Selling Poinciana One Property at a Time.: Short sales. It's not only up to the Lender.

Short sales. It's not only up to the Lender.

This is the third part of my series on short sales. As way of disclosure, I am NOT an expert on short sales, I am using this series as a way for me to think through the process and hopefully become better prepared to help some Sellers who may qualify for a short sale.

A short sale can be a very complicated transaction. Not only are we negotiating with the Lender but there is another entity who may be involved as well....the Private Mortgage Insurance (PMI) Company. Most Buyers, that did not put at least 20% down when they purchased their property, were required to purchase PMI for the benefit of the Lender.

PMI protects the Lender for loses usually up to 20% of the loan amount. So, they have a say so in whether or not a short sale is accepted.

I am in the process of negotiating a short sale right now where I am actually negotiating with the PMI Company instead of the Lender. This is a first for me but so far it seems to be going well. The lady I am dealing with has been very helpful and she is the one that is handling the negotiations with the Lender. Have you ever done this before?

I'm very anxious to see how this plays out. Brian Brady wrote a very good post about this a few months ago titled "A Realtor's guide to PMI and Short Sales". Give it quick read.

Anyway, the point of this post is to make you aware of the fact that a short sale is a lot more complicated than just getting the Lender to agree to a price. The Lender is looking at the bottom line. If the short sale does not NET them more than a foreclosure then it ain't happening.

When meeting with potential Sellers you need to find out if they have PMI. If they do, then do the math. Brian is better at that than I am so if you haven't already....go read his post.

OK that's it for today. These are my thoughts. What are yours?

Other posts in the series:

A "short sale" is an option NOT an entitlement!

Becoming a better "short sale" expert. A series by Broker Bryant.

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Comment balloon 28 commentsBryant Tutas • January 15 2008 03:45PM


Reserved Parking For "The Lovely Wife"...TLW...ROAR!

Blog Boy...

Ooops! Sorry about that. I had to hit the treadmill. It was either that or join the Elders for Cocktails and Bingo at the Club House :) 

Now after having walked uphill for a mile and a half I am too 'pooped' to pop the serious side of me :)

If I think of anything that adds value to your post I'll come back. I feel like playing.

P.S. Told ya I was working on "poop" :)


Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) over 11 years ago
this is true. You seem to have to work every angle...this are a pain in the you know what!
Posted by Jeffrey DiMuria 321.223.6253 Waves Realty, Florida Space Coast Homes (Waves Realty) over 11 years ago
Thanks for doing these series on short sales. I have not done one but if it does come up I will have learned a few things from you. I did read Brian's post too and I'll have to go back now so I can study the math....again. :)
Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) over 11 years ago
Bryant, very interesting. Thanks for posting this. I'm not a short sale expert either, but I want to be prepared in the event I have the opportunity to negotiate a short sale.
Posted by Craig W. Barrett, Hughesville MD Real Estate (RE/MAX 100) over 11 years ago

Thanks so much for all of these tips and advice!  I have found this all very useful!

Posted by Leesa Finley, RED Properties - Raleigh NC Real Estate (RED Properties) over 11 years ago
If you think the PMI can be tough, try working with a second mortgage. They are trying to hold deals hostage in hopes that the first will give up more.
Posted by Mike Russell, Overland Park Kansas Real Estate (Mike Russell & Associates) over 11 years ago
I'm going to live vicariously through your experiences before I jump into the next one.  I would not have considered a PMI company until it hit me in the face, or I read your blog.  I'll go with the latter, and LEARN. Thank you.
Posted by Laurie Mindnich over 11 years ago

I've been involved in two but didn't have to deal with the PMI company on either one.  That could change with #3 though.  Thanks for the information.

Posted by Jesse & Kathy Clifton, Retired (Jesse Clifton & Associates, REALTORS®) over 11 years ago
The same is true with FHA and VA loans. If you ever have the fun of trying to negotiate a short sale on one of those, you need to get approval from the lender and from the FHA or VA.  They have their own rules and special ratios that have to be met before they will approve a contract.
Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) over 11 years ago
Okay let me think about this: work on short sales here with the blogs or in a class?  I would rather be here and work on this stuff in classes...thanks so much for this series! 
Posted by asdf zcxv, Ann Arbor Area Real Estate (Keller Williams Realty) over 11 years ago
BB - Unfortunately most buyers who are looking seem to be unclear on this concept - If the short sale does not NET them more than a foreclosure then it ain't happening. Thanks for articulating this succinctly and clearly.  It will become  part of my dialogue from now on working with bargain shoppers.
Posted by Marlene Bridges, Laguna Homes|Laguna Condos|Laguna Real Estate (Village Real Estate Services, Inc.) over 11 years ago
I'm in the middle of a short sale now.. this is my first since the 90's.. They can be a good deal for all concerned but they take a lot of patience from all parties involved.. Good Luck with yours..
Posted by Kaye Thomas, e-PRO, Manhattan Beach CA (Real Estate West) over 11 years ago

I swear ... by the time this market is done with us, we will ALL (well, all who are left in the biz) be Short Sale Experts. I have been in the middle of one short sale after another, non stop since I joined AR in Sept 06.

Short sales (whether you represent the buyer or seller) is an exercise in patience, diligence, repitition, and really makes you WORK HARD... and generally for less money. Geesh. Oh well. It is the way of the market right now.

Good luck, Blog Boy!

