Anatomy of a Short Sale – Will Someone Make a Decision?

When a property owner becomes delinquent in their house payments they can attempt what is known as a short sale. A short sale indicates that the proceeds of the sale will not cover the debt on the house, indicating the lender will be taking a loss. The question then becomes how much loss is a lender willing to accept? Or is the lender likely to make more money by allowing the house to be foreclosed on and take it to auction?

Negative Equity

If a home was purchased in the last couple of years, there may be a chance that the house is worth less today than it was at the time of purchase. Or if someone has refinanced several times and removed the equity, they may find that they now owe more than the house could sell for. Before a lender will consider a short sale, they need some evidence that the borrower cannot meet the financial obligation previously agreed to. This usually means that their must be some indication of a “hardship”. Some people mistakenly see a short sale as a panacea to get them out from a financial burden. A lender may be less likely to consider a short sale if you own multiple properties, have sizable assets or indicated that you were going to occupy the property you now want to sell when you never lived there. A hardship may be due to a divorce, job loss, death or disability of a spouse or some other loss of income. At this point the lender is going to decide if they will accept the offer, not the home owner. The prospective offer has been submitted to the lender. The ball is in their court.

The lender has sent out the appraiser who has submitted the report. A decision is anxiously awaited. The lender has the required information to either approve or disapprove the offer.

Tell Us Something, Anything, A Simple Yes or No

With all the talk and press lately about the declining real estate market and pending foreclosure’s, wouldn’t you think that banks would be eager to get rid of a property and reduce their rising inventories? I would think so too, but apparently not.

The typical foreclosure timeline starts when a “Notice of Default” is filed, usually after a homeowner misses about three payments. In this specific instance the bank was aware of the situation. They were even communicating in advance which seemed to be a positive sign. I used to have a friend who worked for a consumer products company and the inside motto among the salespeople was that things were just fine until a customer placed a purchase order, then the company had to deliver it which created all kinds of internal problems. Isn’t this what they are in business for in the first place? Nothing happens until someone sells something!

Week 5, Still No Word

An offer on the property was submitted which seemed to be in the guidelines for approval. Uh oh, trouble ahead. Now someone with some authority will have to make a decision and approve a sale along with a loss of $130,000. Hello, is anyone home?

In case your wondering the time from presenting the offer until today has been six weeks. The buyer who was very qualified and able to close the transaction within two weeks of approval has bailed out. The buyer’s frustration and impatience was communicated to the lender regarding their inability to make a decision. They were quick to call what they perceived as a bluff and reply “if the buyer decides to walk away then we will just have to cancel”.

Game Over

The buyer canceled. Seems that there are just too many opportunities out there with prices coming down daily. And why wait for the never ending supply of Vice President’s to add their initials of approval? A classic case of Texas California hold em. Now everyone has folded and the cards are being reshuffled. Nobody won, in fact everyone lost.

If curiosity killed the cat, I am convinced that procrastination kills real estate.

3 thoughts on “Anatomy of a Short Sale – Will Someone Make a Decision?”

  1. I had the same experience in October-November. The bank (Litton) had already supposedly approved the short sale package. My buyer actually hung in there because it was still a better deal than anything else out there.

  2. Now that the sale was lost, we have a better idea of what they will accept. My guess is they would have finally approved it if the buyer was willing to wait and negotiated longer.

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