Real Estate Investing

When I first heard the word “short sale” at the beginning of my real estate career, I mistakenly thought it meant the sale was going to be fast.  Actually a short sale means the lender will accept *less* for the home than what is owed in the current mortgage, so they’ll be short the loan payoff.

I listed one house as a short-sale and it was approved in advance of the home going on the market.  The seller had a heart transplant and his wife was a secretary.  He was unable to work, but stayed home to care for his two young daughters who in fact helped care for him a lot during his recovery.  When a low income family has to decide between feeding their children and paying for a serious medical condition or making a house payment, making a mortgage payment becomes the third choice.

In this case, when the contract was received we had to write a counter that stated the offer was accepted by the seller but the lender had to review and accept as well.  I had to submit a net sheet to the lender that outlined how much repairs would cost, termite inspection and treatment costs, seller closing fees, broker commissions, and any other expenses.  The net sheet, contract, and other supporting documentation was reviewed by the bank’s facilitator and then passed to the board for final decision.  Thankfully, the mortgage company was very cooperative during the process, which still took two months to play out. 

I was one of the lucky ones in my office who basically had a smooth short sale transaction.  Another agent submitted a contract for a short sale.  The bank has not taken action on the offer for THREE months.  The last I heard from the agent, who has since left my company to open her own office as a broker, her buyer was giving up and finding another property.

Given the glut of foreclosed homes on the market, I would expect banks to jump when they receive a fair offer on a home.  When they drag their collective feet, it has a negative impact on our local real estate markets.  The house is likely sitting empty - an open invitation for vandalism and abuse - which will bring the value down.

Another agent writing at Active Rain told about how he finally began calling the lender every hour asking for a decision.

Unfortunately, like many prior, the lender “misplaced” the faxes and emails I was sending. We also didn’t get to chat with the “negotiator” (I use negotiator loosely with this lender because of their inability to communicate very well,) until the end of April. The last time, prior to yesterday, I talked to the lender was May 2nd! I was supposed to get the approval that day or within a couple of days from then.

And John Occhi of Hemet, California wrote a wonderful piece after he attended a class on short sales.  He has a lot of class notes packed in his post (including a disclaimer that his notes could be written wrong, etc.).  Here’s one note I thought was interesting - especially the bold headline,

BANKS DO NOT INITIATE SHORT SALES. SELLERS & AGENTS DO:
The above Beneficiaries (aka “Bennies”) are always negotiated with by the seller, or assisted by the agent. Lien holders rarely agree to 6% listings. Commissions can range from 1-5%, depending a number of factors.

Meanwhile, if you think you might be interested in buying a short sale property, be aware that it may take a long long time.

Photo from here.