Should You Buy a Short Sale Property?

The current market is making me feel older than dirt.  Mostly because there are fewer and fewer agents around who have sold real estate in a previous bad market.  I find myself explaining what is going to happen next, to many who have never been through a short sale from beginning to end.  Even if you take classes about what may happen, it doesn’t replace the experience of living through what actually does happen.

Everyone wants a bargain, especially in this market.  But the truth is that many bargains go to investors and people inside the industry, because they can handle all the hiccups better than owners who plan to occupy the property.  Whether it’s a short sale, a foreclosure, an estate sale or other “discounted” property, often it’s like buying yesterday’s donut.  You can expect something to go sideways in a short sale, and often you can’t get it to go perfectly straight.

short sale1) The closing date may be delayed. In fact you can pretty much count on it.  For someone who is trying to coordinate a move, this can wreak havoc on their life.  If you are trying to link together the sale of your house with the purchase of a short sale, well good luck with that one.  If you are trying to give notice to your landlord and be able to move into the short sale property on a firm given date, not always a reasonable expectation.  Most often short sales involve a series of extentions strung together until it closes. If someone is not planning to live in the house, such as an investor, not a huge big deal.  But for someone trying to move into it, it can be a nightmare of uncertainties.

2) The bank does not approve the sale price. One of the hardest things to understand about a short sale is that the buyer and seller agree to a price, but the bank is the one calling the shots.  Even when you get the HOORAY OK from the bank, the road can be very bumpy to the end.

Say you are buying a house for $820,000 and the payoffs on the seller side are $860,000 including a first and second mortgage and seller’s closing costs including exise taxes.  The 1st mortgage is going to be paid in full, so it is the second mortgage lender who is agreeing to whatever is left after other costs are paid. You send them an estimate that they are going to get $60,000 of the $120,000 owed to them.  They say OK.  Now during the time you waited for them to say OK, guess what happened.  Yup.  ALL THE COSTS INCREASED!  The first mortgage payoff got a lot higher than expected.  The utility bills went into arrears and the utilities may even have been shut off.  The arrearages grew and grew and now the 2nd lender who agreed to take $60,000 is only getting $50,000.

You can see how this can turn into a big yo-yo affect with the buyer feeling like someone is not telling the truth.  Yes the 2nd approved the short sale.  No the 2nd isn’t letting it close now.  You must remember that the 2nd mortgage never approves the sale price of $820,000 in the example above. They approve the amount that they are going to be “short” on their payoff.

The buyer thinks the bank approved the sale price of $820,000 when we got the first Hooray OK, when in fact what they approved was receiving $60,000.  Now when you do the final closing statement and the payoff is $50,000…you are back to square 3.  You are not back to square 1.  You have made progress.  But not as much as you thought and the closing date is again delayed and the sale, again, may not happen at all.

3) Now you get to the final stage.  The bank approves the $50,000 or the buyer agrees to come up with an additional $10,000.  Somehow the gap between the $60,000 approved and the $50,000 left to pay the 2nd mortgage has to be bridged.  Possibly with a little give and take on everyone’s part, including the agents.  The buyer who is now being asked to give a bit more than agreed to at a sale price of $820,000 doesn’t understand why.  “I thought the bank agreed to the price of $820,000?”  Remember, the “shorted” lien holder never approves a sale price.  They approve the “short payoff” which is a moving target! It can get very frustrating and difficult to comprehend and follow.

4) Now the buyer wants to walk through the property the day of signing.  Uh-oh…the utilities are shut off.  Anyone who can’t make their mortgage payment and who is not living in the house, is not likely to keep the utility bills current during this long approval process. Yes it is reasonable for a buyer…normally…to want the utilities on for the final walk through or for the inspection.  But getting them turned on is easier said than done.  Whose name do they get turned on in?  If it is closing in the buyer’s name in 3 days, they likely don’t want the utilities in their name yet.  In fact the utility companies may not even let a non owner/non-tenant put the utilities in their name.  It clearly is not something a lawyer would advise a buyer to do prior to closing.

