Short-Sale Approved! Now What?

Congratulations! You’ve waited patiently for a response on your short-sale offer from the bank(s) and you just got word that it’s been approved - half the battle has been won!

So now what?

To best understand what happens next, let’s quickly go over a part of the short-sale process…

The majority of what needs to be done (loan processing, appraisal, title work, termite, etc) can’t be done until the bank(s) has approved the short-sale - in writing. The reason for waiting until  then is that all of those things cost money and no one wants to spend the money and resources before knowing for sure that the short-sale will be approved.

And as far as timing, you typically only have 2 to 4 weeks from when the short-sale has been approved to get all these things done because that’s how long the typical short-sale approval from the bank(s) is good for. If you run past the deadline, you have to ask for an extension and/or a new approval. While this is more than possible, it’s a hurdle best avoided if possible.

Is it tough to get all those things doe and settle within that time frame?

Two weeks is cutting it close, but four weeks is not a problem with the right lender on your side.

Now back to answering the question, “So now what?”…

Here are some things you can expect as a buyer once the short-sale approval comes in:

• Schedule the settlement date and closing time based on the short-sale approval deadline(s) and when the lender can have the loan done and ready for funding
• Provide your lender with updated pay stubs, bank statements, financial statements, etc.
• The lender will now order an appraisal on your behalf
• If you haven’t already done so, you should set up a home inspection (click here for more about home inspections on “as is” properties)
• Order the termite inspection (sometimes it’s the seller’s responsibility and sometimes it’s yours)
• The settlement/title company will now order the title search, title work, survey, etc.
• If you’re renting, now is the time to put in your notice to the landlord/management company
• Obtain home owner’s insurance on the new property
• Contact the moving company if you’re using one (or call your friends/family and start bribing them with favors now)
• Put in for time off from work for the final walk-through and settlement (these can only take place during normal business hours Monday through Friday)
• About 2 weeks out, but not less than 1 week out from settlement date, transfer the utilities into your name

See..not too bad at all! Short-sales are a “stop and go” process. But, as many short-sale sellers and buyers will tell you, it’s well worth it! The seller ends up avoiding foreclosure and an even bigger ding to their credit while the buyer gets a great deal on a new home.

***CLICK HERE TO SEE ALL ACTIVE SHORT SALES IN LOUDOUN COUNTY***

A Seller’s Guide to the Short-Sale Process

Some of you may be wondering how you can go about selling your home the “short-sale” route, but aren’t sure how it works. Well, here’s what I call a “Seller’s Guide to the Short Sale Process”…

First and foremost, let’s define “short-sale” as it relates to real estate today:

A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold

If you’re not sure whether you’ll be “short” if you sell the house, hire an appraiser or ask a Realtor to do a CMA for you and deduct the balance of your mortgage(s), any line of credit(s), other lien(s) and cost of sale from the estimated market value of your property. Once you’ve done that, you’ll have a good idea of whether you’re “short” (assuming the appraisal or CMA are accurate).

Let’s assume that you’re “short” and want to move forward with a short-sale. What are the next steps.

Well, fellow Virginia Realtors and bloggers Sarah Stelmok and Jeremy Hart beat me to the punch by about 24 hours with their posts on short-sales. So, with their permission,  I’m going to cite their explanation about the process to save some time.

If you are a Seller considering a Short Sale in your property, you will need to gather the following information:

• All lien holders names and contact information
• All loan numbers
  
• A Third Party Authorization Form - this will allow the bank to discuss your short sale with your REALTOR.  It needs to be agent and loan # specific and have an indefinite end date Some banks have their own form; others will accept any form you prepare.  You need to get this to the bank as soon as you hire a REALTOR.
• Listing Agreement - this should include a CMA of the property to justify your list price
• 2008 and 2009 W-2s - or the tax forms that you filed if you do not get W-2s.
• A Profit/ Loss Worksheet for 2009
• Last 2 Month’s Bank Statements
• Proof of Disability or Unemployment or Job Transfer (if applicable)
  
• Hardship Letter - this explains why you want to short sale and why the bank should allow you to short sale

Once you have all of these items, the next steps are…

1. List the property for sale– Some banks want the property listed for the amount that is owed first, and they will be willing to drop to a more realistic price after a period of time.  The listing agent will need to back up their list price with a good CMA!  Remember, a BPO will be called out as soon as they receive a contract.

2. Receive and ratify a contract – needs to be ratified by the seller and buyer.  Some banks want one contract at a time; others want to see them as they come in.  Another reason to contact the bank ASAP.

