1. Screen Prospective Clients Carefully
- Beware of a seller who is unwilling to be an active participant in the process. Short sales can be time consuming and there is no guarantee of success. Devote your time and energy to clients that will help you get contracts to the closing table.
- Make sure your clients have explored alternatives to short sale1 and believe a short sale is their best option. You do not want to receive a phone call after closing from a client expressing regrets about not choosing a different path.
2. Control the Transaction
- The contract you submit must entice the lender. Generally, that means a purchase price that is close to current fair market value. A contract that will yield net proceeds on par with a post-foreclosure (REO) sale will also yield indifference. Approvals do not follow indifference.
- Discourage buyers without the patience or ability to wait for approval. A “must close by…” buyer is likely to terminate a contract before negotiations are complete. Approvals take time.
- It is generally bad strategy to submit a low offer at the behest of a buyer’s agent who assures you that his or her client will increase the offer if necessary. Good offers get faster results. If you receive a low offer, present it to your seller and counter it. Remember, the lender must approve the transaction, but the lender is not the seller.
- Get an O&E (with a name search) first. If your seller has not been paying the mortgage, it is safe to assume that he or she has not been paying other debts either. Judgments, tax liens and mechanics’ liens affecting the property must be paid off or negotiated away in order to close.
- Understand and monitor all of your client’s financial obligations. An O&E will only uncover recorded liens. Delinquent utility bills or association dues may not have ripened into liens, but they must be paid at closing. Today’s unpaid credit card bill could be tomorrow’s judgment. Adding an 11th hour charge to the seller’s settlement statement that reduces the lenders net can be a problem. And the resolution of such problems almost always involves a commission reduction.
4. Submit a Complete Short Sale Package
- Never submit a package piecemeal. Nothing will frustrate a lender more than missing documents. You need cooperation and a frustrated lender is not your ally. A good short sale package is well-organized, it includes all of the seller’s pertinent financial and hardship information, and it includes your professional analysis of the property (e.g., a comparative market analysis, photos, feedback, price/showings summary).
5. Stay Involved
- Be attentive to critical dates. The mere fact that a lender is considering a short sale does not insure that the lender will continue a foreclosure sale date. Be prepared to intervene.
- Be present when the lender values the property. A first lender’s payoff proceeds (the required net minimum) will be a percentage of the current fair market value of the property. To determine current market value, the lender will formally appraise the property, or solicit an informal broker’s price opinion (BPO). In either case, this is your opportunity to point out conditions that support the quality of the contract you have submitted. A too-high valuation based on a “drive by” BPO will kill a deal in which a low offer is justified by interior conditions.
6. Review the Approval Letter
- Your client must understand the terms of lender approval and those terms must be acceptable. A short sale may result in adverse tax consequences, a promissory note for some (or all) of the short amount, or the prospect of a post-closing deficiency judgment.
- Use the Short Sale Addendum. The Addendum allows a seller to terminate a contract up to 3 days after receipt of short sale approval if the approval is unsatisfactory for any reason. Including an additional provisions clause such as “this contract is contingent upon approval by the seller’s lender” does not afford your client equivalent protection.
7. Utilize the Unified Title Company Short Sale Department
- For a fee, we can facilitate your short sales. Our short sale department will organize and assemble the short sale package, prepare the estimated settlement statement, and shepherd the contract through the approval process. Utilizing this service will save you time and spare you great frustration. Contact us for additional information about fees or to further discuss short sales.
1. At a minimum, alternatives to a short sale include a workout or loan modification, short-term financing from friends or family, leasing and renting, bankruptcy, or a deed in lieu.