Seven Questions to Ask BEFORE Signing a Contract on a Short Sale
Posted 09-01-2012 at 12:31 PM by Sunshine Rules
I've found the best way to approach short sales is to get as much preliminary info up front. Here are some important questions to ask before you sign a contract on a short sale:
(1) How many lien holders are involved in this short sale?
Any time there's more than one lien holder you should expect a longer approval time period. That is especially true if there are other judgments, mechanic's liens, vendor liens and/or HOA liens. Remember, every lien holder has to be on board for a short sale to go to closing.
(2) Who are the lien holders involved in the short sale?
Some banks have more streamlined processes for handling short sales than others. Bank of America implemented a new program to shorten response time this spring. Fannie & Freddie implemented changes this summer to cut down their response time to 30 - 60 days.
However, if the bank has placed the loan in an investment package, other parties will also have to sign off on the short sale, adding to the length of the approval time period.
(3) Was PMI involved in the original transaction?
Mortgages with PMI typically take longer to get a response as another layer of negotiations is now involved.
(4) Who is handling the short sale negotiations?
The listing agent? Someone in their office? An attorney that specializes in short sales?
Knowing the skill level of the negotiator is important information to obtain before you write an offer. One note here: Just because a law firm is handling the short sale does not always equate to a faster short sale. Check into the reputation of the law firm and it‘s success rate with short sales.
(5) Where is the seller at in the short sale process?
Has the preliminary short sale package been submitted to the lien holders?
Has a BPO (Broker Price Opinion) been ordered yet?
One of the critical elements in doing a successful short sale is the homeowner's willingness to submit to the lender(s) ALL required information and documents in a timely manner.
The seller has to show a valid hardship that prohibits them from keeping the property. Loss of equity alone is not a valid reason for a short sale.
If the seller has filed for bankruptcy and it has not yet been discharged by the courts, that can create problems as most lien holders will not approve a short sale that is still under the jurisdiction of a bankruptcy court.
(6) How cooperative does the listing agent appear to be?
Short sales do require more time and attention by both the listing and selling agents. Cooperation is essential. A listing agent that won't respond in a timely manner to inquiries about the short sale listing is sending signals up front as to what kind of cooperation (or lack of) to expect during the short sale process.
(7) Pricing of the property is another factor.
Some short sale listings are priced at unrealistically low prices to entice offers from buyers. These “bargains” typically run into problems down the road when a BPO is completed for the lien holder(s). A realistic price is at the lower end of the fair market value, not below it.
Your agent should be able to pull up several comparable sales to determine where the particular property falls on the fair market scale.
Regardless of the list price, an offer based on the most recent sold comparables will have a much better chance of being approved in a short sale.
Short sales are not predictable. But getting answers to the questions above will help determine if a particular transaction has a reasonable chance of closing. As I said, the time to gather that information is before you write an offer, not after you’re committed to a contract.
(1) How many lien holders are involved in this short sale?
Any time there's more than one lien holder you should expect a longer approval time period. That is especially true if there are other judgments, mechanic's liens, vendor liens and/or HOA liens. Remember, every lien holder has to be on board for a short sale to go to closing.
(2) Who are the lien holders involved in the short sale?
Some banks have more streamlined processes for handling short sales than others. Bank of America implemented a new program to shorten response time this spring. Fannie & Freddie implemented changes this summer to cut down their response time to 30 - 60 days.
However, if the bank has placed the loan in an investment package, other parties will also have to sign off on the short sale, adding to the length of the approval time period.
(3) Was PMI involved in the original transaction?
Mortgages with PMI typically take longer to get a response as another layer of negotiations is now involved.
(4) Who is handling the short sale negotiations?
The listing agent? Someone in their office? An attorney that specializes in short sales?
Knowing the skill level of the negotiator is important information to obtain before you write an offer. One note here: Just because a law firm is handling the short sale does not always equate to a faster short sale. Check into the reputation of the law firm and it‘s success rate with short sales.
(5) Where is the seller at in the short sale process?
Has the preliminary short sale package been submitted to the lien holders?
Has a BPO (Broker Price Opinion) been ordered yet?
One of the critical elements in doing a successful short sale is the homeowner's willingness to submit to the lender(s) ALL required information and documents in a timely manner.
The seller has to show a valid hardship that prohibits them from keeping the property. Loss of equity alone is not a valid reason for a short sale.
If the seller has filed for bankruptcy and it has not yet been discharged by the courts, that can create problems as most lien holders will not approve a short sale that is still under the jurisdiction of a bankruptcy court.
(6) How cooperative does the listing agent appear to be?
Short sales do require more time and attention by both the listing and selling agents. Cooperation is essential. A listing agent that won't respond in a timely manner to inquiries about the short sale listing is sending signals up front as to what kind of cooperation (or lack of) to expect during the short sale process.
(7) Pricing of the property is another factor.
Some short sale listings are priced at unrealistically low prices to entice offers from buyers. These “bargains” typically run into problems down the road when a BPO is completed for the lien holder(s). A realistic price is at the lower end of the fair market value, not below it.
Your agent should be able to pull up several comparable sales to determine where the particular property falls on the fair market scale.
Regardless of the list price, an offer based on the most recent sold comparables will have a much better chance of being approved in a short sale.
Short sales are not predictable. But getting answers to the questions above will help determine if a particular transaction has a reasonable chance of closing. As I said, the time to gather that information is before you write an offer, not after you’re committed to a contract.
Total Comments 0
