Every week we get numerous questions about Form 22SS, the short sale addendum to the Purchase & Sale agreement. One of the most common sources of confusion is in paragraph 2, which outlines the number of days after mutual acceptance that the parties have to secure Lender Consent. What happens if that deadline passes?
If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.
The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.
Monday, January 30, 2012
Tuesday, January 24, 2012
Top 3 Myths about Short Sales
We hear a lot of misconceptions about short sales. In the interest of myth-busting, here are the ones we hear most often, and the facts behind how short sales really work.
Myth #1: All short sale negotiators charge a fee.
Most third-party negotiators, including attorneys, typically charge a fee of 1-1 1/2% of the sale price. They commonly try to get that fee paid by the lender. If the lender opts not to cover the cost, then who pays? In most cases, the seller doesn’t have the cash, or they'd be paying their mortgage. Usually, the buyer or buyer's agent is asked to pick up the cost.
Broker-affiliated negotiators like us include negotiating the short sale as a part of the professional services offered. There are no additional fees to anyone in the transaction.
Our feeling is: The market is tough enough – why make it harder to sell your listing? Which of these listings do you think will sell first?
"Short sale. Buyer to pay negotiation fee of 1 1/2% of sale price. ” “Short sale. Sale professionally negotiated by Washington Property Solutions with no fee to you or your buyer.”
Myth #2: Short sales are low-end properties.
There are short sales at every price point. Among our current listings are a $2.25 million home and two $1 million properties. Nearly 20 percent of all short sale properties sold in King County in 2010 sold for $500,000 or more. Short sales are projected to represent a significant portion of available inventory in 2012 and moving forward, and will be an important source of income for brokers as the real estate market works its way towards recovery.
Myth #3: You can buy short sales at huge discounts.
Short sale homes do sell for less, but not significantly less than market value. The selling price for short sales is usually 5 to 10 percent less than for non-distressed properties. The lender is looking to recover as much of the value of the home as possible, so they will not accept offers that are significantly under market value. So why do buyers purchase a short sale? In our experience, it's the same reason anyone buys a home- they like it. That 10% discount provides an added incentive, allowing buyers to get more house for their money.
Monday, December 12, 2011
How Does Short Sale vs. Foreclosure Affect Credit Ratings?
Many homeowners we work with have questions about how a short sale may affect their credit score, and how that compares with the implications of allowing your home to go into foreclosure.
The short answer is that both will lower your credit rating, however there are many benefits to choosing a short sale over foreclosure. We've put together more information about how short sales and foreclosures affect FICO scores on our website. It includes two documents that our colleagues at Windermere Mortgage Services created that may be helpful for clients who owe more than their home is worth and are looking at their available options:
The Impact of Short Sale and Foreclosure on Your Credit Score
How Your FICO Score is Calculated
The short answer is that both will lower your credit rating, however there are many benefits to choosing a short sale over foreclosure. We've put together more information about how short sales and foreclosures affect FICO scores on our website. It includes two documents that our colleagues at Windermere Mortgage Services created that may be helpful for clients who owe more than their home is worth and are looking at their available options:
The Impact of Short Sale and Foreclosure on Your Credit Score
How Your FICO Score is Calculated
Sunday, November 27, 2011
What "Lender Consent" Does (and Does Not) Mean
The term Lender Consent is found throughout Form 22SS, the short sale addendum to the purchase & sale agreement. When we're working with a buyer's agent on a short sale, we often find that there is a lot of confusion about what Lender Consent really means. What is does not mean is that the deal is done. Unlike a standard sale, there are two parts to a short sale closing. Here's how the process works:
Once an offer for a short sale purchase is agreed upon by the bank, they send the seller a written approval letter that outlines the terms under which the lender will authorize the sale. The letter includes the price, deadline for closing date and may address how the debt is treated. It may also include a dollar amount the seller must bring to closing or other terms. For the sale to actually proceed, the seller must agree to all the terms in the lender's approval letter. The seller's other option is to terminate the agreement. The sale will not move forward until the seller gives notice to the buyer that they have received the approval letter and have consented to the terms. We have additional FAQs about the short sales process on our website.
Once an offer for a short sale purchase is agreed upon by the bank, they send the seller a written approval letter that outlines the terms under which the lender will authorize the sale. The letter includes the price, deadline for closing date and may address how the debt is treated. It may also include a dollar amount the seller must bring to closing or other terms. For the sale to actually proceed, the seller must agree to all the terms in the lender's approval letter. The seller's other option is to terminate the agreement. The sale will not move forward until the seller gives notice to the buyer that they have received the approval letter and have consented to the terms. We have additional FAQs about the short sales process on our website.
Tuesday, November 22, 2011
How Brokers Can Avoid Common Short Sale Mistakes
Any broker who has worked on a short sale will tell you that it is much more complicated than a traditional real estate transaction. There are additional forms, endless calls to lenders, and numerous decisions you need to make along the way that can make or break a deal. Here are three of the most common mistakes that I see, and advice on how to avoid them.
Mistake #1: Assuming the bank is working on the transaction.
Just because you've submitted all the right documents to the lender doesn’t mean the process is moving forward on their end. Over the years we've sent countless reams of paperwork to lenders only to find that no one there has any record of receiving them. Regular confirmation and follow-up is critical. Your transaction may be one of thousands that the bank's negotiator is working on at any given time, so it's easy for your documents to get lost in the shuffle. Persistence and patience pay off big dividends in short sales.
Mistake #2: Thinking lender approval of an offer will automatically postpone foreclosure proceedings.
