As I am arrranging my current files in my office I realize that 80% of all my current purchases are short sales.. A total of 14 offers to purchase. I have approval, ( verbal- not worth much) on some, some are in the waiting game ( months now) and some at the very beginning of the process.  Closing short sale offers can be a very dicey proposition… A short sale is when,  as an example the home owner owes 200k on their  home and can only sell it for 170k  so the  homeowner is 30k short of having  enough to pay off the existing lien or liens on the property. Here is where the fun begins! A buyer comes along as says fine, I will pay 170k for the home as that is what it is worth now. The seller says great I will take that offer of 170k and we are off an running. The bank or banks that hold the liens on the first and second ( most short sales have a first and second) have to agree on the purchase price and how the amount the sale will be short of covering the existing liens will be handled. ( How much first and second lien holder agree to take in funds or from amount short of  full payment of liens). The fact that you get a seller to sign a contract on their home when it is a short sale really doesnt mean much at all, just that they will agree to the price if the bank does. The decision is completely the bank or banks involved as to whether they are OK with the price. Their will be a negotiator from the bank, there will be a BPO (Broker Price Opinion) done by the bank to see whether the price being offered by the new buyer meets their minumum for current market conditions.  Now when the bank says OK if they do…then the sellers will be presented options from the bank/ banks on how in this case the roughly 30k short to cover existing liens  will be addressed. The bank,banks can forgive the debt, the sellers may have to pay income tax on the 30k   as it is income if the bank forgives the debt, could be a lien which would   have to be paid back some how. Any number of things can happen in the end game. So after waiting for 1-6 months the deal can be off in a matter of minutes if the seller balks or is not willing to go along with the terms the bank / banks offer. Here is a couple examples that have happened to me in the month of Novemeber. With one buyer we waited for 4 months and got the offer approved with the bank and were going to be able to beat the looming foreclosure that would occur if not closed by a specific date. On this home there was a small first mortgage and a large second mortgage. The bank that owned the first mortgage took out a mortgage insurance policy on the second to protect their interest in the property. So… in the eleventh hour after a verbal approval but before the written approval was issued the bank that held the first withdrew their approval and decided to let the home go into foreclosure. This is a business decision and really can not fault the bank for proceeding this way as now they can get the insurance money and most likely collect more money in the final sale of the property  than what my buyer was offering.  My second example was a transaction that had one condition left to get the loan documents out to title… the seller decided to file bankruptcy in the 12th hour which terminated all proceedings in the sale of the home. Now it will be up to a judge. I speculate that the terms the bank offered the seller were not possible for the sellers to meet. Probably figured that better to file Bankruptcy and wait a few years and buy again. So in short …. Short Sales are very time consuming and have a lower chance of funding than a  bank or seller owned property. Tomorrow I will write about what the Feds are doing to put the pressure on banks to expedite,  and standardize the procedure for selling Short Sale Properties.

Michael Frakes