I understand that 3% or 6% is the standard seller’s contribution. If a seller agrees to this contribution, can their lender still decline? Ie, Can their lender offer 0% contribution towards closing costs?

Short sales are a tough thing to master. Having negotiated short sales in central texas for almost 4 years, our company, Superior Loss Mitigation, has seen it all, lenders not agreeing to deals and causing foreclosure over $1,000, or less, homeowners that want a short sale, but neglect to get thier paperwork together, buyers that team up with a Realtor to search for short sales to buy, only to say they don’t want to wait for the deal to negotiated, phone hold-times of over an hour, lender representatives telling us they “don’t do short sales”, and small local companies that hold a lien for a couple of thousand bucks refusing to release their position out of spite, etc., etc. If you can think of a short sale scenario, we’ve probably seen it and dealt with it.

Throughout the hundreds of short sale transactions that we’ve negotiated, the hundreds of meetings with homeowners, and the thousands of phone calls with banks, Realtors, and potential buyers, one of the questions we get asked most often is, “How long do short sales take? The answer to this question, unfortunately is a very loaded one.

In a general sense, on average, they take about 3-5 months to complete from start to fininsh. But, more time may be needed depending on the complexity of the short sale. Here are just a few.

1) Multiple mortgages. If there are 2 or more mortgages on the property, ALL of the lenders will need to be in agreement about the terms of hte short sale. Well, you would think that wouldn’t be a big deal since both lenders stand to lose more money if the property goes through foreclosure (especially the 2nd, since they end up with the big goose egg, $0). However, most of the time the 1st mortgage bank is the one foreclosing on the property, so they get to “dictate” what the other lienholders get at closing…a “like it, or lump it” scenario. Their stance is, “Hey, we’re the ones foreclosing. And if we do that, the 2nd gets nothing. If we agree to this short sale, we’re going to decide our TAKE and their GET.” So, common sense would suggest that if the 1st allows even 5 or 10% of what the 2nd lienholder lent as payoff at closing of the short sale, that the 2nd would be OK with that since their alternative is to get $0 upon foreclosure. This used to be the case in most short sales. Not so any more. The 2nd lienholders have lost so much money on a national level to foreclosures, that they are now pushing back for more than the 1st mortgage’s “allotment”. And often, they DO get more from teh deal, whether it comes from the buyer at closing, the homeowner sends in a lump-sum payment on their debt prior to closing, or the Realtors involved contribute to the 2nd from their commission. We’ve also negotiated short sales in which the 2nd lienholder couldn’t be satisfied, no matter what. This is where the common sense breaks down, because instead of taking the $2k, $4k, or $5k, they are willing to accept $0. Working all of this out, can add an additional month to the process.

2) IRS Liens. It goes without saying that every one of our clients is experiencing some sort of financial hardship. Most of the time job loss is the culprit, and with extended job loss, some of our clients cannot pay their income taxes either and find themselves with IRS liens attached to the property. I’ve had negotiators at the mortgage company tell us that these are “deal killers” and useless to address. Not so. What is often misunderstood is that the IRS liens are liens against the PERSON for unpaid income taxes, not against the actual property. If it can be shown to the IRS that they have nothing to gain from their lien attached to a property that has been approved for a short sale closing, they will remove it MOST of the time. Is it easy to do? Not really, but that’s why a short sale specialist is needed to navigate these difficult situations. Most Realtors and investors that say they can “process” short sales, are stumped when they run into this type of issue. Having to have IRS liens removed can add about 2-4 weeks to the process.

There are many other factors in a short sale that can create additional delays in the timeline like judgments, tax suits, mechanics liens, water softener liens, mechanics liens, etc. Additionally, the buyers can cause delays as well if their financing is not completely approved PRIOR to looking for a short sale property. (Here’s a quick tip…if you get an offer on a short sale you are negotiating, require that the buyer have everything done in regards to their financing EXCEPT FOR their interest rate lock, their appraisal, and their inspection. Upon receipt of the short sale approval, pull the trigger on those things to help ensure that you close on time.)

Check our our video series where we address all of the most commonly asked questions we get in our office regarding short sales. We hope that clearing up the misconceptions, misunderstandings, and providing education about short sales will help get more of them closed and more foreclosure avoided. See our link below.

MYTH: I must stop making my mortgage payments before the bank will approve a short sale.

TRUTH: You do not have to stop making payments on your home in order for the bank to approve a short sale. What the bank needs to see is a solid reason why you are unable to continue making your monthly payments and/or must sell (loss of job, relocation, divorce, etc.). Due to the current market conditions the banks generally understand why the short payoff is being requested – whether you have missed payments or not.

MYTH: If I am doing a short sale I am in foreclosure or pre-foreclosure.

TRUTH: A short sale is simply requesting the bank to accept a total payoff of your loan for an amount less than what you owe. You are only in foreclosure when you receive the foreclosure notice from the bank.

MYTH: I have a second mortgage or home equity line so I can not do a short sale on my home.

TRUTH: The majority of people we work with have both a 1st and 2nd or home equity line. In this situation the 1st mortgage generally approves an amount for the 2nd and we negotiate between the two. The 2nd mortgage company is accustomed to taking a much lower payoff.

MYTH: I will receive some money back at closing.

TRUTH: When you sell your property as a short sale you are not entitled to receive money back at closing because there is no equity in your property.

MYTH: The bank will not pay the commission for my real estate agent and/or the costs of listing the property with a real estate agent will be passed on to me.

TRUTH: A real estate agents commission is taken out of the banks proceeds at close of escrow. There should never be an out of pocket expense for a seller who lists their home as a short sale with a real estate agent.

MYTH: Short sale homes are priced lower than other homes in my area.

TRUTH: Short Sales are priced in line with other comparable properties in your area. Your mortgage company will do their own version of an appraisal of the property to make sure they are getting a fair payoff on the property. Length of time on market, condition of the home and how quickly the Seller needs to close are all conditions that affect the price of every listing – short sales included.

MYTH: I have a foreclosure date approaching so there is not enough time to do a short sale.

TRUTH: Because it is generally far more expensive for the bank to foreclosure on your home than to work with us on a short sale we can postpone the sale on your home in most cases while we are marketing and/or negotiating your short sale.

…in the Atlanta, GA market.