What Happened To Our Short Sale Offer?
November 12th, 2009 categories: Buyer Resource, Foreclosures, Short Sales
A client recently had a short sale offer that was ultimately accepted by the homeowner, but not accepted by the lender. The lender ultimately decided to force the property into foreclosure, opting to recover their proceeds via a longer, usually more costly, and more litigious process. So after 6 weeks of waiting for approval from the lenders, our buyers were ultimately turned away.
Short Sales are very common in today’s Real Estate climate, and even with that fact, some people are still somewhat confused as to what a Short Sale actually is. A short sale occurs when the sale of Real Estate does not cover the full obligation that is owed by the borrower. In the case of a short sale, the lender (AKA lienholder) agrees to accept the sale and thus the loss, as opposed to pressing the current borrower, and then releases the borrower from further obligations.
For a short sale to occur, at least 4 parties must agree to the offer.
- Offeror – Potential buyer of the property in question
- Seller – Homeowner who listed the home for sale
- Lender – The lienholder who is owed the money. In many cases, the initial lender sells the loan to an investor, and then services the loan (acts as a middleman accpeting monthly mortgage payments on behalf of the investor) for a small fee.
- Investor – Party who purchases the loan from the lender as an investment vehicle.
For a mathematical example of a short sale, let’s suppose that a homeowner purchased a home for $500,000 in 2005, and took out a 90% loan. This means the homeowner still owes $450,000 to the lender. Currently that same home might sell for $320,000. After factoring in transfer costs, Real Estate fees, etc, the net sale might leave net proceeds of around $300,000. In a short sale situation, the lender might agree to accept the $300,000, generating a loss of $150,000. This is a substantial loss, one that all lenders may or may not be willing to accept.
Even if a property is listed for sale, and is a short sale, the lender or lenders, are under NO obligation to accept or even acknowledge those offers. We think it would be short sighted for lenders not to acknowledge an offer, as it may be in their best interests, but they are definitely under no legal obligation to accept an offer, any offer, that is less than what they are owed.
After the offer has been accepted by the seller, the offer is sent to the lender. The lender will review the file (including the sellers financial information) and if they feel it is in their best interests to accept the offer, the will order a BPO, or Broker Price Opinion. The BPO is similar to an appraisal, in that it gives an objective opinion of value for the property from a trusted third party. If the offer is found to be line line with market value, the offer will likely be accepted by the lender. If the offer does not fall into the range of market value the lender expects, the offer may be countered, or the bank may elect to take the property into foreclosure.
Short sales can take months to close, and at times it seems as if there is no progress, even if the file is perfect. Just know that we are currently in a busy time for lenders as there are many short sales, foreclosures, and loan modifications. A little (a few months of) patience may pay off in the long run for buyers who have found the perfect home, even if it is a short sale. Sonoma County Short Sales are little different than short sales in other areas, and delays are probable.
If you need help with a short sale or any other Sonoma County Real Estate situation, please feel free to contact here or at WineCountryMoves.com.
