Mike’s Real Estate Show

“Short Sale” - FACT SHEET - What they are and how they work
- by: Donald J. Leske II / Senior Broker & Short Sale Consultant

  First of all, its a tough market for anyone who needs to sell a home right now. If you do not have to sell at this time or can avoid it, DO NOT sell your home unless it is unavoidable. Many thousands of home owners across the Nation are in or facing foreclosure right now. You may be one of the unfortunate home owners who are caught up in that struggle. If you are a home owner who wishes to avoid Foreclosure, you may qualify to use the Short Sale option. You will need qualified and knowledgeable expert assistance or help in putting together a “Short Sale Package” to present to the Lien Holder, such as:

      A). A qualified and licensed Real Estate Attorney, who will know the steps and paperwork required in most cases, but shockingly enough it has been discovered that many do not know how to effect the actual sale in terms of finding a suitable buyer or with at least 50% of Short Sale offers failing to even be looked at due to improper presentation of a short sale package that is incomplete.., or someone else offering a higher price, most Attorneys will want to be paid up front or they will not get paid at all.

      B). Hire a Licensed knowledgeable and qualified Real Estate Agent. A good, properly trained agent can do all the required paperwork plus most agents will not require any up front fees. Important fact; Most Listing Agents do not actually what they are doing when it comes to using this option. It has been calculated in training classes on this subject that up to 90% of Licensed Real Estate Agents do not know what a “Short Sale” really is, or simply do not know the fundamentals of how to manage one. Its a very tough way to go for home owners and if not done right they will loose their home to Foreclosure anyway. No one benefits from that. - In my humble opinion this is the most favorable choice, if you are able to choose a good & qualified Agent/Broker.

Now, lets look at the requirements and issues.

  What is it: A Short Sale is a term that is used when a Bank or Lender, who holds the mortgage or Note on a property that is seriously delinquent by several months, is about to Foreclose and will consider offers that are less than the payoff of the underlying note(s).

  The process: When done properly, a Buyers Agent will put in an offer, on his/her clients behalf, to the home owners Licensed Agent to then be combined with a required “Short Sale Package” that will be considered by the home owners  Lien Holder, who in many cases will sell for less than what is owed on the property rather than foreclose and chance the less than desirable options of a Foreclosure & Auction or worse yet… the property becomes an REO headache. Important Note; unless the property has been taken back by the Bank or Lien Holder via a full Foreclosure, Lien Sale or Auction etc….. the Short Sale will require the owners approval. Thus “short” sale”, which is short of amount due. The seller or owner will not receive any funds, as the funds received from the Lien Holder was less than the home owners payoff.

*Important Note: Most Lien Holders may “indicate” that they accept an offer, when properly tendered, but NOT actually give final approval of the … “Contingent on Lien Holder Approval” stipulation on a buyers offer of a Short Sale. Listing Agents must however put this wording into a paragraph or a separate addenda so stating this fact on their clients behalf, but the Lien Holder generally will not accept these offers in a conventional way…ever. You will normally NOT get an affirmative reply, notice of approval or letter of acceptance. NADA, Zip, Nothing… it will just make its way to closing and everyone must hope for the best. It really should be criminal for a Lender, seller or Bank to NOT give… in all good faith, some kind of letter or written approval or denial of a buyers offer…but it happens every day.

Example:

  One case* I was working on for a buyer/client of mine taught me a good lesson. Finally after over a month of hard work to get all of our requirements in order, the lender sent a letter to their Listing Agent simply stating that they would accept an offer in that price range….., BUT it did not mention my client or if they would accept that particular offer. Warning folks…, especially Buyers Agents, YOU DO NOT HAVE AN ACCEPTED DEAL…EVER.., until the transaction is closed and it is recorded at your county Assessors office. The Lien Holders seem to do this intentionally so that if a “better offer” comes in they can say that they never did accept your offer “technically”, leaving them free to go after the higher offer…right up to closing. Its certainly not fair to the poor buyer who has waited patiently …for anywhere from 90-120 days. It would seem at the very least to be unethical to lead on a buyer to think that they have a deal… only to pull the rug out from under them suddenly. - I have heard many licensed agents say that they will never do another short sale. We work hard for 3 to 4 months putting together a deal, and then not get paid. I think its worth it to put in a short sale offer, so long as you have all your facts together ….and all your ducks in a row.

