Since the fiscal cliff deal is behind us, it's safe to say that short sales will continue to increase in the year ahead. That said, short sales can still take up to three times longer than a traditional transaction and often fall apart at no fault to the agents. However, by avoiding these top dozen short sale barriers you will be pleasantly surprised at how successful a short sale transaction can be for the parties involved.
1. Poor short sale candidate. Establish objective criteria up front, conduct an extensive interview with the buyer to make sure they are in the transaction for the long-haul. The last thing you want is a flaky purchaser under contract and wasting every one's time. It is also extremely important to make sure the seller is motivated and cooperative. When an asset manager requests documentation, the seller needs to submit it to his agent immediately. An uncooperative seller can kill a transaction within a blink of the eye.
2. Unfamiliarity with lender's short sale requirements and procedures. It is imperative to harvest and maintain lender and investor guidelines, and secure the individual forms required for each lender/ servicer. Each entity utilizes its own forms and without the proper usage of these forms and requested documentation, the transaction will go no where.
3. Procurement of all Lien-Holders. This must be done up front in order to identify all individuals on deed and mortgages, and determine all lien holders. The seller must be up-front with his agent so that all parties involved know how much debt is attempted to be "shorted" and who those lien holders are. In most cases, it is a first mortgage and second mortgage. However, there are many cases where tax liens arise, Medicaid liens, and water bill liens.
4. Incomplete package submission. Take the time necessary to focus on the quality of the package at the time of submission. Detail is critical and all documents must be completely executed. An incomplete package is not going to get you to the next level and will only waste the time of the parties involved.
5. Short sale not begun prior to receiving a contract to purchase. The lender never looks at a buyer contract until the seller candidate is approved and market value has been determined. Making this mistake adds 30-60 additional days to the process. Always submit the pre-sale required documentation to the lien holders right after the listing is taken.
6. Complete package not maintained throughout the short sale process. You must keep all required homeowner financial information current and forwarded to the servicer/ lien holder every 30 days. This includes, but is not limited to updated pay stubs, tax returns, and bank account statements.
7. Lack of communication with the lender. Most negotiators are overwhelmed by the number of cases they are working on. Misunderstandings, loss of documents, and/or lack of familiarity with files are common. You must continue to follow-up with the servicer to reduce unnecessary delays. Keep in mind your transaction is just a number among a pool of thousands upon thousands of other files and short sale candidates.
8. Poor record keeping/documentation. It's not uncommon for processing personnel at the lending institution to change, and every new person has to rely on the quality of the notes on file. You must be prepared to fill in the gaps. Processing personnel are constantly being switched to different departments or are let go. When this occurs your notes are absolutely crucial in order to put the transaction back on the right course.
9. Professional relationship with negotiator never established. In this high-stress process, it's essential to build rapport with your contact at the lender in order to establish mutual respect and trust. This simple step can be a game changer. NEVER get in a heated argument with the negotiator as your file will certainly be pushed to the back of the line, if not completely ignored.
10. Failure to meet BPO/appraiser at the listing. Without a detailed inspection of the property, the value will be distorted. Make sure your broker is present during the process in order to share information regarding the condition of the home. Come in hand with a print out of the most recent comps supporting the contract price. Also, come prepared with a list of any and all material facts that negatively affect the value (i.e. water damage, mold, broken mechanicals).
11. Fair market value dispute. Negotiators often lack current relevant information on most markets and are, therefore, forced to make decisions based on the data provided by BPO and information in the lender package. You must be able to provide additional information that can have an affect on value.
12. Failure to "escalate" to higher authority when communication breaks down. Remember that upper levels at every lender's short sale department are working toward one goal....avoiding another costly foreclosure. Ask to speak to a manager if the communication line starts to fall apart.
By avoiding these dozen pitfalls, you will surely increase your odds of success while reducing everyone's time and stress. Cooperation from all parties is key to every one's success when it comes to a successful short sale closing.