3.  Send Contract to Bank - get confirmation from the loss mitigation offer at the bank and preferably written proof of receipt

4.  You will also need to send – all of the paperwork including the hardship letter you gathered/prepared prior to listing your property for sale (see earlier part of this post). The bank may ask for other items not listed here. They may also send you additional forms and paperwork for you and/or your agent to sign.

5.  Be persistent, but patient - Make sure you ask how long it will take for a contract to work its way through the system.  You want to hear it will take 30-45 days, but they may tell you that it will take just that long for them to even look at the file as is the case with CitiMortgage.  You also want to ask about the likelihood the loan will be sold.  They like to sell the loans right before they give you approval, and you’ll have to start the process all over if they do.

6.  Stay as current as possible - Make sure you don’t get more than 2 months behind.  Some banks will allow you to get up to 9 months behind, but they are harder to negotiate and keep off the auction block. If you don’t know what their policy is, ask.

These steps will need to be done for each bank that is involved and each bank has their own process. Some banks that are in 2nd position (2nd trust/mortgage) will only start processing their short-sale after they’ve received written short-sale approval from the 1st trust. This means that the overall short-sale approval process may take twice as long with two trusts/mortgages.

If you are considering pursuing the Short Sale route to sell your home, it is important that you consult an attorney that is familiar with the process. It is also important that you use a REALTOR who is trained in the short-sale process and has experience in Short Sales.

So I hope that this helps you out (thanks again Sarah and Jeremy). If you’re in a situation where you’re about to fall behind on your mortgage and/or are considering a Short Sale, contact me to chat about it and see what options you have.

Related Articles

Short Sale (real estate) - Wikipedia

Percentage of Short-Sales Being Approved Increasing

10 Questions To Ask Before Writing an Offer on a Short-Sale

10 Questions To Ask Before Writing an Offer on a Short-Sale

It’s like the Wild West right now when it comes to short-sales in Loudoun County (and the entire Northern VA area). Some take 60 days to settle while others take 6 months (if they settle at all). Some are handled by agents, title companies and negotiators that know what they’re doing while others are not. The list goes on…

That’s why every buyer (and buyer’s agent) should ask the listing agent/broker (or seller if FSBO) the following 10 questions before they write an offer on a short-sale…

1. Have you received any other offers that you are waiting to hear back on from the bank?
2. How many trusts are involved that will be “short”?
3. How many total banks/creditors are involved in the short-sale and which banks/creditors are they?
4. Have you requested and received the short-sale package from the bank(s) including the hardship letter?
5. Have you sent the package and confirmed receipt?
6. Has the asking price been approved by the bank(s)/creditor(s)?
7. Who is negotiating the short-sale with the bank(s)/creditor(s) - you, a negotiator, a lawyer, the title company or….?
8. Has the seller/borrower completely stopped making payments on their loan(s)?
9. Is the seller willing to hold a note with the bank for the difference? (much better for their credit score)?
10. How many short-sales have you (the listing agent) closed within the past 12 months?

If the listing agent balks at answering these questions, it’s either because the seller does not wish to disclose the information and/or the listing agent may not know what they’re doing. Either way, if you don’t have the answers to all of these questions, you can’t make a very educated decision as to whether it’s worth writing an offer on the property or not.

Why? Here are just a few of the reasons…

• Different banks have different approval percentages and varying time frames for processing the short-sale. For example, if you have to move within the next 60 to 90 days, a short-sale being negotiated with CitiMortgage may not be something you want to pursue. If the short-sale is being negotiated with IndyMac, you will be talking to folks in a call center in another part of the world (literally) that care little about your short-sale (or IndyMac for that matter because IndyMac no longer exists)
• If the agent, title company and/or negotiator has not negotiated/closed many short-sales, they may not know what they’re doing which lowers the chance of the short-sale being approved and you being able to actually buy the property.
• If there is more than one trust, the total approval process time doubles because the second trust typically does not start their approval process until they have written approval from the first trust.

The 10 questions listed above are very similar to the 10 questions that Frank Llosa recommends asking before seeing a short-sale in one of his (excellent) posts. One question that Frank has on his list that I don’t have on mine is…

• How long do you estimate that the lender will take to provide an answer to an offer?

The reason why I don’t have it as one of my questions is because I’ve found that some agents just throw a date out there that they pulled out of thin air. For example, one agent told me the other day that she could have an approval and settle on the short-sale “within 45 days at the most” despite the short-sale being through Countrywide who is running way behind on short-sale approvals due to their recent merger with Bank of America which involved physically moving many offices, computers, files and employees.

