I got a call from a couple one day, they were living in California, but originally from the South and they wanted to get closer to home. The couples wish list included a home near the beach along 30A, with a yard large enough for a young Great Dane to grow, a pool and a garage for under than $300,000. This is a tall order, most homes along 30A are vacation rentals without a yard or garage. I began my search for the couple and found a property that fit their needs less the pool. I took additional photos and a few video clips of the home and surrounding areas for them and informed them the home is a foreclosure and would not last long at the price of $269,900. The couple called and asked me to write an offer for the property site unseen. I submitted the offer only to find out we were in competition with another buyer. The bank took the other offer, and we were back to square one.
Over the next few days I talked with the couple about other homes in the area and the possibility of a new construction. I kept an eye on the status of the previous property and it was still active in the MLS so I called the agent, to my surprise the other buyer had not preformed according to the terms of the contract and our offer was back in the running.
The couple got this home under contract, proceeded with the closing and they now live in a lovely home in Santa Rosa Beach. The kicker....the home appraised for $338,000. The purchase price was $259,900.
How's that for a long distance transaction?? Congratulations Dennis and Angela
Short sales are complicated and value is a huge factor to the short sale lender and the buyer. The short sale lender wants fair market value for the property and the buyer cannot pay more than the appraised value. This is an example of how we saved our buyers money in a fluctuating market and shortened the short sale process.
The home had been under contract with a previous buyer, the short sale approval process took seven months and the buyers walked. The bank had agreed to keep the file open for a new buyer at the sales price of $477,400 and close within 30 days.
Clark brought a new buyer that agreed to pay the $477,400 and close in 30 days. The bank did not give the new buyer written approval and countered their offer through the equator system, and eventually closed the file... this process went on four months.
Clark investigated comparable property sells in the area, and realized that the property would no longer appraise for the price that the bank had approved for the previous buyer. He discussed this with the buyer, the listing agent and the listing agent discussed it with the current owner. Everyone was in agreement that even if the short sale lender approved the $477,400 price...the property will not appraise for the new buyer.
We submitted a new contract to the short sale lender with a new sales price of $400.000 in June and the short sale lender approved the short sale in August. The closing took place one week later the buyers are very happy...even though it took from March to August to get approval on the short sale they saved $77,400 on the price of the home.
Bev Dudley, Realtor
The short sale process is very time consuming, buyers are not always aware of what is involved and they become impatient thinking nothing is being done. Buyers do not understand that it is the “seller” that must be approved for the short sale by the short sale lender.
Months 1 and 2
The process is time consuming because the short sale lender is trying to determine the hardship of current borrower, and why they can no longer repay the loan. This hardship can be a number of things, such as loss of income, divorce, military transfer orders, job relocation, etc. The current borrower gives all of their financial documents to the short sale lender just as they did when they applied for the loan. Once it is established that the current borrower can no longer repay the obligation, the short sale lender will entertain the offer from the new buyer.
Month 3
Most short sales listings are price at or below Fair Market Value, buyers usually tend to want to make a lower offer than asking price. This can cause problems during the process if your buyer is not well informed. Say the fair market value for the home is $200,000, and the price has been reduced to $175,000 before an offer has been made, then the buyer makes offer of $150,000 then the contract is presented to the short sale lender. The short sale lender will order an appraisal on the property and if the appraisal comes back with a value of $180,000 the short sale lender has an option to counter an offer to the buyer. This happens quite often and the buyer either comes up to the price or walks away from the contract.
Month 4
Once the short sale lender has approved the short sale “in writing” the buyer will have 30 to 45 days to close on the property. Short sale property's are sold “as is” with the right to inspect. Once the inspection is complete and satisfactory to the buyer, the closing process will continue with an appraisal from their lender, survey, termite inspection, etc.
Month 5
The closing should take place.
This is the process to a short sale closing, buyers should be informed that the price on the contract can be countered by the short sale lender, buyers should be educated about the current market value of the property so they will not be surprised if the price is countered.