The seller isn’t forking out any money to get the utilities turned on, they have no proceeds and are not putting any money into the house.  Same goes for repairs.  You walk through and see something wrong with the house and want the seller to get it fixed.  No way Jose.  Seller is walking off with his tail between his legs licking his wounds.  He’s often depressed and disgusted and beat up by life.  He’s not coming over with a licensed contractor to make repairs.

5) The Buyer Agent often agrees to a short commission.  So if you have arranged with your Buyer Agent to recieve a portion of the commission, don’t be surprised if that amount changes at the end.

Lots of headaches.  Lots of uncertainties.  The truth is that investors foresee most of this.  They don’t care as much about the mundane things like what date it will close or making repairs.  They are going to gut it anyway.

So the next time you wonder why investors and insiders always seem to get the best deals, ask yourself this.  Who else would put up with all of this nonsense?  Looking for a bargain?  Great.  Just remember this.  It’s often like buying yesterday’s donut instead of a warm Krispy Kreme straight from the oven.  The taste left in your mouth after all’s said and done…may be a little stale.

This entry was posted in Short Sales and tagged , , , by ARDELL. Bookmark the permalink.


ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: cell: 206-910-1000

388 thoughts on “Should You Buy a Short Sale Property?

  1. Ignoring the headaches, I don’t think there’s any reason that a short sale situation would get you a better price. If you want a good price, look for vacant property where the owner has a decent amount of equity.

  2. Kary,

    While it is true that a short sale does not always or necessarily translate into a “better price”, it certainly can be a better “value”.

    One has to know how to value the property properly. But here in the Seattle area if the property is selling for less than the current owner paid for it, without any cash out refinances, it is likely a good value. Unless the original buyer overpaid for it. So you have to know how to value property, and not rely on appraisal values, to be certain of whether or not it is a bargain.

    But it clearly can be a bargain and often is. Just not a guarantee. Most agents, even me, pull our hair out and don’t necessarily look for the “opportunity” to sell a short sale. But that is no reason to pooh-pooh the bargain quality the short sale may have for potential buyers.

    For agents it’s a whole lot more work for less commission. So I’m not running for Short Sale Maven for sure. But if it’s the best house and the best value for one of my clients, I’ll take the hard knocks once in a while.

    • Very well said, Ardell! Sorry for sneaking in but I just so agree with what you said. Without a doubt, home buyers like me should not merely rely on appraisal values even with the guidance of a good agent it is still important that buyer try to familiarize himself with basic but important aspects like learning “how to value a property”. Like you said, its the key to figuring out whether or not it is a bargain! Been there myself and I don’t regret I did!

      Congratulations for this very helpful and interesting post!

  3. Great post Ardell…Have seen this stuff in years past, and here we are again. The buying public reads a book on “Get Rich Quick In Real Estate”; or might go to someones seminar on buying property cheap in “today’s market”, and feel they can make the numbers work.
    Usually this does not work out with these expectations in mind.Just too many unknowns for most to sort out.

  4. I was not on my knees. I was in my work clothes. But yes, you guessed it. The photo in the Seattle Times a few weeks back was me planting St. Joseph at a short sale.

  5. Ardell, I don’t buy it. Having to convince two entities to accept a price (seller and bank) isn’t going to make it more likely that the price accepted will be a good price than if it’s one entity you need to convince. And I’d guess over half the short sales have nothing to do with what the owner paid, but instead are the result of refinancing activity.

    I would agree short sale listings are not something an agent is likely to eagarly want to obtain. They’re a PITA because of the dealings you have to have with the various bank personnel, much of which you described.

