Short Pay transactions: a view from each side

November 9, 2010 at 6:34 pm Leave a comment

Ordinarily, I give Buyers information and then suggest that they avoid “Short Sale” listings.   First, a definition:  a “short sale” is where the Seller owes more on a property than the current market value of the property.   In selling it, he is “short” of what he owes his Lender(s).    Most lenders will at least look a facilitating a Short Sale transaction because it is faster and less expensive to the Lender than the alternative of Foreclosure if the Seller is having problems.

So when you make an offer and get it accepted by the Seller of a property that is a Short Sale, that is only the first step.   You also need the approval of the Lender.  Sometimes there is a second loan or a credit line as well as first loan, in which case you need approval of both Lenders.   As part of that process, the Seller is required to submit a whole array of financial statements and documentation of the circumstances of their hardship, such as a lost job, a divorce, etc.   Just wanting “out” from the property isn’t going to cut it, the Lender will most likely go ahead and foreclose in that circumstance.

At present, I’m in two Short Sale transactions, one representing a Buyer, the other representing a Seller.   The Buyers made their initial offer more than six weeks ago and got it accepted by the Seller in a matter of days.   Time passed, waiting for the Lender to respond,  and then a little over two weeks ago, the Lender had the Seller issue a Counter-Offer.  Remember, the Seller had already accepted the offer but the Lender re-opened negotiations and said, “We’ll take this transaction but the price needs to be $23,000 more than the Buyers had offered.”  There were some other terms and conditions as well.  Within 48 hours, after reviewing alternative properties, the Buyers accepted the Lender’s counter-offer.  We were told that the final approval of transaction would be “within days” and that we could open escrow as soon as that approval came in.
Two weeks later, today, the bank’s system informed the listing agent, “The Buyer’s documentation of their down payment isn’t in a satisfactory form.”  The Buyers had provided computer printouts of their statements and do not receive printed monthly statements.  Nonetheless, the Lender wants them to go to their bank branch and get statements printed for the last two months.   We’re told that once the Lender receives these, they will proceed within 24-48 hours.

This is the kind of frustrating petty and arbitrary demands that Lenders can and do make in Short Sale situations.   The only reason I suggested that my clients go ahead with pursuing this Short Sake transaction  was that the listing agent had told us that the process with getting the Short Sale approved by the Lender was pretty far along (it was) and that there were very few substitute properties in their price range in the area they were interested in.   I hope we find out in a few days whether the bank is going to go forward because their last Counter-Offer specified a November 30 closing date.

My situation with the Short Sale where I’m representing the Sellers isn’t going much better.   The property was listed for sale in mid-August, we got an offer the first week of September and reached acceptance within a week or so of negotiations.    The Sellers submitted to the offer to their Lender and we  proceeded to wait.   And wait.   And wait.

After four weeks, the Lender had another real estate agent look at the property to render a  price opinion to determine whether the offer was acceptable or not.   More waiting.   A burst of paperwork from the Lender to the Sellers.  More waiting.  Two weeks ago, the Sellers were told that the package was on the asset manager’s desk awaiting final approval.  We’re still waiting.

Short Sales can be good deals.  But participants must have an incredible amount of patience.   The worst cases I’ve heard of involve Short Sales that took nearly a year to complete.   Next to that, 3-4 months is looking good.

 

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Entry filed under: Market Conditions, Santa Monica realtor, Tips.

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