A Short Sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured by the property, upon payment of of an amount less than is actually owed.
In yesterday's blog I reported that about one-half of the single family home and condo sales in Key West were either short sales or bank foreclosures. Short sales occur when troubled borrowers try to sell the property prior to foreclosure in hopes of salvaging part of their credit worthiness. Many short sales fail but others are succeeding. So I thought it might be helpful to explain how they work from a buyer's perspective.
Some sellers identify their property as a short sale to attract buyers. Some of those sellers aggressively price the property at or near the price they think the lender may accept as a discounted payoff amount. Other sellers keep the asking price in line with other homes in the geographic area but advise potential buyers to submit their best offer. In this current market I would suggest you look for property you like first then try to determine if there is a real bargain to be made in buying it. There are too many properties on the market just to look for a "bargain". Look to buy value first then make the bargain happen through negotiation.
The asking price and selling price are not always the same or even near the same even in short sales. In a competitive market seek to make your offer as a buyer better than all other offers. That does not mean you have to offer the most money. (1) If you have the ability to do so, make an "all cash" offer. Submit proof of funds (letter from your bank showing more than $X in your account or provide a copy of your most recent bank statement or stock brokerage account showing value of liquid assets) to cover the transaction. (2) Obtain written pre-approval from a lender showing that you can obtain a loan to purchase the subject property within a limited period of time. (3) Do not encumber your offer with unnecessary contingencies. Instead, make your offer as simple as possible. (4) Offer to close the transaction by the end of the calendar month if possible. Make your offer help the bank's performance look better by getting the deal done by month end.
Some Realtors will tell you that you do not need to have an earnest money deposit to make an offer to purchase. That may be true in some instances. But if you want to get a bank's attention, have real money on deposit with a title insurance company or an attorney who will write the title insurance policy. I suggest that you offer to pay for the title insurance. By so doing you eliminate one sticky point in any negotiation. Lenders are seeing a lot of short sale offers that disappear because some Realtors are submitting offers on multiple properties. Having real cash on a specific property may make your offer look better than an offer that is just written on paper.
Once you have a signed contract between seller and buyer, the short sale offer is submitted to the lender (or lenders if there is more than one mortgage). The listing Realtor or short sale negotiator will submit a HUD One form to the lender. That form will show the net proceeds the lender will receive should the short sale be approved. It is a good faith estimate of all charges and fees that seller and buyer will incur to make the deal happen. You are more likely to get a contract approved if there is just one lender or if one lender has both a first and second mortgage. If some outside party has a mortgage of other lien junior to the first mortgage, that other party must also agree to the short sale. That may require a nominal payment to that party. If that party does not agree, a short sale cannot occur.
Assuming that the HUD One Statement is acceptable from a numbers standpoint, the lender will first order a BPO, Brokers Price Opinion. ("The BPO is a tool used by lenders and mortgage companies to value properties in situations where they believe the expense and delay of an appraisal is not necessary. Real estate brokers are given an order to do a BPO by the lender, mortgage company or loss mitigation company. The broker does either a Drive By BPO or an Internal BPO in most cases.") If the numbers still look attractive, the lender will probably order a full appraisal to validate the proposed deal. Once the appraisal is returned the lender will do internal math calculations and obtain departmental approvals of the short sale amount. It is almost like doing a loan approval in reverse. Here the lender must substantiate the deteriorated property value to justify the write off of a larger loan. When approved, the lender notifies the parties that they may close the deal and give them a limited period of time to do so.
Some lenders have gotten their acts together and have become able to get deals approved within a few weeks. That usually happens when sellers have all of their documents in order and when there are no extraneous requirements to complicate a proposed deal.
Be flexible. Be willing to work with the seller if need be to get the deal accomplished. I've seen several sellers who listed properties at what I think is an aggressive low price agree that agree to sell at an even lower price. Sometimes things crop up between the contract date and closing that make closing look almost impossible. Different lenders have different requirements to approve short sales. Some require a cash payment from seller to permit debt forgiveness for the balance. Others may require the seller to sign a promissory note. Perhaps something happens to the property that requires the contract terms to be restructured. Be flexible. If you are getting a good deal, do not be a hog. Pigs get fat. Hogs get slaughtered.
I created a very simple list of single family short sale properties in Key West. There are more properties but the often listing Realtors may not have entered the information in our mls database correctly for easy capture. CLICK HERE to review the easy single family short sale list. CLICK HERE to review the condo and town home short sale list. If you are looking for a particular type of property or have a specific location, please call me, Gary Thomas, 305-766-2642, or e-mail me at kw1101v@aol.com. Let me know what type of property that you want, your price range, and the time frame in which you want to get a deal completed. Maybe I can help you. I can try.
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