How Short Sales Have Changed in the Year 2015
Increases in home values in the Portland area, defaulted properties going to foreclosure and home owners completing short sales are all contributing to a reduced amount of short sale inventory. However, high demand from well-qualified home buyers and a pronounced dearth of available homes for sale in Portland mean that short sales remain a viable option for sellers with negative equity as well as cost-conscious consumers looking for a good deal on real estate in Portland, Oregon and surrounding communities. Further slowing down housing inventory turnover are home owners who are upside down that may be holding out on selling in the hope that prices will increase further and allow them to sell at a higher price that would leave them with money in their pockets. All that said, there are still many home owners who are facing foreclosure that need a fresh start or simply want out.
First and foremost, it’s important to have an experienced agent to meet with to discuss your options. For our clients one of the first questions often raised is “how much is my house worth?” This is important because it may be possible to sell your home without a short sale or it may be possible to pay off the 1st mortgage entirely and only be a bit short on the 2nd lien. These details can make big differences in how a short sale might fit with your short, medium & long-term goals. Multiple liens (more than one ‘mortgage’) on a property does add steps to the process but our firm has an excellent track-record in reaching positive resolutions for these unique situations. Strategies for short sale vary depending on whether you’re dealing with a second mortgage that was used to purchase the house, refinance, pay off other debts, or if it was a HELOC (Home Equity Line Of Credit).
Stopping Foreclosure With Short Sale: Auction Postponement
In many cases, banks will postpone looming foreclosure dates to accommodate the short sale process which has helped many home owners get a little extra time to land on their feet. That said, intentionally fouling the short sale to get more time in the house can have unpleasant consequences and is not recommended. At the outset of a short sale it is very useful to send an offer in to the bank just to get the ball rolling. How the bank responds to the offer, how long it takes and what additional information the bank may ask for are all questions that can be answered by using an initial offer as a trial balloon. Probably the most useful part of the first offer made on a short sale is finding out how much the bank is willing to sell the house for; which is extremely important information to have. It’s important to realize that banks will sometimes opt to foreclose on properties no matter what documents are submitted. In my career negotiating short sales in Portland, OR I’ve seen more than one instance where a bank opted to foreclose because the property was only upside down on the second mortgage. In these scenarios the first mortgage may have financial incentive to foreclose.
At times, some sellers have been tempted to use questionable, aggressive tactics to try to coerce a short sale into falling apart in the hopes of using the ensuing confusion to gain unfair advantage with the bank or to harm a buyer for their own gain. In some cases this may include attempting a prohibited and dangerous less-than-arms-length transactions. However, in my tenure as a broker I’ve seen situations where sellers pursuing unethical gain have faced serious legal consequences. Most of these situations can be very easily avoided by simply working through the short sale dealing with the other parties (bank, buyer, seller, Realtors) honestly and in good faith. As always clients are advised to seek legal counsel if unsure about a transaction. Ask your agent many questions, do your own research and obtain legal counsel when in doubt.
Be prepared to wait patiently for the bank to respond but also keep in mind that when banks ask for documents you will have a very limited amount of time to respond. At times it may seem unfair that the bank took months to respond but only gives you a few days to respond however when one looks at the big picture of auction postponement & foreclosure avoidance it becomes clear that the mild inconvenience of paperwork (that we can help you with) pales in comparison to the huge benefits that our clients receive in the process. After all, getting even a few extra months in the home while reducing bad debt in a proactive manner is something that pretty much anyone can benefit from in today’s financial climate.
To recap: short sale is a proven (but not always fool-proof) method of postponing an auction date and also avoiding foreclosure. However, there are some cases where lenders opted to foreclose because it was in the bank’s perceived financial interest to foreclose or the bank representatives may have felt that home owners were taking advantage of the bank’s lenience toward the home owner in the process.
Offers On Short Sales
Some banks will issue a “recommended list price” even without an offer. At times this list price or settlement figure may have a little wiggle room but in other situations the bank won’t even consider a short sale or a settlement figure until there is a valid, fully singed offer in play. But, despite the benefits of approaching the bank with an accepted offer at the beginning it is generally not the best strategy to accept an offer that seems doomed at the outset unless all other options have been exhausted. An offer with bad terms being sent to the bank may result in months of delays, failure of the short sale and even being tied down to an investor who may not actually have the money to proceed with the transaction. Having the property foreclosed because the accepted offer was so horrible that the bank cancelled the process is not a good conclusion. In many cases our office prefers private party buyers who intend to live in the house after purchase and who are not under time pressure to close the deal fast. Buyers who have to move soon may be okay for a short sale where we already have an approved price and can streamline the approval process but may not fit in a deal where there could be months before the bank makes a decision. In other scenarios a house may have structural or other issues that make it unappealing to private party home buyers but a good value for builders and investors. There are ways to protect one’s interests from over-aggressive investors. As explained in greater detail below, one of the big red flags to be aware of are “assignable” offers that allow the buyer to transfer their offer to another buyer.
- An assignable offer gives buyers a way to dupe another buyer into buying the house at an inflated price.
- The buyer who writes an assignable offer may be very unlikely to proceed with the closing if the buyer can’t find another buyer to dupe into paying more. This can result in sellers putting in months of effort with a buyer only to find out that the buyer flaked out on them at the last second.
- Assignable offers are often written below what a short sale bank is likely to accept which increases the failure rate substantially.
- Investors writing assignable offers are often playing a “numbers game” where they write dozens if not hundreds of offers hoping that out all of them they’ll squeeze a few offers through and make a lot of money. However, this hurts the 90% of sellers who the buyer flaked out on.
- Banks know about assignability loop-holes, flipping etc and have ways of shutting down most of these schemes which results in many of these offers being denied anyway.
- Be aware that eager investors are constantly looking for ways to create a situation where they can assign another buyer and over the last few years I’ve witnessed a number of situations that create a backdoor to an assignable offer without coming out and blatantly stating it.
- Your Realtor being flooding with shady/flaky investor offers costs valuable time that could be better used helping you the home owner complete your short sale which delays your being able to make a fresh financial start.
Why Are Assignable Short Sale Offers Potentially Harmful
One thing to look for and usually avoid are “assignability clauses”. An “assignable” offer is one that the buyer can resell to other buyers in an attempt to make money as a middle man. The buyer making the assignable offer wants to get the seller tied down to their offer so they can try to find their own buyer and dupe that new buyer into paying a higher price. Banks have got wise to this strategy and are very strict in prohibiting it but there are still investors attempting to exploit these loopholes to their own gain. These assignable offers have a high probability of being harmful to sellers for a number of reasons as explained below.
These are only a few of the many reasons why you may want to think twice about an assignable offer on your short sale but as always it’s always a good idea to ask your broker lots of questions and to seek legal advice before signing documents you’re not sure about.
All that said, obtaining and accepting a valid short sale offer to purchase on the property and submitting it to the short sale bank for review is a proven strategy for kicking off the short sale and as a way to learn about how your bank will proceed and what terms the bank may require. When we meet to discuss your options and how we may be able to assist you we can go in to greater depth about the process and what to expect from the bank and from us.
Our high number of closings and our industry-leading success rate on obtaining short sale approvals means we can use real-world examples (with addresses and names withheld to protect our clients’ privacy) that will help you know more about the types of scenarios that have played out with you lender or in similar situations. Other Realtors, Office Managers and Principal Brokers have called us for advice/opinion about short sales. We enjoy helping our clients and we’d love to learn more about how we can help you too.
Thanks for making us your first phone call.
Richard Lockwood | Real Estate Broker
Licensed in the State of Oregon
Oregon Realty CO