WHO’S WHO and WHAT’s WHAT in a SHORT sale

The sale is between the BUYERS & SELLERS, the bank is NOT part of the sale rather the sale is subject to the banks approval of terms & allowances.

Buyer & Seller agree to terms they wish to send to the bank for review. Those terms are NOT binding and the sale cannot move forward UNTIL the bank approves them. Rarely does the bank approve the original buyer & seller terms.

The bank will issue a counter or an approval in writing of; sales price, paid closing costs for the buyer, total closing costs allowed to cover commission, title insurance, jr liens, HOA & utility costs. They will set future terms for the seller. Penalties, promissory note, cash contribution and difference balance terms.

Once the approval letter and all final terms the bank will accept and won’t accept are presented to the seller’s agency or seller decisions need to be made. At that time the seller and buyer and their agency must decide if they feel comfortable with those terms.

If they do they move forward with a binding contract in writing with real terms and real dates of the contract. The buyer is then given time to complete inspections and loan process. The buyer can still walk away from the deal during their dated contractual time frames without losing their earnest money.

All parties MUST close by the date the bank requires and send final funds and HUDS in time to have them approved and dispersed. Any pending foreclosure dates and bank requirements MUST be managed through the process. Some lenders require approval to close, so be careful not to show up to closing until approval to close is given from the servicer.



THE CONTRACT SAYS SELLER TO PAY FOR CLOSING COSTS –I’m a seller in hardship and don’t have money to pay those costs. Am I really expected to pay them?  (Explanation of who pays what in a short sale)

SINCE THE CONTRACT IS BETWEEN THE BUYER AND SELLER (ONLY SUBJECT TO THE BANKS APPROVAL OF TERMS) THE OFFER ON THE PROPERTY WOULD READ $100,000 SELLER TO CONTRIBUTRE $3,000 TOWARD THE BUYERS CLOSING COSTS. THE SELLER IS NOT REALLY PAING THE COSTS AS THE COSTS ARE BEING ABSORBEED IN THE BANKS LOSS.

FOR EXAMPLE- let’s say you are selling your home and you owe $100,000 and its worth $200,000, lets further say you have an offer for $200,000 and the buyer wants their $6,000 closing costs paid. Your costs as a seller are $16,000 for commissions, property tax and title insurance as well as the normal costs associated. You would be getting a check for $78,000 when the home sold. NOW let’s say the same seller is selling they owe the same amount and the costs are the same. BUT the home is now only worth $102,000 and offer is on the table for $100,000. Let's say the bank accepts the $100,000 offer. The bank cannot get their entire $100,000 payoff because the home is not worth more than the mortgage note and cost to sell. So the bank accepts $100,000 the costs to sell. At the lower price the costs are not $16,000 & $6,000 anymore. They are now $8,000 & $3,000. So the seller gets $0 and the bank gets $86,000 a $14,000 loss to the investor on the loan.

Since the contract is just between BUYER & SELLER the costs associated with the contract and the closing as well as any terms in the contract are listed as between buyer and seller. Therefor a buyer placing an offer for $200,000 and asking for closing costs assistance in the amount of $6,000 would ask for it paid by the seller not the bank. Though the bank will be the one paying it through their loss.

The bank does not sign the contract or sign closing documents, just the buyer and seller. Their written approval letter is their approval. ANY terms the bank does not approve that agency moves forward with will NOT be allowed at closing and will end up being the cost of buyer or seller. SO make sure your agent knows what they are doing!

Selling a short sale is a totally different thing than selling a standard sale.

Your agent for both buying and selling needs to fully understand short sales. If they do not you may be financially harmed.

Don't do a short sale or purchase a short sale if you don't understand all the emotional, monetary and instability that a short sale will bring.

Pricing- the price a short sale is listed at is set by the seller, though the bank may have previously approved the price things change every time a new offer is presented or a current value expires. A "good deal" is a fantasy until the bank approves that price in writing. Don't get fooled by price.

Maintenance Issue's- Sellers in short sales are emotionally and financially burdened. Some have personal issues or health issues. All are losing their home. The usually don't have the means to maintain the home. The condition may be poor and get worse throughout the process. Items like utilities, HOA payments and such may become a problem for them. Therefore a buyer needs to understand and be prepared for getting utilities current, taking over the costs, paying for appraisal condition repairs them, AS-IS sale, unexpected repair and financial costs.

Conditional issues- condition may be poor, or distressed. Properties may be vacant. The bank may at any time change the locks or shut off the water & winterize the home. Getting that reversed required a licensed plumber and will likely become the buyers cost and responsibility. If the locks get changed a HUD key will open the door.

Personal strain- As previously stated sellers in short sales are emotionally and financially burdened. Some have personal issues or health issues. All are losing their home. The usually don't have the means to maintain the home. Some get hostile or very upset when a buyer seems to be happy to be getting the property at such a great deal. Please be sensitive to the fact that the sellers are losing their home and being displaced. Their home ownership dream compromised and they are sad, angry and need to be respected.

Instability- nothing is for sure until in writing, then the process still needs to be monitored and bad things can still happen. Foreclosure date may be posted, unforeseen items can arise. All parties need to be focused until it’s a matter of record (closed & recorded).

Inexperience or lack of information- the list agent MUST be skilled! The entire process rests in their hands. FULL disclosure is required. If they don't know what they are doing, are seemingly untruthful or don't communicate things that the seller and buyer need to know then DON'T place on offer on that home or list with that agent. If you have a family or friend that's a realtor and you feel badly not using them simply pick the BEST agent for the job and ask that agent to give a referral fee to the friend. That keeps the love alive and prevents a lot of problems.

The WAIT- Short sales take forever. There are great big gaps with no news. Don’t show buyer short sales that needs to be in a home in 4o days. Don't get hostile with a listing agent that is dealing with the bank. Even the best SS agents can speed up most of the steps. Also a guesstimate on time is just that. There are so many steps and phases that have so many different departments and people involved. Be patient or don't get involved with short sales.