Short Pays – Back by popular demand
I have a “Q and A” in the our local News-Press
Received this email today: “Several weeks ago, you wrote a wonderful article on Short Sales. I neglected to save the article. My parents just lost a short sale house they bid on and were very upset about it wondering if they did something wrong. I liked the facts you presented where you stated about 2-30% of short sales actually complete escrow. I think your article would help my folks to understand that these homes are really not on the market. Can you email it to me?”
I have been waiting to buy my first home for two years. Now that prices have dropped I can finally afford a home that I will be happy to make the sacrifice for. I made an offer on a home three weeks ago. The seller accepted my offer but my Realtor explained to me that it is still subject to the bank’s approval of a short pay off. I have paid for an inspection and although the home has more wrong with it than I thought, I am still willing to proceed. I have also paid for the application fee on my loan to cover the cost of the appraisal and credit. My loan has been submitted for approval but we still don’t have the lender’s approval on the short pay off. I don’t know what to do next. I have acted in good faith and have spent over $700 in inspection and application fees. What should my next step be?
Irving in Glendale
Dear Irving,
A short sale occurs when the homeowner is unable to sell their home and pay off their liens (loans, property taxes, etc) and closing costs. Most (lending) institutions require a written offer before making a commitment to the home seller as to what price the lender may be willing to accept as a pay off.
Three different scenarios:
1) The lender approves your (and the home seller’s) agreed upon sales price and you close escrow
2) The lender is willing to approve the short sale at a higher selling price; you and the lender will now need to negotiate (you have yet to negotiate with the lender only the homeowner)
3) The short sale is declined
Most likely the lender will attempt to negotiate a higher selling price. Unfortunately the initial asking price was most likely determined by the listing agent and the home owner, but it is the lender that will be absorbing the loss and the lender is the one to determine the extent of the loss. The price agreed upon by you and the home seller may not be a realistic price, as the lender will want the home sold for (their opinion of) market value.
Interestingly according to MLS records for Glendale, only one home has closed escrow via short sale in the past six months; there are currently 20 (short sale) homes listed. I have talked with several escrow officers and their (short sale) closing rates vary from 5 – 30%.
I know that you have invested, money, time and emotion into this transaction, it is likely that the sale will not come together and you should keep your eye out for another home, one that is actually available for sale. You and your Realtor may want to give the seller’s lender a “deadline” as to making a decision. The lender is not emotionally involved, you are dealing with an employee who is likely overworked and underpaid. A reasonable deadline might be an additional 10 business days.
Trackbacks
-
4/2/2008 6:12 AM
Los Angeles Real Estate Blog wrote:
When I find “short sales” listed in the MLS with only 2% commission to the buyer’s agent, or difficult showing instructions, or other nuances that just don’t “feel right”, I wonder if mortgage (short sale) fraud is involved. Suppose John Smith purchased a home in 2004 for $900,000 – 0 down Let’s go on to “suppose the home is currently worth $765,000 but John owes $900,000 The lender is not going to reduce the loan to $765,000 because if roles were reversed and the property was worth $1,00,000, John wouldn’t call the lender offering them ... -
4/2/2008 11:31 AM
Los Angeles Real Estate Blog wrote:
When I find “short sales” listed in the MLS with only 2% commission to the buyer’s agent, or difficult showing instructions, or other nuances that just don’t “feel right”, I wonder if mortgage (short sale) fraud is involved. Suppose John Smith purchased a home in 2004 for $900,000 – 0 down Let’s go on to “suppose" the home is currently worth $765,000 but John owes $900,000 The lender is not going to reduce the loan to $765,000 because if roles were reversed and the property was worth $1,00,000, John wouldn’t call the lender offering them ... -
5/1/2008 7:39 AM
Los Angeles Real Estate Blog wrote:
Yes, some home sellers have over inflated asking prices but other homes are listed as short pays with unrealistic asking prices. Lenders want/need to sell property for market value. When listing a home for sale subject to short pay off, the listing agent and the owner determine the asking price. The owner/seller is not making ANY money, so they really don’t care what the asking price is. The Realtor needs to attract a buyer because most lenders want to see an offer before they will indicate whether they are interested in a short pay off and ... -
7/31/2008 9:34 AM
Los Angeles Real Estate Blog wrote:
In some Los Angeles neighborhoods short sales may be a possibility for a home buyer. But in my market, few close. Let’s do a quick brush up: A buyer owes $1,000,000 – $800,000 first and a $200,000 secondThe home is worth $750,000 Why would the second trust deed holder agree to wipe out the debt? Receive nothing? Why not wait for foreclosure? You never know the market could make a miraculous recovery. There is no incentive for the second trust deed holder to erase their debt. The first trust deed ... -
7/31/2008 9:36 AM
Los Angeles Real Estate Blog wrote:
In some Los Angeles neighborhoods short sales may be a possibility for a home buyer. But in my market, few close. Let’s do a quick brush up: A buyer owes $1,000,000 – $800,000 first and a $200,000 secondThe home is worth $750,000 Why would the second trust deed holder agree to wipe out the debt? Receive nothing? Why not wait for foreclosure? You never know the market could make a miraculous recovery. There is no incentive for the second trust deed holder to erase their debt. The first trust deed ... -
8/1/2008 6:15 PM
Los Angeles Real Estate Blog wrote:
In some Los Angeles neighborhoods short sales may be a possibility for a home buyer. But in my market, few close. Let’s do a quick brush up: A buyer owes $1,000,000 – $800,000 first and a $200,000 secondThe home is worth $750,000 Why would the second trust deed holder agree to wipe out the debt? Receive nothing? Why not wait for foreclosure? You never know the market could make a miraculous recovery. There is no incentive for the second trust deed holder to erase their debt. The first trust deed ...
Comments