consider negotiating a Short Sale because every day the homeowner continues to be in default; the lenders costs and risks increase due to any of the following:

Ongoing delinquency & Collection costs, penalties and interest remain unpaid
Accruing & unpaid property taxes, insurance & property association dues
Legal expenses to bring the property to the foreclosure sale
Homeowner’s willingness to walk away since there was very little initial investment
Deferred maintenance on the property
Further depreciation in real estate values
Upcoming assessments
Anticipated interest rate adjustments
Mother nature – hurricane season
Continued changing economic conditions
Lenders tightening borrowing guidelines
Vandalism
Mortgage Fraud
Possible REO’s – inevitable cost of ownership

What brought on the Distressed properties of Today’s market?

Excessive sub-prime mortgages
Easing of traditional lender requirements led to Mortgages that should have never been approved
Softening of the Real Estate Market
Anticipated Interest Rate Adjustment (ARM)
No Equity – ability to walk away 100% LTV
Most homeowners do not qualify for refinance now that their home’s value has fallen below the mortgage balance, and possible poor credit from missing a few payments.

FOR SHORT SALE GLOSSARY of TERMS, Click Here.

SELLERS - Please contact Craig & Brenda directly for more information about your options as a SELLER of a distressed property.

This information was compiled by Craig Wilson, KELLER WILLIAMS REALTY - Lakewood Ranch, Sarasota-Bradenton Area, Florida. Craig is a 10 year veteran to the real estate industry, and his wife Brenda is a full time Realtor as well, both are partners as THE WILSON HOMETEAM. This information should not be copied or used without the express written permission of Craig Wilson. This information is not be be construed as LEGAL ADVICE or TAX PLANNING ADVICE. Short sales, Bankruptcy and Forclosures including Deed in lieu of Foreclosure can all have major negative impact on Seller's credit and or tax liabilities. SEEK LEGAL and/or TAX PLANNING COUNSEL if you are a SELLER of a distressed property - BEFORE you sign a sales contract.