A Buyer’s Guide to Short Sales?The Challenges and the Necessary Tools

July 15, 2009

Residential

Earlier this month I highlighted some key points about short sales:

  • What is a short sale?
  • How does it compare to foreclosure?
  • Are short sales on the rise and does this mean I should wait to buy?

This week, I?m outlining the challenges faced when dealing with a short sale, what is being done?if anything?to help streamline this process, and how to find the right people to work with to help navigate the short sale.

The Three Main Challenges to Short Sales

You may roll your eyes and look frustrated quite often when you try to buy a short sale property

You may roll your eyes and look frustrated quite often when you try to buy a short sale property...but it can be worth it.

1. New Kids on the Block
Many real estate agents are new to the short sales process which can be a challenge in itself. But, then add into the mix, many lenders’ lack of sufficient and experienced staff to process short sales and this compounded problem can make anyone involved in the transaction want to pull out their hair and swear off real estate for good. Even if the real estate agents are experienced, due to the volume of activity, most servicers are simply under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.

2. Ball of Confusion
Because both short-sale documents and processes are lender-specific, this makes it very difficult (and very time-consuming) for real estate agents to become knowledgeable and efficient in facilitating these transactions. Ideally, implementing a more uniform process and application will help speed things up and keep the transaction moving along. But until then, unfortunately, we must keep doing things the slow and inefficient way.

3. Double Trouble
In this market, it is not uncommon for home owners to have a secondary mortgage on their property. In fact, it seems more common than not. In a short sale situation, this complicates things. <sigh> When more than one lender is involved, the negotiations are much more difficult. We have seen many second lien holders step in like the 550 pound gorilla and often hold up the transaction to extract the largest possible payment in exchange for releasing their lien, even though in foreclosure they will get nothing.

As a result of these challenges, which Catherine and I have personally experienced along with many of our co-workers/colleagues in the Chicago market, the difficulties of unresponsive lenders, lost documents that require multiple (and I mean multiple) submissions, inaccurate or unrealistic home value assessments, and long processing delays. All of these often add up to the buyers to walking away. Not many buyers want to wait six months to hear if their offer has been accepted. The longer, or more importantly, flexible time frame the buyer has, the better for a short sale situation. However, wait time tolerance can all depend on how badly a buyer wants a particular home.

Is There Any Good News About Short Sales?

Yes!

Here is what is being done to address or eliminate these challenges: on May 14, 2009, the Obama Administration announced its upcoming Foreclosure Alternatives Program. Among other things, the new program:

  • Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.
  • Requires that a time line, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.
  • Requires the short sale agreement to specify reasonable and customary real estate commissions and costs to be deducted from the sales prices. (The servicer must agree not to negotiate a lower commission after receiving an offer.)
  • Will provide standardized documents, including short-sale agreements and offer acceptance letters.

What if I find a home I want to buy and it is a short sale? Where do I start???

First thing is your real estate agent, (whose commitment and responsibility is to help you purchase your new home with the most advantageous terms possible for you. The listing agent has the same responsibility, but for his/her client, the seller) should call the listing agent to see if they have talked to the lender(s) and have been given an idea of what they would be willing to accept as far as a sale price. If they haven?t had that conversation with a representative of the bank, it can be more like throwing a dart today and waiting a month to see if you?ve come anywhere near the bulls eye, or in this case, acceptable sale price.

Questions to Ask the Listing Agent of a Short Sale

See what you can find out up front before you start this long process.

  • Has the seller already provided their hardship letter?
  • Have they provided their most recent tax returns?
  • Have they provided all other required financial statements?
  • How many months behind on payments are they, if at all?
  • Does the seller own other properties that may be leveraged in order to sell the current property short?

If the seller hasn?t provided any of these required documents yet, you may be looking at an even longer process. Lack of required documentation from a seller only delays the process.

The Tools (People) You Will Need for a Successful Short Sale

  • You will need a great, experienced buyer?s real estate agent. That agent needs to be aggressive, diligent with follow up, and will do everything they can to keep the transaction moving forward: they call the listing agent for follow up on a regular basis, they even call the lender (if they have the contact information) on your behalf to get solid answers to help guide you in the offer/process.
  • Next, you want to want a great real estate attorney who is experienced and savvy with the short sale process.
  • The last piece of the buyer trifecta is to have a reputable, knowledgeable, well informed mortgage broker who will help you get your loan with the best terms available for you, within the contract?s time frame, with as little stress and headache as possible.

Now that?s what we like to call ?The A Team? (without the Mohawk & layers of gold chains like Mr. T).

We’d like to thank Bobaloo Rox for sharing today’s photo via the Creative Common’s License.

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About Nancy Gaspadarek

With over nine years in the Chicago real estate market, Nancy continues to enjoy the momentous and exciting process of helping her clients buy and sell homes. Nancy believes that the relationships & friendships that she has developed over the years are priceless. In 2007 she made the decision to partner with Catherine Brennan and the two are collectively known in the industry as The G and B Team. ?It was the best move I could have made?, Nancy says, ?Having a knowledgeable and reliable business partner to counter balance your strengths and have a shared passion to provide top notch service and expertise to all our clients is such a blessing.? Nancy graduated from Florida State University in Tallahassee, where she received a four year scholarship and was the captain of the woman’s volleyball team for four years. Nancy has lived in downtown Chicago for over 14-years in a variety of neighborhoods. Her free time is usually spent playing tennis, golf & running/biking along the lakefront. She participated in the 1998 Chicago Marathon and has competed in a number of triathlons as well. She volunteers with The Friends of Blaine School in Lakeview, as well as Umoja Student Development and loves to travel as much as possible. You can contact Nancy at 773.259.9353 or gandbteam.com

View all posts by Nancy Gaspadarek

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