  *Note: The listing agent on my deal, who says that they do a lot of short sales for lien holders, had replied to my emailed concern about this issue by saying………: “Let’s all remember that it is a short sale, and ultimately is not “approved” until it is closed. The contingency HAS NOT been removed at this point, and won’t be until closing.”

Added info. The lender may choose to issue an IRS 1099-A form that shows the deficiency as income which the borrower may have to pay income taxes on. A short sale can help a homeowner prevent foreclosure. A homeowner can continue to live in the property during the short sale. Most lenders do not allow a short sale unless the payments are at least two months behind. The homeowner usually is required to write a letter of financial hardship to the lender. Some lenders have pre-formatted Financial Hardship Packages. Lenders usually prefer to work with REALTORS® in short sales to ensure proper marketing to sell the property and to prevent direct dealings with unlicensed investors or consumers.
  For Sellers: Do you think that the person that ends up buying your home will be represented by a Real Estate Agent? Most often yes they will. —- Why would a buyer not hire a Licensed Real Estate Agent? The seller, as you know, pays all the commissions so why would a buyer not get some expert help to make one of the biggest purchases of their life? Did you know that sellers have a 90% better chance of finding a qualified buyer if the sale is professionally marketed by a Licensed Agent? If you must do a short sale on your home, it may be better than a full foreclosure for several reasons. -

 Sellers note; your lender can come back if they choose to charge you with any deficit or shortage later after the sale. Be aware that you may want to seek the council of a qualified Real Estate Attorney. Here is a letter from my Attorney that I will share with you in PDF format: www.realhomes.us/foreclosure.pdf - offering to help stop foreclosure. If you are not yet into the foreclosure process the short sale can still be done but you may need to ask an Attorney how to stop the lender from seeking debts that are in arrears after a short sale. Some banks/lenders will negotiate away their rights to come back later, some will not.

  For Buyers: the things mentioned above will  normally not present any problems with buying such a home, however you should know a few things,
             A. The seller is going through a very difficult time, by loosing their homes through either the short sale process or a foreclosure. Please be considerate of their feelings at all times. Its important.
             B. Yes, you will get a bargain. Usually well below market prices or values.
             C. This process can take from 8 to 12 weeks just to be accepted or considered by the Bank or Lender that holds the “Note” or Mortgage on the home. This is due to various factors, one is the time needed to evaluate the homes real value. This means the Lender may do a full Bank Appraisal which can by itself take two weeks or so depending on case loads. - Two, many lenders/banks want to hold off for a couple weeks as they look for other offers to come in… yes I know, I hate that too when I am a Buyers Agent but we must wait as all others will do.
             D. Once you are accepted or your offer is approved, the selling Bank or Lender will often have some additional addenda to sign and can demand that we use their own Title Company and Escrow Company that they choose. This is not necessarily a bad thing, they have probably just negotiated with the Title and Escrow for a cheaper rate. However, you are entitled to use and pay for your own Title Report and use an Escrow company of your own choosing. We can talk about the pro’s and con’s of that later.

Some Basic Info -

There are a few things to consider:

1. The Bank/Lender will look at all offers when the owner is way behind in payments. The seller must in most all cases must sign the Purchase and Sale Agreement, naturally, prior to the Lender review, so that their Lender or Note holder will know that they are in accord or agree to the terms. This is because it is a “Short Sale” and not a Foreclosure, being sold prior to the lender taking full control of the property. Sellers have certain rights as well… which we can talk about later if you choose me as your Buyers Agent.

2. A potential buyer should do some homework to find out: A. who the lender is…and B. what is owed both on a first or second note…, but also any other liens on the property. Do your research. If you hire me as your Buyers Agent I will do all the research for you. You will not pay me any fee what so ever.
 
3. When putting together a Short Sale offer, find out by asking ahead of time if the Lender has any addenda that they will require that is not part of what your local market expects. Often they do. I will also handle these issues for you as your agent.