Several of our clients have received a letter of approval from the bank for the sale of their property only to receive a notice of foreclosure from that same lender a few days later. Loss mitigation and foreclosure are handled by separate departments at the bank, and they rarely communicate with each other. You need to be the communication bridge for your client and insure that all parties have the information necessary to postpone foreclosure and move the sale forward.
Mistake #3: Assuming that the short sale approval letter includes satisfaction of the seller's debt.
We always negotiate with lenders for satisfaction of our seller's debt, and have an excellent track record of achieving that goal. The short sale approval letter needs to clearly state that the lender is agreeing to waive all rights to the deficiency. Unfortunately, many approval letters contain ambiguous language. Make sure and clarify any language in the document before your seller signs or they risk having the lender come back at a later date to collect any balances due after the sale. You can find further clarification of the difference between a full debt satisfaction and a lien release in our Short Sale FAQs.
Mistake #1: Assuming the bank is working on the transaction.
Just because you've submitted all the right documents to the lender doesn’t mean the process is moving forward on their end. Over the years we've sent countless reams of paperwork to lenders only to find that no one there has any record of receiving them. Regular confirmation and follow-up is critical. Your transaction may be one of thousands that the bank's negotiator is working on at any given time, so it's easy for your documents to get lost in the shuffle. Persistence and patience pay off big dividends in short sales.
Mistake #2: Thinking lender approval of an offer will automatically postpone foreclosure proceedings.
Several of our clients have received a letter of approval from the bank for the sale of their property only to receive a notice of foreclosure from that same lender a few days later. Loss mitigation and foreclosure are handled by separate departments at the bank, and they rarely communicate with each other. You need to be the communication bridge for your client and insure that all parties have the information necessary to postpone foreclosure and move the sale forward.
Mistake #3: Assuming that the short sale approval letter includes satisfaction of the seller's debt.
We always negotiate with lenders for satisfaction of our seller's debt, and have an excellent track record of achieving that goal. The short sale approval letter needs to clearly state that the lender is agreeing to waive all rights to the deficiency. Unfortunately, many approval letters contain ambiguous language. Make sure and clarify any language in the document before your seller signs or they risk having the lender come back at a later date to collect any balances due after the sale. You can find further clarification of the difference between a full debt satisfaction and a lien release in our Short Sale FAQs.
Thursday, November 3, 2011
Foreclosure Fairness Act Success Story
The Washington State Foreclosure Fairness Act that went into effect in August requires lenders to discuss potential mediation options with homeowners before initiating foreclosure procedures. And it's working.
We recently listed a home with a seller who was attempting to do a short sale. We got a solid offer from a buyer that met all the bank's criteria and submitted all the paperwork. However, the home was on the verge of foreclosure, with an auction already scheduled. We advocated on the client's behalf with the lender, but were told they would not postpone the auction to consider the offer. We counseled the seller to call the FFA Hotline and outlined all the information they would need to present. Now for the good news: As a result, the auction was postponed and the original offer is currently in the lender's system awaiting approval.
You can access the Foreclosure Fairness Act Hotline at 1-877-894-HOME (4663). Here are details about how the Foreclosure Fairness Act works.
We recently listed a home with a seller who was attempting to do a short sale. We got a solid offer from a buyer that met all the bank's criteria and submitted all the paperwork. However, the home was on the verge of foreclosure, with an auction already scheduled. We advocated on the client's behalf with the lender, but were told they would not postpone the auction to consider the offer. We counseled the seller to call the FFA Hotline and outlined all the information they would need to present. Now for the good news: As a result, the auction was postponed and the original offer is currently in the lender's system awaiting approval.
You can access the Foreclosure Fairness Act Hotline at 1-877-894-HOME (4663). Here are details about how the Foreclosure Fairness Act works.
Buyer's Brokers: The most important step in buying a short sale
We get many questions from buyer's brokers about things they can do to make sure their client's short sale offer is approved. The single most important step you can take as a buyer's broker to ensure success in a short sale is this: Qualify the listing broker.
If the listing broker is unfamiliar with short sales, no matter what you do on your end, the chance of a successful outcome decreases dramatically. If your client is interested in a short sale property, call the listing broker and ask them these qualifying questions:
1) Who will be negotiating the short sale?
2) How long have they been negotiating short sales?
3) How many short sales have they closed?
4) Do they have experience with the HAFA process? (HAFA provides incentives for the seller such as a $3,000 relocation incentive, and an agreement by the lenders to forgive the debt, which increase the likelihood of seller participation in the short sale.)
5) What is their system for communicating with you, the buyer's agent, so you know how the transaction is progressing?
Asking these questions will help you determine whether the broker has the level of experience needed to successfully negotiate a short sale-- and it can save you and your client a lot of time and frustration.
If the listing broker is unfamiliar with short sales, no matter what you do on your end, the chance of a successful outcome decreases dramatically. If your client is interested in a short sale property, call the listing broker and ask them these qualifying questions:
1) Who will be negotiating the short sale?
2) How long have they been negotiating short sales?
3) How many short sales have they closed?
4) Do they have experience with the HAFA process? (HAFA provides incentives for the seller such as a $3,000 relocation incentive, and an agreement by the lenders to forgive the debt, which increase the likelihood of seller participation in the short sale.)
5) What is their system for communicating with you, the buyer's agent, so you know how the transaction is progressing?
Asking these questions will help you determine whether the broker has the level of experience needed to successfully negotiate a short sale-- and it can save you and your client a lot of time and frustration.
Subscribe to:
Posts (Atom)
Posts