The example presented here is a very simple process, most short sales do not go this smoothly, buyers should be prepared for longer time frames especially if the borrower (seller) owes more than $775,000 on the mortgage. Mortgage balances higher than $775,000 can take 6 months to a year for approval.
Bev Dudley, Realtor
My partner Clark had been working with clients and they were a month into the purchase contract for a home. The home was in need of repairs, it was a foreclosure and had been unattended for a couple of years. Clark had spent numerous hours getting estimates for repairs, the foreclosure bank replaced the roof, work toward the closing was coming to an end. Then a call came from the listing agent. The listing agent said "Clark I have a buyer in my office that wants to offer your client's $10,000 to cancel their contract." Clark was skeptical but presented the offer to his client's, stating it would only be an actual benefit of $2000 because they qualified for the $8000 tax credit, and they would loose the tax credit if they canceled the contract. The clients said "no" to the offer. Clark relayed the answer to the listing agent. In a few moments the listing agent called Clark "The buyer is willing to give your client's $20,000 to cancel their contract." The client's politely declined the second offer of $20,000 and were delighted that they purchased a home with instant equity to another buyer. With all of our years of experience, the listing agent, Clark and myself included, we never heard of this happening in a Real Estate transaction.
Bev Dudley, Realtor
Part 2 of my post on May 27th
Lender number THREE
It finally closed, I was given a written approval on a short sale from Bank of America, they gave us 30 days to close and at the end of 30 days, the buyer had gone through TWO lenders and no loan. I referred the buyers agent to a lender that I knew had been able to get a loan through in a very short period of time because they have local underwriting. The buyer took all the reqired documents to lender number THREE and changed to an FHA loan. The lender she said she could get the loan through in two weeks. I pleaded with Bank of America for a two week extension and they granted it on the 4th day. In the mean time this lender worked around the clock to get this loan through and she was actually ready to close with one day to spare. Thank you Carrie McMellon, the THIRD lender was a charm. I highly recommend Carrie McMellon and Vision Bank for your mortgage loan. Call Carrie at 850-636-6611.
Bev Dudley
I am writing a letter to Emerald Coast Association of Realtors today on behalf of buyer's being forced to qualify for a loan through the very lender selling the property.
Foreclosed property is owned by a bank, the bank owning the property is now requiring buyers to qualify through them before they can make an offer on their property.
Example:
I have a qualified buyer that has been approved through their own bank and does not plan on using another bank for financing. So if I am showing property to them on Saturday and they decide to make an offer, we must wait until Monday to get pre-qualified by the required lender listed in the MLS. Now it may be Tuesday before we can get the letter from the required lender to submit with the offer. By that time the property may be under contract. Now my buyer has another hit on their credit, this is a detriment to buyers credit. With new lending guide lines being so strict soon the buyer may not qualify for a mortgage loan.
On the other side of the coin, I am working with a buyer and they want to make an offer. As I am reading the information from the MLS stating they must qualify through the lender that owns the property, just to submit an offer. The buyers said “I just got qualified through the bank I am using?” They refused to hand their financial documents over to the very person they will be buying the property from.
I am requesting that ECAR not allow agents to advertise banks in our MLS and stop letting the banks run our business.
Bev Dudley, Realtor
I got short sale approval from Bank of America on April 28, 2010 for a townhome I have listed in Santa Rosa Beach, the deadline for the buyer to close is May 30th, 2010 The buyer started with Lender number ONE for their Conventional loan, and was told after two weeks that nothing had been done on the loan at all...NOTHING. They proceeded to a lender number TWO and started the process all over, now everything is done, the appraisal, the termite, we have a survey and the new lender Wells Fargo said they will not allow mortgage insurance on an attached unit forcing the buyer pay 20% down. This is the 27th of May and the buyer is going on to lender number THREE. In the mean time I will try to get the short sale lender to grant us an extension of time. Stay tuned for an update.
Bev Dudley
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