Posted by Derek and Mariana Wagner, The Artisan Group - Colorado Springs REALTORS® (The Artisan Group- Keller Williams Premier Realty ) over 11 years ago
I haven't run into many short sales in my area, but am starting to see more of them popping up in one or two communities.  The PMI company will definitely be a factor in some.
Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) over 11 years ago

Thanks for the mention, Bubba.

That post was an oldie; 15 months ago! 

Posted by Brian Brady, 858-777-9751 (San Diego VA Home Loans/858-777-9751) over 11 years ago
I keep coming back to learn more about short sales everyday. Thanks for the update. No one knows it all and AR is a great learning resource.
Posted by Dan Forbes over 11 years ago
Great info BB!  I have a client who made an offer on a short sale but the Lender would not accept the offer because it was not a Fannie Mae Loan.  They said they needed to make an offer with a DU (desktop underwriter) approval.  I told the Realtor that the loan that they are approved for ( a real approval) was not a fannie mae loan.  Lender would not accept the offer.
Posted by Matthew J Blum - (retired from the business) over 11 years ago
BB,  Thanks for the posts and info.  It's surely helpful because I'm thinking of speaking with a client about heading in this direction.
Posted by Marc Grossman, GRI, Greater Orlando Real Estate Broker (Marc It Sold!) over 11 years ago

Hey everyone, Thanks for stopping by. I've been busy today so kind of abandoned my post. But as always I really appreciate you stopping by and participating.

Very good comments! As usual they add to the post. Thank you.

Rob, I haven't had an FHA or VA yet. It sounds like I may just have to pass on those.

Mathew, That is interesting. I wonder what their thought process was on that?

Mariana, Patience and more patience is certainly required. Good to see ya.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 11 years ago
Bryant:  Thanks for the advice... Very informative post.
Posted by Jan Wood (None) over 11 years ago
Broker Bryant...patience is the operative word.  If you have the patience and enjoy the repetition of jumping through all the hoops like a trained circus dog,  then the Short Sale process is perfect for you.  (you being a generalization, not a personal thing by any means)  It is a lot of work and there is a risk attached with such a small success rate. Having said that, it is also another way of doing business.  Good luck in thinking through the process. I know you will do well with anything you tackle.
Posted by Allison Stewart, St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904 (St.Cloud Homes ) over 11 years ago
So many buyers these days are asking to be shown short sales without a full knowledge of what complexities of the transaction. I find it interesting that many buyers I've met with lately are more drawn to short sales than to a similar house at a better price. Shows the effect of quickly skimming the news.
Posted by Steven Dean (Compass Real Estate | 202.545.6900) over 11 years ago
Broker Bryant -- We are seeing an increase in short sales in my area and I feel the need to educated myself on the process and the players.  These posts are helpful and I look forward to the next one.  I am off to read Brian's post for more great info.
Posted by Lori Gilmore, Realtor - Will County Illinois (Baird & Warner Real Estate) over 11 years ago

"If the short sale does not NET them more than a foreclosure then it ain't happening"

 This is important, but rather useless without context. How do mortgage holders determine what they think they will NET after foreclosure. My understanding has always been that mortgage holders usually screw this up to a faretheewell. They look down their noses at some short sale offers and then end up taking 40% less 18 months later through foreclosure.

 Sellers should only be concerned how THEY THEMSELVES NET out. Trying to figure out the brains of the mortgage holders and how they figure these things is a fools errand.

Posted by RRsafety over 11 years ago

RRsafety, I hear ya! Lender are usually depending on an independent BPO(brokers price opinion) and/or an appraisal to arrive at what they feel it would sell for on the open market as a banked owned property(REO). Then they make a judgement call. One of the problems with trying to sell a home via a "short sale" is that once you disclose as a short sale needing 3rd party approval it affects the market value drastically.

Very few buyers are willing to wait the several months this process may take unless there is a considerable discount involved. If the lender decides to foreclose they will actually have a better shot at getting a higher price for the property BUT their expenses are quite a bit higher. Plus they have to factor in that in some areas the values are still declining. Time is money. It may be best to take less now than take the risk and cost of a foreclosure.

You also wrote, "Sellers should only be concerned how THEY THEMSELVES NET out" Well that's an easy one. The NET to the seller is the same in both cases. SQUAT! The only difference between being foreclosed on and doing a short sale is how it would affect their credit(short sale is a little better) and of course there could be tax and deficiency judgements to consider. 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 11 years ago

It is complicated and really needs to be understood ... there is NO room for On-The-Job-Training.  There is potential for litigation if agents mis-handle a short-sale and it pushes the seller into foreclosure.

Currently we are writing a short-sale course.

Posted by Allen C. Wright, NS, AHS, REPS (RealtyU) over 11 years ago
HAaaaaaa  I love your sign... did you find that or make it?     Very great post BB --- but I am sure you already KNOW that :o)
Posted by Katrina Madewell, Tampa FL Homes for sale | Tampa Bay - (813) 777-1196 (Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196) over 11 years ago
Thanks for the great info Bryant.  I wrote a short sale contract about a week ago after talking with my broker, researching the correct procedure and trying to educate my buyers of the process -- and the fact that they probably won't get the property as there are other offers for this waterfront home.  We'll see.  I'll re-read your blog in my downtime!
Posted by Annette Smith, Sarasota Real Estate Agent (Allen Real Estate Services, Inc.) over 11 years ago

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