Charlotte Real Estate Blog

Short Sale Negotiating Process of 2009

I am sure that you have heard the horror stories of short sales and how they can seem like a never ending process.  While they are definitely more tricky than a normal sale they can even be confusing to other agents who have dealt this short sales in the past.  It seems that every short sale transaction is different and that every bank has a different procedure to move the file closer to a closing date. 

This has been my experience with short sales in 2009:

My first short sale transaction took place in January of 2009.  I represented the buyer who found a house that was new construction where the builder was going under.  The list price had already been approved by the bank and the transaction was very fast and smooth.  Since, the banks have been swarmed with short sales and foreclosures and it seems that the process has changed a lot....at least with the banks I have been dealing with.

Since my first short sale closing I have obtained several short sale listings.  2009 was a learning experience for all agents in the short sale category but while many agents steer away from them I am looking to obtain more.  I would be lying if I said that short sales are easy but they are another piece of the pie that all agents should be chasing. 

When you take a listing as a short sale you should start by notifying your lender that you will be attempting to sale the property for less than you owe.  The lender will give you a list of information to send to them.  This usually includes a hardship letter explaining your loss of income and your reason for being unable to continuing to pay your mortgage, 2 years of tax returns, income statements, tax bills, pay stubs, bank statements and anything else the banks think may be useful in getting a full picture of your financial status.  Once the banks have received this information, they will keep it until you receive an offer.  Some banks will give you an idea of what the property should be listed for in order for them to do a short sale but many will just allow the agent to list the property to try to obtain multiple offers.    If it is several months before you receive an offer the bank will ask for updated financial information.

So now that you send the offer to the bank, what's next?

It could take days or months for the file to be looked at depending on the bank.  Some banks are definitely harder to work with than others.  Once they start to work on the file they will either order a broker price opinion or a full appraisal of the property.  The bank will want to have a pretty good indication of the current market value before they will allow the property to close.  Again this process can take several days or several weeks. 

The banks I have dealt with will only look at the highest and best offer.  The other offers are still there incase the buyer of the best offer decides the walk.  The bank will ask the sellers to sign the highest and best offer but this does not form a contract because the MLS should state that the closing of the property is contingent upon 3rd party bank approval.  Until the bank approves the offer and approves the short sale, a contract is not formed between the bank/sellers and the buyers. 

Once everything has been approved, the buyers will begin obtaining financing and will perform all necessary inspections and the property will move towards closing like a normal sale.

I hope this helped somebody understand what is going on with short sales.

There are things that the seller should understand about necessary repairs and the cost of repair contingency.  When you receive an offer on your house you need to pay attention to the amount that appears in the cost of repair contingency paragraph.  This amount will be important when you get to the inspection process.  Larger houses and older houses should have a higher number in the cost of repair contingency.  Think about it...this only makes sense.  If the house is old or is large then you can expect that the house will need more repairs than a newer/smaller house.  The larger the amount in the cost of repair contingency the stronger the offer in the eyes of the seller.   

Once the house is under contract, the buyer will pay to have multiple inspections performed on the house.  The buyer has the right to inspect the structure and any equipment that is being conveyed with the property.  Once the buyer is satisfied with the inspections, they will present a repair request to the sellers.  The buyer will usually allow the sellers to view the inspection reports and most reports include a repair quote. 

The sellers are required to do the necessary repairs or the buyers can walk out of the contract.  If any part of the structure or if any of the fixtures that are being conveyed with the property are not functioning to the extent in which they were suppose to perform then this is a necessary repair that the sellers should be responsible for fixing. 

This could include a roof leak, window seal wood rot, cracked vinyl siding or cracks in the bricks or mortar, cracked heat exchange, light bulbs burnt out in the light fixtures, loose toilet seats...pretty much anything that is not working correctly.  Now here is what many sellers don't understand...the buyers can get out of the contract even if the sellers agree to complete all of the necessary repairs.  If the buyers do several inspections and conclude that the necessary repairs add up to more than the amount in the cost of repair contingency then the buyers can walk...even if the sellers agree to complete all of the requested repairs.

Please contact me if you have any questions about any part of the house buying/selling process. 

Are you several payments late on your house?  You, along with many others in Charlotte, may need to list your house as a short sale.  The real estate market in Charlotte, NC is swamped with short sales and foreclosures and there are buyers out there looking at just these types of properties. 

Selling as short sale will hurt your credit...but not as much as if the bank decides to foreclose on your property.  If you are selling your house short, you are selling it for less than what you owe on the mortgage.  Banks will allow this because they do not want to have to force people out of their homes through foreclosure and they don't want to hold houses as assets on their books.  If the houses are foreclosed on, the banks are forced to keep up with the property taxes, neighborhood assessments, home owners association fees etc.  If you are several payments behind and do not have the income to get current on your payments you may want to consider listing your house as a short sale.

The idea is to list the house aggresively so that it will attract many buyers and will produce an offer in a short amount of time.  It is important that you contact the bank as you are listing your house as a short sale. 

 The Bank will ask for the following information:

1. A hardship letter - this will explain why you are unable to make your payments.  For some reason, as a short sale agent, you get a better response if the letter is hand written.
2. A list of your monthly expenses.  This can be on an excel worksheet.
3. Your last 2 bank stubs.
4. The last two pay stubs from you and your spouse.
5. Some banks will require you to show them your tax returns from the last two years.  You can go to www.irs.gov to get the 4506T form.  Fill out this form and mail it in...they will mail you your tax returns.
6. The banks also require the listing agreement between you and your agent...hopefully you will choose Brandon Farmer as your short sale agent.
7. Once you get an offer on the house, you must send them the offer with a preliminary HUD1 (settlement statement)

Once you get all of this information to the bank, you can expect to wait 30-45 for the case to be appointed a short sale analyst.  The short sale analyst will order a BPO (broker price opinion).  They will have a broker tell them the market value for the property.  The amount that the BPO agent gives to the bank analyst is a good indicator of what the bank will accept for the property.  Remember that the banks do not want to keep these properties so they will often take a large loss on the property just to get rid of the house. 

Get an agent that understands the short sale process.  Your listing agent should know how to discuss the short sale with the bank because the bank is the one negotiating the contract.  You, as seller, will have no say on whether or not you will except an offer. 

One more thing to remember...just because the bank allows you to do a short sale does not mean that they will forgive the amount that was shorted.  Sometimes they will forgive this amount but they can put a lien against your future property or put a judgment against you and it will be hard for you to obtain another loan until this judgment is paid off. 

Let me help you with this process.  If an agent ever earns their commission...it is with a short sale.

Brandon Farmer

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