4. When putting together an offer, you MUST find out if the seller/owner has any ownership “rights” by Law, either in the State of ownership or from the Lenders standpoint. They normally do have rights during a short sale and even in many foreclosure cases. They may hire an Attorney to get them out of Foreclosure. When I represent a seller that has already gone into Foreclosure I recommend that they get an Attorney for legal advice. One of my Attorneys is Dallas Jolley of Tacoma and he has a letter sellers should read. As of this writing I have one of my selling clients seeing him today to determine their best course of action. We will probably do a short sale on one of their homes (they have two) and their Attorney will probably make a move to protect their other primary home.

5. A buyer should know this…, for the buyers who want to do it themselves, in the end they will be much better off and happier to have a “Buyers Agent” approach the owner or owners Agent with that low offer and deal with all the paperwork involved. Plus, the majority of non-licensed buyers do not know how to do it anyway. I mention this because there are people trying to work magic without an agent.

Agreement: In almost all cases the seller/owner’s Bank would not have looked at the offer without the buyer/seller being in “mutual agreement”. At some point the property goes to Auction….be Aware of this. We have had Short Sales that seemed to be approved by the seller/owner and Bank go right up to closing and be stopped… and crazy as it seems, they can go to auction still EVEN AFTER you think you have a deal. I had one failure just two days before closing with all conditions final, we were just waiting to sign. Countrywide Home Loans told me that we must start over as they didn’t have time to finish, no joke. We were all within contract time limits too. At Auction later the next month the house sold for $50,000 less. THAT is the sickest, weirdest thing I think I have ever seen. So just be forewarned.

6. The Agreement/Contract: Involved within the 32+ pages of just the initial P&S Agreement will be an assortment of Addenda that pertains to Legal requirements in our state, including but not limited to: Lead Disclosures, Septic & Health Dept O&M Letter, Inspection of property (most lenders on a Short Sale will not pay credits), finance addenda, several Optional Clause pages regarding size/terms etc…..and so on. Be sure to put a paragraph of addenda page that states “Subject to Lien Holder Approval” …. and be forewarned, Lien Holders will indicate their approval verbally or in a vague letter but never officially it seems. Right up to the day of closing the Lien Holder can change their mind with no default on their part, but if the buyer changes their mind it is considered a default and the buyer can loose their Earnest Money. Sad but true.

7. The “Package” - The actual Purchase and Sale Agreement is not all there is. The sellers Lender or Bank that holds the note and will expect an “acceptable” package of documents.

The Short Sale offering should include:
A. The Purchase and Sale Agreement -
B. The BPO Letter, “Brokers Price Opinion”…or two if possible. -
C. A letter from a recognized Licensed Inspection company will help if there is damage and repairs needed, along with a contractors bid as to cost of such renovation. If done properly this can be a big factor in getting your price. Most Lenders will also require the following if this is a new account for their Loss Mitigation Department. -
D. A pre-approval letter for the buyer. -
E. Hardship Letter from the seller -
F. Financial Worksheet, DTI for the seller. -
G. Listing Agreement. -
H. They want a HUD-1 statement from buyers lender. — note, there can be other stipulations too depending on the lender.

8. The competition: You need to be aware that there may be other people, Investors, Buyers, Agents etc that could be putting in offers similar to yours…. do not be fooled. If you do not do this offer right, you will NOT get the deal. Have all your i’s dotted and all your T’s crossed.

Final analysis: There are a few other things that can and should be done to help the process, but in the end the one most prepared will get the deal. If you wish to purchase a repossessed, pre-foreclosure or short sale property in Pierce County call Donald J. Leske II (Sr)… you will not pay me any commission nor any fee. Sellers pay my fee at all times.

Donald J. Leske II
Designated Senior Broker
Emily Leske / Lic. Agent
BCI PROPERTIES, LLC
P.O. Box 44065,
Tacoma WA 98448
11314 17th Ave. E.,
Tacoma WA 98445
Office: (253) 324-9699
Cell: (253) 241-6695
Accounting: (253) 444-7230
Fax: (253) 536-1236

 We adhere to the Fair Housing Act