7 Steps to a Successful Short Sale

Following are the guidelines for short sales that we “run” through at Peskin, Courchesne, & Allen P.C. Please note that these are guidelines and exceptions can be made so long as the exceptional nature of the sale is discussed with me ahead of time. Essentially, the steps that we require have reasons and they are all based upon experience.
The ideal short sale is simple: Cash transaction priced at market value with all contingencies removed prior to short sale approval. Every added contingency is added risk that can lead to the loss of our Seller’s short sale opportunity. To avoid this loss we require the following steps and considerations:

Step 1: Title Exam

BEFORE you take the listing: Fill out the Short Sale Submission Form on our website. Click here to access the Short Sale Submission Form. Fill out the information requested on the form and mention any questions or concerns that you have. After we receive the information we will run a title search within 72 business hours and let you know what kind of adventure you are on.

Fill out the Short Sale Submission Form.
Go to the Submission Form:

 

Step 2: Complete Bank Documents

After we have run a title search we will send you an email with the results of the title search, our Office Documents, and the Bank Documents you need to complete a short sale for each lender and for this office. Print, review and fill out our documents and the Bank Documents then send them back to our office by email or fax or bring them with you when you meet with the Attorney.

Most banks require the last two years tax returns, last two months bank statements and last two pay stubs. You will also need to provide a hardship affidavit. This is a simple two paragraph letter outining the reasons that you are no longer able to make your loan payments. Please fill out your financial documents carefully!

After we have run a title search we will send you an email with the results of the title search and the paperwork you need to complete a short sale for each lender and for this office.

Step 3: Meet with Attorney

The Sellers come in for a free consultation. We want the Sellers to work with their Realtor to sell the home and not to walk away.

 

The third step in the Short Sale Process at Peskin, Courchesne & Allen, P.C. is to call anyone in the “real estate department” here at 413-734-1002 for a free consultation and Meet with an Attorney. We often meet with Sellers and their Realtors to make sure that everyone is on the same page and to present a thorough team approach to the short sale. We want the Sellers to work with their Realtor to sell the home and not to walk away.

 

The more ground we cover the fewer surprises we will encounter and the better prepared we will be when the offer comes in, and the better prepared you will be after you meet with a lawyer.

Step 4: Negotiate the Short Sale

The most important step in the short sale process is finding the right Buyer for our transaction and to negotiate the offer. Short Sales are different than normal sales. We are not looking for the highest offer. We are looking for a reasonable market value offer with as few Buyer contingencies as possible.
The ideal short sale: Cash transaction priced at market value with all contingencies removed prior to submitting the contract for short sale approval. Every added contingency is added risk that can lead to the loss of our Seller’s short sale opportunity.
Because short sales can take anywhere from three to five months, we are looking for a Buyer who is willing to wait that long. Because most Short Sellers do not have funds to bring to the transaction, we must also find a Buyer who is willing to complete inspections prior to closing and negotiate price accordingly.

 

Consider the following guidelines:
Buyer must inspect during the offer period: In a short sale the only thing we have to negotiate is price. Once short sale is approved, we cannot negotiate the price. Because Seller sometimes gets one shot at a short sale before foreclosure it is against the Seller’s best interest to leave subjective contingencies outstanding while obtaining short sale approval.
From the Buyer’s perspective it is a small gamble to pay for inspections prior to short sale approval Buyer’s opportunity costs are greater than the costs of the inspections. However, Short Sales are usually a bargain; (I have never had one fail to appraise), interest rates are going up and a Buyer can miss the entire season waiting for short sale approval.

 

If the Buyer waits, inspects and is not satisfied, that inspection report functions as an on/off switch instead of as a bargaining tool. If ultimately the deal is off, Buyer may have missed the Spring/Summer market and these wonderfully low interest rates while waiting for the short sale approval and starting over with their home search months later than they would have if they had completed inspections up front. In short it is worth the risk.
Avoid Closing Cost Credits: Closing cost credits are often reduced or denied at the short sale approval stage. If the entire deal is contingent upon the credits we may lose the deal. Also, the Buyer will often expect that if the bank will not allow the credits they will at least allow a price reduction in place of the credit – NOT SO – In this situation the bank will likely insist that the price remain unchanged and deny the credit.
Avoid “Subject to Buyer Selling their current home contingencies”: Seller sometimes gets one shot at a short sale before foreclosure. It is against the Seller’s best interest to leave subjective contingencies outstanding while obtaining short sale approval.
Avoid complicated financing relying on multiple sources: Seller cannot wait for the planets to align for a marginal Buyer. In a multiple offer situation the type of financing would trump the price Buyer is willing to pay; for example: take conventional financing over FHA or VA even if one offer is thousands better than another. We need to make the best deal for the Seller which is the least risky deal.
Remove all of the contingencies that are in your Seller’s control such as TitleV: Sales can fall through or become unnecessarily complicated because Seller is unwilling to pay for the title V tests prior to obtaining short sale approval. It is vital that we understand exactly what we are dealing with before we enter into a contract. In short sales and regular sales, the Seller vacates months before the actual sale. MANY cities and Towns will give “conditional passes” if the property is vacant for 30+ days. This means holdbacks are necessary if Buyer’s Lender allows a holdback – this can be the end of the short sale even if the system passes! The Title V report is good for 2 years!!!! Have it checked immediately!
***PLEASE USE OUR OFFER ADDENDUM***
The offer addendum is for use with the standard Realtor form binding offer used in Western Massachusetts, produced by the Realtor Association of Pioneer Valley. It removes the automatic $1,000 termite treatment and repair provision and calls for inspections priot to purchase and sale agreement.

Step 5: Negotiate the Purchase and Sale

Before you accept an offer, we have to make sure that it is a good short sale deal.

 

Before you enter the purchase and sale agreement…
Make sure that all contingencies have been removed from the contract and that the contract that we are submitting to Seller’s Lender has the final negotiated price.
From this point closing should take place within 150 days or less. The contract terms that we recommend are closing 45 days from short sale approval; mortgage contingency 30 days from short sale approval; and Buyer gives the Seller 60 days to obtain short sale approval. The inspections should be complete and the property is to be sold “as is”.
*** USE OUR PURCHASE AND SALE AGREEMENT ADDENDUM***

Step 6: Contact the Bank

Provide Updated Documentation to the Lender and transmit documentation as requested.

 

Provide Updated Documentation to the Lender and Contact the Bank:
Throughout the next 60 days we will be transmitting documentation to your lender/Bank as requested.
ALWAYS respond to our request for Seller documents within 24 hours: Many banks use on-line processing programs that such as “The Equator System” and lenders who do not participate in the Equator system have Draconian, unforgiving time lines. If we do not provide documents when asked we can be automatically erased from the system and we may have to start the entire application process over again. Delays can cause the Seller to forfeit their HAFA incentive ($3,000), other incentives up to $30,000 and and lost waivers of deficiency.

 

IT IS REALLY IMPORTANT THAT SELLERS AND REALTORS RESPOND QUICKLY!

Step 7: Short Sale Approval

Approval!

 

As soon as our office receives the short sale approval letter from Seller’s lender we will notify all parties involved in the Short Sale. At that time the Seller will be contacted to review and sign the approval letter and the sale documents with an Attorney at our Law Office. Our Office will then work to schedule a closing with all parties involved in the Short Sale.