Despite the name short sales are not a “short” process. If done correctly, the short sale program is a highly beneficial program to the seller. However, there are so many ways a short sale can fail. Every short sale is different, but here are some common pitfalls when dealing with short sales:
There is more than one mortgage on the property:
When you have multiple mortgages and liens on a property you need to get each lien to agree to take a loss. This can be tough as each lienholder will have different guidelines and requirements. If the agent does not know how to navigate and negotiate with the different lienholders the short sale will fail.
The lender sets the price too high
Out of all the things that can go wrong in a short sale I would have to say this is the most common and the most difficult to overcome. The lender hires a third party to determine the value (list price) whether it be an appraiser or a BPO (brokers price opinion). The lender sticks to the list price that the appraiser or BPO agent recommends. Since the lender and the seller will not make any repairs, this value needs to consider all damages/ repairs needed. If the value is too high the agent will not be able to sell the house. No buyer will pay more than a house is worth. If the house is overpriced by the lender you will have to challenge the value with the lender. The value dispute process is specific to each lender. For example, Bank of America will have different requirements than Wells Fargo. Figuring out what each lender requires to is the hardest part of the value dispute process.
The house is vacant:
We always tell our clients if possible ‘STAY IN THE HOUSE’! When a house is vacant it is subject to squatters and vandalism. Squatters must be evicted before the house can be sold. When a house gets vandalized in the middle of the short sale the value decreases and the lender must adjust the price. The lender will have to send out a third party to consider the damages. The price will have to be adjusted. I’m sure you can imagine how hard it is to convince the lender to further discount the property.
Title isn’t clear
Unexpected liens are another obstacle that can cause a short sale to fail. An IRS lien, a tax lien, or a mechanics lien can make a short sale difficult to manage. It is very important that you know from the beginning what liens or judgements are on title. If you are not aware of these liens on title, you will not know what to negotiate with the first lien holder. If you get the short sale approved and then become aware of liens on title, you will not be able to close until you clear them.
The lender does not want to cover the closing costs
You have to remember that the seller’s lender is taking a loss, so the less they have to pay the better. Sometimes they come back and don’t agree to pay the typical closing costs that a seller would have to pay. If this happens who is going to pay for it? The buyer wont, the seller can’t and that leaves you in a situation where you can’t close.
Foreclosure Date is coming up
If you start a short sale and you have less than 30 days for the lender to review, it is common for the lender to deny the review. In this case they just want to proceed with the foreclosure. At this point it is VERY difficult to get a short sale approved. It is not impossible but even the most experienced agents find this to be a challenge.
As you can see a lot can go wrong in a short sale, but that doesn’t mean the short sale cannot get approved or completed. We deal with these issues every day, if you have any questions or need help with an existing short sale we are always available to help! You can call our office at 972-832-2755 or 214-542-3244
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