What are the three biggest reasons a Short Sale fails?
What are the three biggest reasons a Short Sale fails? How can these problems be prevented/overcome?
In my opinion the main reasons short sales fail are because of:
- The listing agent does not do the proper follow up with the bank (i.e Did the bank receive the short sale package?)
- The short sale package submitted was not 100% complete when originally submitted (this is the #1 reason for delays)
- Submitting an offer that the bank that they won’t likely accept. (i.e. a lowball offer)
- Presenting a short sale package that indeed shows hardship (duh!)
- The BPO agent produces a poor valuation analysis to the bank
- The bank’s short sale negotiator has a “Napoleon Complex” and does not negotiate in good faith – making unreasonable demands of the borrower/seller that would not be acceptable
- Not escalating the file at the bank properly and when necessary
I think all of these issues are solvable. A persistent and tenacious listing agent should not let the deal fail. The only short sale deal that failed for my client involved the “Napoleon Complex” issue – the negotiator was negotiating a 2nd lien and demanded a 100% payoff (AND they were offered 12% of the loan balance which they rejected – AND this was in Arizona which is an anti-deficeincy state, AND it was a purchase money 2nd).
1 No hardship
2 Buyer got tired of waiting for the mortgagee/lender to grant the short sale.
3 Lack of knowledge on the part of the real estate person handling the listing.
Agree with Carol’s response other than having no hardship. I have closed plenty of short sales where there is not much of a hardship. These are called strategic short sales. A lender today will look at every file and make a decision based on their pocket book. If it makes sense to do the short sale rather than own the property they will do it in many circumstances.
All the above are excellent responses. The time to start the process is NOT when the buyer presents an offer. A competent Listing Agent working in the best interests of the Seller to get the transaction closed successfully and in a timely manner, will prepare a complete Seller’s package in advance and follow up with the investor before any offer is generated. This is Key. If the Seller does not propertly qualify for a short sale with a genuine documentable hardship, there will be no short sale, no matter how willing and qualified the buyer is.
All good points. In terms of how to overcome them:
- “Buyer walked” – use an Addendum as part of the contract between Buyer and Seller that commits the Buyer to wait for a decision from the Short Sale Seller and their lenders – after all – the Seller has to wait for the decision!
- Lack of ability of the Listing Agent – Sellers need to do their due diligence when selecting a Short Sale Listing Agent. They should require a copy of the Short Sale List to Close Track Record from the MLS – not just a vague claim from the agent of “we close 99%”.
- Incomplete Seller Financial package. Don’t list the property until you have 100% of the Sellers Homework (package). Period. No exceptions.
- Hardship. Contrary to popular belief, and speaking from experience, the bottom line for the Sellers Lenders is what makes most sense for them. If a Seller (hardship or not) is willing to let the property go to foreclosure if their lenders won’t approve a Short Sale, the Sellers Lenders will make a decision based on the numbers – every time. An entry level negotiator at Chase thought otherwise – “closing” a file because there was no hardship. I asked Jamie Dimon’s (CEO) office to “help” their negotiator understand how things worked. Two weeks later we had the approval. Seller needed to contribute $5K (no problem) to eliminate $280K of debt. That’s less than 2 cents on the dollar!
Tony is 100% correct. I am tired of hearing Realtors telling everyone they need a hardship to complete a short sale. That is short sale 101 from 5 years ago….IT DOES NOT APPLY TODAY!
Lenders make decisions today based solely on what makes sense to them. If a short sale is better financially for them they will do it. I have done plenty of short sales with no hardship. Without a hardship the borrower is almost certain to have to contribute but this is still better for the lender than a foreclosure in most cases!!
No. 1 Reason is: Most lenders make more money from a foreclosure than they do from a short sale.
No. 2 Reason is: It’s not worth the time and effort required of the sellers agent to complete a short sale.
No. 3 Reason is: It’s a process that’s prone to fail and is not likely to change.
Interesting that the perception is still out there that the lenders make more at foreclosure than they do with a Short Sale. The reverse is true – which is why the lenders created Short Sale processing departments in the first place. Otherwise – why bother? Just take all the houses at foreclosure. In a correctly structured process, the time and effort to process the Short Sale is highly efficient and effective, leading to high list to close ratio. Our numbers – per the MLS – not just claims of 90% or better – show a List to Close rate of 91% – which happens to be the highest in the Phoenix area for any team or agent that has closed 70 or more Short Sales.