Traditional Short Sale: Allow extra long time to close

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Traditional Short Sale:
Will test your nerves ...and resolve

Traditional short sale: This is a situation that only affects you -- the buyer -- in the sense that the traditional short sale will take a longer to

close and the outcome is more unpredictable than a HAFA short sale.

Why does it matter?

Traditional SS -- the lender still has not been officially informed of borrower / seller’s intention and if the lenders come to agree. At this point in time there is a very good likelihood that they will however you will not know for certain until a few days before closing.

I have been involved in a few of those and I can witness to you that the emotional roller-coaster of waiting days and weeks on end takes a toll on you.

So please ask around and plan your time to close accordingly.

Short Sale Is In Fact A “Long Wait Sale”

I have a dear friend and fellow agent that jokingly shad we should call it a “long sale”

The following are some highlights and m y comments on traditional short sales:

The borrower/home owner generally stops making mortgage payments during the entire period short sale is in progress, up to the date of closing.

This is a particular troublesome circumstance for the listing agent because there are many home owners that quickly come to like the idea of living rent free and get very belligerent about the time they want to house shown and/or in lowering the price to reflect the current market conditions.

It is very hard to explain to home owner that when they enter the realm of short sale, they, the owners, no longer control the price: the market (which very likely is the single most import factor that brought them to the current situation) and the lender do.

I have had at least one seller who I was representing that simply would not get it: Does not matter how much it is still owed on the mortgage and/or how much it was first paid – the “market” is the “great dictator” and will dictate the price.

Naturally the lender can still deny a short sale. I recently read on my local paper about a young lady who put an offer at the asking price of $120,000 on short sale. The bank rejected it and countered. The young lady reportedly ended up buying the condo in the $140s.

I can affirm to you that this is rare, but be prepared that it can happen …to you!

The Home Owner Can Sell The Property Her/Himself

The home owner can try to sell the house him/herself.
Hiring the help of real estate professional is optional.

As I demonstrate on my Realtor® page, nowadays, when a home is listed with a real estate professional, we have access to each other’s listings via the MLS (Multiple Listing Services) and -- specially when the price is right -- we are ways more likely to produce an able buyer quicker than simply posting a sign in front of the house… something that the agent also can do as part of his/her services.

Seller Cannot Receive Cash Incentives In A Traditional Short Sale

The Seller cannot receive any funds at closing for moving assistance... After living months – sometimes more than a year – rent free, it is not such a bad deal

Lenders can take as long as they want to approve or deny the short sale – there is nobody breathing on their necks.

Lenders do not begin any form of negotiation for a short sale until such time as the seller is able to present an offer to the lender.

2nd lien holder are still a more entrenched bunch to begin any pre-offer negotiations. I have had a case that the 2nd would demand a letter of acceptance of the offer from the 1st lien holder before they – the junior lien holder would contemplate the offer. Mind you that 2nd liens are ordinarily referred by as “subordinate liens.” It beats me what part of subordinate these people could not get.

Eventually good sense prevailed and the 2nd gave us their acceptance …after a couple of months of cajoling and warning them [as if they needed it!] that in foreclosure they would end up with nothing.

How about if the property has more than two lien holders? Oh, my! Yes, it can happen! I represented a buyer who eventually bought a short sale home from a builder who had several liens: Fortunately the closing attorney’s office handled those. However it also made for very tense couple of months for my buyer.

Lenders Can Seek A “Deficiency Judgment”

Lenders can seek a “deficiency judgment” to recup the amount of the short-fall. So seller need to be aware of that the debt is not forgiven after closing.

This is another of the many buggers that delays the traditional short sale process.

This situation is not equal in every state – so I would highly recommend that the sellers do a thorough investigation before hand – consulting with their tax advisor and/or a real estate attorney familiar with the laws in their state

Low Cap To Pay Junior Lien Holders $3,000

1st mortgage holders generally cap at $3,000 to amount they will pay the 2nd lien holder – which makes for testing negotiations as some junior lien holder will prefer to push things to the brinks – even risk to loose it all in foreclosure -- in hopes of getting a “bigger piece of the action”

Lenders can take as long as they want to approve or deny the short sale – there is nobody breathing on their necks.

Traditional Short Sale Will Make You Wait All The Way Down To The Wire

Lender may not give short sale approval until just a few days before the closing.

We are now seeing a clause in some contracts that would release the buyer if lender does given their approval in a certain number of days before closing. Knowing the decision will come down to the wire, I like my contract establish no more three days before any release of the contract – in short sale terms that is a long time.

These differences are important to understand. More importantly, it is critical to understand that HAFA is not a mandate and it is not intended to eliminate or replace the traditional short sale. They are in fact different tools that will apply differently to certain lenders and certain home owners.

In one of the entries above I mention one HAFA rules that home owner must continue to pay a percentage of their mortgage payment – up to up to 31% of the family’s income – if they fail to do so, there would only two alternatives left: a traditional short sale …or foreclosure.

After reading about traditional short sale I think that you would be interested to compare it with the HAFA short sale – please click here

There many myths out there regarding short sale: one of them is important to “be on the know” –Taxes. Please click here to visit my Short Sale Tax page and read some important “facts”