Closing A Short Sale
Short sales can easily take two to three times longer to complete than a traditional real estate transaction. Keeping this in mind it makes sense to be well prepared if you need to short sale a Massachusetts home. Follow the outline below and you will be well on your way to increasing your chances that you will end up at a closing table.
Hire A Realtor Who Closes Short Sales
Choosing a Realtor who understands the short sale process is a critical one. On of the biggest stumbling blocks to short sale success is hiring any ole real estate agent to represent your interests in a short sale. Trust me there are Realtors taking short sale business who are absolutely clueless. Even though it is against the code of ethics for a Realtor who has no knowledge of short sales to list them, it happens all the time. In other words don’t choose the short sale Realtor pictured to the right!
Some of the first steps of a Realtor representing a short sale candidate include:
- Conducting a thorough interview of the short seller
- Establishing whether there is a valid hardship
- Determining lender/lenders
- Figuring out approximate remaining mortgage balance
- Determine what type of loan i.e FHA, Conventional or Fannie Mae
- Finding out if the seller is in default
- If so finding out how long in default
- Figure out if the seller is motivated and cooperative
If the short sale agent you are interviewing is not asking these questions then this could be the first clue this Realtor is not the right agent for the job! Once an agent has done their home work on the seller and has gone ahead with listing the home for sale, they then have to perform the function of finding the right short sale buyer. Finding the appropriate buyer in a short sale is a lot different than a standard real estate sale. You MUST have a buyer that understands the short sale process and is completely invested in the home.
What does invested mean? You want a buyer that is willing to wait the time it takes to complete a short sale and also go ahead with completing their responsibilities just like any other real estate transaction. Responsibilities include getting a home inspection done, signing a purchase and sale, and procuring financing. All of these things should be done prior to short sale approval NOT after. One of the biggest reasons short sales do not close is because of the Realtor not understanding how to properly represent a seller.
Work With An Attorney Who Closes Short Sales
The attorney you use in your short sale can have a huge impact on whether or not you get to the closing and also get your desired terms. Just as a real estate agent should have experience in closing short sales so should the attorney if you have one. By the way in my opinion it is vital to have an attorney representing your interests in a short sale!
A real estate agent should not be practicing law which is exactly what happens when you have a Realtor who negotiates a short sale contract and approval letter. Luckily for me I have one of the best short sale attorneys in Massachusetts representing all of my clients! Here are some of the things a good Massachusetts short sale attorney will be doing to get short sale approval:
- Understand and maintain lender guidelines
- Secure forms for each lender and/or servicer
- Run a title exam on the seller’s property
- Identify any liens and/or encumbrances
- Identify all individuals on deeds and mortgages
Complete Short Sale Package
Once these things are done the short sale attorney will assist in sending a complete “short sale package” to the lender. The short sale package that is submitted to the lender will include the following items:
- A short sale “hardship letter” which will explain to the lender why the seller needs to complete a short sale
- The seller’s tax returns from the prior two years
- The seller’s current pay stubs
- An authorization letter from the seller stating the attorney will be communicating and receiving lender docs on their behalf
- The listing agents contract and purchase and sale if available
The completeness of the short sale package is vital in a short sale and often times can hold things up if the lender does not have all the documentation when they ask for it. A good attorney confirm the lender has everything they need when asked for it. Often times negotiators will claim they never received documentation that was already sent. The attorney will also keep all seller financial information updated and forwarded to the lender every 30 days or as they require.
One of the biggest roles the attorney has is maintaining a constant line of communication with the lenders negotiator. When a negotiator asks for a document the attorney needs to jump on it right away.
Short Sale Negotiation
From a seller’s point of view there is nothing more important than short sale debt removal. Whoever is negotiating the short sale for the seller plays the biggest role in a seller’s financial future. Again I would never recommend using a real estate agent to negotiate a short sale. The attorney I use negotiates on my seller’s behalf and looks to get the best deal possible from the lender/investor.
For example lets assume for a moment that a seller is $75,000 short at closing. The role of the attorney would be to try to get the $75,000 short sale deficiency eliminated! Today it is a lot harder to get a short sale debt completely removed but that is the goal. In many cases the lender will not agree to a complete debt removal but will accept either a cash contribution at closing or ask the owner to sign a promissory note. In short sales the amount that a lender typically tries to collect is pennies on the dollar.
While every short sale is different, using the example above a lender could ask an owner to bring $5000 to closing and agree to waive the remaining $70,000 balance. Often times in a short sale an owner has absolutely no cash and it would be impossible for them to contribute anything at closing. In this case the lender may ask for a $15,000 note be signed at favorable terms. Again these figures are just examples but show the type of monetary contributions lenders ask for. Keep in mind lenders will check your finances and know when they can’t get blood out of a stone. One the flip side if they see you have money to contribute, the likelihood is strong they will ask for something.
Aside from the negotiation of the dollar amounts the short sale attorney should also be looking to eliminate the possibility the lender can come back after you in the future for any remaining mortgage balance. This should be completely spelled out in the short sale approval letter.
Short Sale Obstacles
Before you ever get to the negotiating table with a lender there can be obstacles that pop up along the way. One of the most common short sale problems is disputes over value with lenders. This is one of the more common issues and can easily derail the short sale if you are not familiar with how to tackle the problem.
In every short sale the lender will send out a representative who will evaluate the current market value. This is either done by an appraiser or another real estate agent. They will do an analysis of value and report their findings back to the lender. The lender unfortunately can treat this value as “gospel”. You are at the mercy of whatever the agent or appraiser has to say as far as value goes.
Here is where the biggest problem occurs. Most of the time it is not an appraiser that will do the evaluation but a real estate agent that the lender chooses. Here is the rub. The agent who does this work for the lender generally gets paid $40-80 dollars to do hours worth or work evaluating the properties value. Can you guess what type of agent has the time or inclination to work hours and only get paid $40-80 dollars. If you guessed bottom of the barrel then you are right on the money. Sometimes the agent isn’t even from the area and knows nothing about local value and differences between neighborhoods. Pardon the French but it can be a real shit show.
When a lender is given an evaluation that does not make sense they will counter offer at some ridiculous value that makes absolutely no sense. This is where a skilled short sale agent comes in that knows how to dispute a foolish evaluation given by some nit wit who is practicing real estate part time on the side. I kid you not this happens far too often!
Picking the right short sale Realtor and attorney is a vital part of short sale success!
About the author: The above Real Estate information on how to achieve short sale success was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 26+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.