Regulate Bank's Behavior in Short Sales

Once again, I have a client who wants to buy a short sale property. I spoke to the listing agent about it. There was accepted offer on it before, and the bank got back to them quickly on it - only one month!

That's right, responding to a purchase offer in one month is considered fast.

Why is this? I don't think banks are that inefficient that they couldn't deal with this in a reasonable amount of time.

The more time you leave a short sale hanging the worse it is for the owner, for the neighborhood and for property values.

Most buyers can't wait that long or deal with the uncertainty.  Anyone who is moving to a new area or has a lease needs to have a set date range where they can expect to take possession of a house.  This means that short sale properties are mostly bought by investors.  If the banks were forced to get their act together and had a time limit to reply, owner occupants could purchase short sales easier.  Since they usually pay higher prices than investors it would actually benefit the banks.

Short sales are frequently vacant, and empty houses deteriorate much faster. They get broken into and have copper pipes and appliances stolen. No one is there to notice the small leak that turns into the big leak that brings down the bedroom ceiling. The house gets damp, moldy and musty. It's a downwards spiral.

Once the house goes into foreclosure it really hurts property values. Plus now we have another former home owner with a foreclosure on their record. One who is probably pissed off at the bank and may damage the house on the way out.

It seems reasonable - more than reasonable - to give banks a time limit to reply to a short sale contract. One month is more than enough time. I think banks should be regulated on this.

You might also want to read: What is a Short Sale

Chinese Lantern Flowers out in Pompey

I took this out in the country, at our listing in Pompey, NY. It's a 5 bedroom 3.5 bath house on three levels! The lot is set back away from the road and is surrounded by woods on three sides. That is a good feature in an area where a lot of the houses are close to the road on busy roads. People want to go out to the country for peace and quiet and they end up with traffic noise instead! In addition to being away from the road, Cemetery Road is pretty quiet.

In the yard there's this huge patch of black eyed susans and Chinese Lanterns. They are the orange pod-shaped flowers like papery balloons. I have never seen them growing before, just at the florist.

The house is about a half hour drive from Syracuse.

It looks small from the photos, but it actually is three stories - it's on a slight hillside so the lower level is walkout and has big windows.

It's $129,777. It is a short sale, so the property will take longer to close.
Update: 
Property has an offer on it and is now pending!  

What is a short sale?

A short sale is usually not short, and sometimes it's not even a sale.

The “short” refers to the owner being short on their mortgage. They owe more on their house than it is currently worth. They cannot afford to pay their mortgage.

A short sale starts out with the homeowner calling an agent. First the agent must try and market the home for the amount owed, to show that it cannot be sold at that price.

Then, they apply to the bank for a short sale. There are a lot of documents to fill out, and there must be a hardship letter, showing that the owners are not able to pay the money back on their own.

The house is then marketed as a short sale. Offers are submitted to the owner, and then must be approved by the bank.

Once they are approved by the bank, the sale proceeds somewhat like a normal sale.

This sounds very simple. Unfortunately it is not. The bank can take as long as it wants to approve a sale. They are frequently very uncommunicative. For example, it is now August 9. I wrote an offer for a short sale July 27^th, which was accepted by the seller and sent to the bank. We have heard nothing. All the other agent will tell me is that it is now at the bank and the ball is in their court. There is nothing we can do to speed up the process. The bank really does not care.

Edited to add: This sale closed on December 29, 2011, six months after writing the offer!

This is a sale that was previously approved by the bank for another buyer. By the time it was approved, the buyer had walked so it was put back on the market. Now my buyer wants to look at other homes.

By no means is this a long delay in the world of short sales. It can take months to hear back from the bank.

There has been numerous cases where the bank has taken so long on approving short sales that all the buyers have walked and the property goes into foreclosure. So the seller gets a foreclosure on their record, the bank has to pay an asset management service to take care of the property, and the house will be vacant and subject to break-ins and vandalism. Sometimes the owner will strip the house of all fixtures and /or vandalize it on the way out. It will almost always sell for less than the short sale.

This makes no sense at all.

Banks are also very different in the way they deal with short sales. Some will go out of their way to make it work and some seem determined to have as many delays and hold ups as possible until it goes into foreclosure. Banks have different procedures for document submission and will reject submissions for the most petty reasons. They are also notorious for “not receiving” documents that they have been sent.

It is possible that a short sale could proceed along well and close with limited problems. It's also possible that I will win the lottery tomorrow or that leprechauns have buried gold in my back yard. Nice to think about, but don't count on it.

Sellers will not do any work on a short sale property. They are sold “as is”.

Short sales can be a good deal. Not all of them are though. Never assume that it is a bargain just because it is a short sale. It's important to look at what other comparable properties are selling for.

Who should buy a short sale?

Do you need a home to move into soon, and want a place that is in perfect move in condition? Don't look at short sales.

Do you have a place to stay where you do not have to be out by a certain time, such as living with relatives? Or perhaps you are an investor who is willing to wait. Are you handy and want a good deal? Do you have a lot of patience? You will probably be able to get a good deal with a short sale. You can call or email me and I'll send you a list of bargain properties which will have short sales and foreclosures.

Selling your Syracuse home as a short sale:

First, beware of some foreclosure prevention companies. They work by telling the seller they will negotiate with the bank on your behalf and the fee will be paid by the buyer. Then they put an addendum with the sales contract that the buyer must pay a percentage of the fee to the foreclosure prevention company as a “bargain” fee because the company has worked so hard to make this a great deal for the buyer.

This is a real deal killer. I have had someone ready to make an offer on a property who declined after we found out there was a buyer's fee. There are a lot of real estate bargains to be found and buyers do not need to pay for the privilege. It is the responsibility of the listing agent to negotiate with the bank. If there is a fee for this, it should come out of the listing agent's commission and not be paid by the buyer. I think it's very likely that house will go into foreclosure.

Secondly, “short sale specialist” agents have popped up like mushrooms after a spring rain. Many of them have no idea what they are doing, but they have heard that is where the money is now. People take a three hour class and think they can just wing it.

I don't do short sales from the listing side by myself. I co-list them with my broker, who has many years of short sales experience and a proven track record. I do the marketing for the sale and he does the paperwork and negotiations with the bank. Since I'm an excellent real estate marketer, you have the best of both worlds in dealing with us as a team.

If you want to list your home as a short sale, call me at 315-908-2287 and I will help you get started on the process.