Frequently Asked Questions
General
What is a short sale?
In simplest terms, a short sale is when, through the sale of real estate, a lender or lienholder voluntarily accepts less money than what is owed. Most often, this is an alternative to foreclosure. Lenders agree to accept less because they know they will recover more of their money sooner than if the property goes through foreclosure and is re-sold it as a bank owned property or REO.
Junior liens often get wiped out in foreclosures and many times they want to make a deal to receive something rather than nothing. The borrower may or may not be released from the remaining liability, depending on the original note and type of obligation.
How long does a short sale take?
Real estate transactions normally take 30-45 days in the best of circumstances. When we have to request a lienholder to take less than they are owed, we’re usually adding anywhere from 2-3 weeks to 90 days, depending on a variety of factors: how far along the foreclosure process is, if the lender has completed a value or reviewed seller financials, loan type and if there are junior liens. Truly case-by-case.
Can the owner stay in the property?
No. The intent here is to sell the property. The lender will not allow the seller to receive ANY benefit if they are taking a loss and all parties generally need to sign contract addenda and anti-fraud affidavits confirming this.
At what price should the property be listed at?
Short answer: Market value.
We see many short sales listed at the total of the encumbrances and this is simply incorrect. While this might be fine for an initial price to see if the seller can paid everything off in full, once a foreclosure sale date has been scheduled or it officially transitions into a short sale, the price should be brought into a realistic range. Any lender considering a short sale will want to verify the value independently through an appraisal or BPO (broker’s price opinion). Not only will a high price fail to attract buyers, but it may skew the lender’s value higher than it should be.
Can the seller receive any money in a short sale?
Rarely. This depends on a variety of factors such as seller assets, loan type, presence of junior liens and occupancy. As you can imagine, when a lender is accepting less than what is owed, this doesn’t come easily. Lenders can offer “Relocation Assistance” which is usually anywhere from $1500-$5000 but is dependent on lender approval. Often it is only allowed if there are no other liens, property is currently being occupied as primary residence and is not required to make a cash contribution to the closing. It’s very case-by-case and we only see about 1-in-4 get it approved.
For Brokers
The seller is current but doesn’t have cash to bring to closing, can you help?
Unlikely, but give us a call. For a mortgage lender or junior lien to agree to accept less than what is owed, there has to be threat of the property going through the foreclosure process and becoming banked owned (REO) or we have to show proof of imminent default. If the seller is current on their payments, there’s generally not much that can be done unless they’re 30-60+ days delinquent. In some extreme instances, if we can show default is imminent (such as death of co-borrower, medical incapacitation, job relocation, etc.) it can be explored further.
We’re currently under contract and just discovered a lien preventing closing, can you help?
Depending on the type of lien and how much equity the seller is receiving, it may be possible. For example, IRS liens have a path to release if there is no equity. A judgment or UCC lien could be very difficult if all obligations are current on payments. Title matters can often take weeks or months to resolve and keeping the buyer on board is often a top concern.
How are commissions and closing costs handled in short sales?
Common selling expenses such as commissions, title fees, taxes, concessions, prorations are paid as normal and the foreclosing lenders receive what’s left over. Many loan types and investors will allow up to 6% in commission to be paid (FHA, VA, Fannie Mae, Freddie Mac, USDA). However, junior liens such as HELOCs, judgments, HOA liens, etc. may require a commission reduction in order to approve. Some costs like admin fees, utility payoffs, and remote closing are unlikely to be approved.
How do you work with real estate brokers?
We have three options, transaction coordination/management, hourly 1-on-1 consulting and education. See our Services page or Contact Us for more.
I don’t want to mess with any of this, will you pay me a referral fee to take my listing?
Yes, however for compliance purposes, real estate services are handled separately through http://berryhomesearch.com.
Our Services
Can you help with other loss mitigation options such as loan modifications or deed-in-lieu?
No. We only work on pre-foreclosure sale and short sale transactions.
I want to invest in foreclosures and short sales, can you help?
We keep our client’s information strictly confidential and therefore unable to add you to any type of property list. If a property is listed on the open market and it’s an arm’s length transaction, we can assist through our 1-on-1 consulting option.
Do you work in other states?
No, we provide services in Colorado only.