Forty-five days? Riiiiiight… And I have a great deal on some ocean-front property in Arizona. No, really!

Rather than relying on what the listing agent tells you, your Buyer’s Agent should know and be keeping up with the nuances and latest news regarding each individual bank/lender’s short-sale approval process and how long it typically takes. This includes anything and everything that could affect the length of time it could take (such as the Countrywide/BoA example above).

Important: If a Buyer’s Agent tries to get you to blindly write an offer on a short-sale without asking these questions first or the listing agent is not willing to answer them, be wary and look at your other options.

On a related note…I will be writing a post on which banks are the fastest at approving short-sales, which are the slowest and which banks are the easiest to deal with from a sellers and buyers standpoint. Keep an eye out for that later this week.

Search for short-sales in Loudoun County

Best Condo Investment Opportunities in Loudoun, Fairfax County

Several folks have recently asked me, “Which condo communities in Loudoun and Fairfax County offer the best investment opportunities?” Here are my thoughts and the rationale behind them…

Loudoun County

The best current bang for your buck on condos for rental investment opportunities in Ashburn is in the Westmaren community (Ashburn Farm) and the Lakeshore community (Ashburn Village). They’re both immediately next to shopping centers which make them very attractive for renters (and buyers). Westmaren has a lower price point than Lakeshore, but Lakeshore’s rental rates are higher. Both communities have decent condo fees and currently offer break-even to positive cash flow with 20 to 30 percent down at today’s interest rates.

The condos with the best future (6-10 year) potential are in the Summerfield community in Brambleton. The Summerfield condos are directly across Ryan Rd from Brambleton Town Center, which they’re planning on building either an underground or overhead walkway to/from. In addition, Summerfield and Brambleton are only a few miles from the future Moorefield Station and the last stop on the Dulles Metro Rail (Silver Line).

Fairfax County

Condos with some of the greatest upside potential throughout all of Fairfax County (if not the entire Northern VA area) can be found in Reston. More specifically, condos located near one of the two future metro rail stations (coming 2013). And the metro stations themselves aren’t the only thing being built. Roads are being redesigned, new walking/biking trails are being added, new bus routes are being designed, future growth won’t impact traffic as much as it has/does now, etc. (Click here for the Wiehle Avenue/Reston Parkway Station Access Management Plan Executive Summary)

Once the metro stops are operational (if not before), you’ll see an increased demand for condos located near those stops or on one of the new arteries leading to the stops. This typically leads to an increase in rental rates and market values.

If you’re wondering just how much upside there is when metro comes to town, just look at what effect the Orange Line from Washington, DC to Ballston had on the Wilson/Clarendon Boulevard corridor in Arlington.

One thing to keep in mind…condo fees.

In Northern VA, the landlord, not the tenant, typically pays the condo fees out of their own pocket. Make sure you factor in the condo fee when crunching the numbers.

• Condo fees in Westmaren in Ashburn range from around $175 to $300 (per month); Lakeshore’s range from $240 to $350; Summerfield’s are a bit higher than both
• Condo fees in Reston very greatly from community to community and unit to unit. I can provide you with the condo fees on any community or specific condo unit upon request

If you have any questions or need further clarification on anything, don’t hesitate to contact me.

Foreclosure, Bank-Owned, Short-Sale Properties Bulk of Loudoun Home Sales

Foreclosure, bank-owned and short-sale properties make up over half of total home sales in Loudoun County. This has been the case for some time now and will most likely continue through at least the end of 2009, if not longer.

A few things I’ve noticed…

1. The percentage of foreclosure/bank-owned properties to total sales has decreased. This probably has to do with the foreclosure moratoriums that were in place from the end of 2008 to March 31 of this year.
2. The percentage of short-sale properties to total sales has increased. This is due to banks becoming more willing to accept short-sales and because more sellers are trying to take the short-sale route rather than being foreclosed on.
3. The increase in short-sales has left more home buyers frustrated than every before. The short-sale process is long, requires a lot of patience and has less chance for success than a foreclosure/bank-owned and traditional sale.

We should start seeing more foreclosures come on the market now that the foreclosure moratoriums have been lifted and Fannie/Freddie and other banks are back at it foreclosing on delinquent borrowers. In one way, this is a good thing because it will give home buyers more straight-forward and less stressful inventory to choose from. In another way, more foreclosures on the market could be bad because it could put downward pressure on prices. It all depends on the rate at which banks release all their foreclosure properties on to the market.