What is a short sale?
A Short Sale is the sale of real property where the market price of the property is less than all mortgages held against that property, or the loan balance. In order to make a sale happen, the lender(s) must approve the offer amount and terms.
What is a BPO and how it affects your short sale?
BPO stand for Brokers Price Opinion which is a brief appraisal performed by an independent licensed real estate agent. Often, lenders will require two BPO's is an effort to establish current market value. The lender will use this BPO in determining whether the offer is acceptable.
What relevance is the BPO to the seller and listing agent?
Before the seller accepts an offer, the seller or listing agent needs to create his/her best guestimate of what the subject properties BPO will be. Sellers want the offer that they accept to be within 5% of BPO. Otherwise, the lender will most likely counter the offer and this wastes time. The listing price should be 5% greater than BPO.
What if a seller accepts an offer below BPO?
In this scenario, the lender will likely counter the offer and the buyer has the option to counter the lenders offer or accept the counter.
What are the risks associated with doing a short sale?
The seller's credit will suffer but not as much as a foreclosure. There are a few scenarios that may occur. First, if the property is owner occupied, the IRS "The Mortgage Debt Relief Act of 2007" enables the seller to discharge the 1099 income that may occur as a result of the short sale deficiency. If an investment property, the 1099 income may not be discharged. Other risks may include a deficiency judgment for the short sale short fall. Sellers should, as a condition of their short sale, require the lender to agree not to pursue a deficiency judgment against the seller. A 1099 is unavoidable. It may be possible to have the lender agree to "mark" the short sale as "settle per agreement" and not "short sale”. While this is unlikely, it never hurts to ask. Another risk associated with a short sale is a "note" give-back. In some cases, the lender may seek a note from the seller as a compromise for agreeing to the short sale at a low interest and for an amortization period of possibly 5-10 years. The seller, of course, wants no note but many insurance companies or investors that backed the seller's mortgage may require a note. What determines the amount of the note partially depends on the seller's liquid cash position and other debt credit ratings.
What if the seller does not agree with the lender's request for a note? Can the buyer or lender force the seller to close and accept any terms dictated by the lender(s)?
No, just as long as the seller adds language in the offer/contract that protects against this possibility. Additionally, the short sale FARBAR listing agreement has language that protects the seller and is subject to third party approval.
How long is the short sale process?
If the seller has one lender, it can take between 70-160 days. A second lender slows the process down about 40 days.
Can a seller speed up the process?
Yes. Use an agent that understands short sales. Call the loss mitigator and establish rapport. Make sure the file is "labeled" properly as a short sale. Call every 5 days and speak with the loss mitigator. Use a title company that helps the process. Use an attorney that works short sales. Keep a log. Present offers only that are at or near BPO.
The HAFA Mortgage Program adds Assurances to Short Sale Transactions
Short sale in United States now as some added assurances through a new federal program called Home Affordable Foreclosure Alternative (HAFA). This programs allows short sales certain guarantees that prohibit lenders from seeking a deficiency judgment in later years. Read this entire article. More information about HAFA can be found at www.makinghomeaffordable.gov.
Choose ADDvantage® to list and sell your short sale
If you have a short sale property to list, ADDvantage® will work diligently for you. ADDvantage® has the experience, smart and dedicated short sale team and marketing channels to get offers on your property and move them expeditiously to the lender.
Call 727-942-2929 or 1-877-232-9695 or leave your contact information below and ADDvantage® Real Estate Network's broker, Keith Gordon, will contact you today to discuss all of your options.
Speak with an attorney about possible additional risks not mentioned in this article.
Buying a Short Sale?
Making an offer on a short sale is a more complicated transaction than a typical straight offer. The buyer must be pre-approved by a major direct lender. There are other “lender” requirements as well such as special addendums, rules of procedure, and typically an “as-is” contract is a condition. Short sale purchases have become somewhat competitive and buyers can benefit from a real estate professional's guidance to increase the chances of having an offer accepted. You can use this link to Search for Short Sale Properties.