  6. Just my opinion: The short sales our office have handled and also in having conversations with others in the the business lead me to believe the short sales might be the result a lot of fibbing on financing the property and 100% nothing down programs. But you certainly cannot discount that the price one pays for the home— plays a large role. The larger caveat is that the short sale homeowners probably don’t anticipate market swings when they bought or maybe did not head the advice of a seasoned agent that discloses market health/risk. The other side of the coin is that some distress sales are created by catastrophic financial situations brought on by devastating illness, accidents or other things.

  7. Having a couple of short sale listings that we got “volunteered” into, we came across a problem for all MLS participants regarding the coop fee. As a listing MLS broker, we have to offer unconditional cooperation. If we take a short sale listing without reducing the offer of cooperation, we are setting ourselves up to be liable for the full coop fee regardless of what the bank agrees to. We cannot force a buyer’s agent to accept less than we offer because “the bank would only allow x%”. So, we have to guess an amount that the bank will allow in our offer of cooperation and I assure you that it is less than competing listings are offering.

    The next hurdle is where there are 2 liens in the sale due to piggy bank financing. It seems that the 2nd lien holders do not understand the meaning of 2nd lien position. In plain English: if this baby forecloses you lose everything: principal, interest, penalties and prepay penalties. It is just a waiting game for 1st lien holder, on a normal 80/20 purchase money deal less than 3 years old in our market, 1st lien loses nothing and 2nd lien gets wiped out. You’d think that the 2nd lien holder would be diligent in getting the short sale closed before it gets close to the county courthouse, but no, do they even return phone calls, or for that matter give their workout specialists a phone number the homeowner can call?

    My gut tells me that this issue must be bigger than loan workouts, and by ignoring the non-performing loans as we march to ARM-egaddon, there are threats to the financial viability of these institutions and perhaps the whole financial system. Oops- there I go sounding like a bubble blogger…

  8. Thomas, yes there is that risk on the commission (actually you understate the risk). That’s why it should be approved by the bank in advance.

    And yes, they don’t return your phone calls, which is why you can’t get the commission approved in advance. (And if you do get through, they might just say they don’t approve things in advance.)

    It’s a Catch-22.

    I understand why sellers want to do short sales. But I don’t understand why buyers or agents want to do them. Until the banks set up the personnel to do them properly, why should anyone bother with them?

  9. Ardell,
    Yup that’s pretty much the way shorts go.

    There are plenty of problems currently with shorts.
    Here are a few:

    Most lenders won’t even open a conversation UNTIL they have an offer in front of them. Their loss departments are completely overwhelmed. When you have an offer, it may take days to get a first response. Listing agents and sellers are completely in the dark as to what the lender might take while they are marketing the property.

    NWMLS requires a disclosure on the listing that the sale and the SOC are subject to underlying lien holder approval. Because of all the problems chronicled by Ardell above, the normal owner occupied buyers are avoiding shorts, and agents work 5 times harder to get paid less, or not at all. Shorts are becoming ultra distressed properties. This is forcing the prices so far down on shorts to the point that the lenders may not agree to the eventual sales price.

    Some lenders will release their security position on a short to allow it to close, but won’t disolve the debt. Sellers need to make sure that if the lender agrees to sell short, the debt is also disolved.

    Sellers may also be liable for taxes on debt relief.

    I’m at the point that I won’t represent a seller selling short UNLESS he has a consultation with a real estate attorney experienced in the short sale process.

  10. Kary asks:

    “I don’t understand why buyers or agents want to do them. Until the banks set up the personnel to do them properly, why should anyone bother with them?”

    To that I ask a question in return:

    What if you were the agent who sold the homeowner that home?

  11. Ardell says: “The current market is making me feel older than dirt.”

    Ardell, I have students in my mortgage LO classes these days who have been originating for 7 to 9 years and have never heard of an adverse action form because they’ve never had a loan declined.

  12. Glad you popped in Jillayne. Was starting to worry about you. Hope all is well.

    Isn’t it better for oh…maybe the Country somehow, if foreclosures were prevented via short selling? Who does it benefit for the home to not go into foreclosure looking at the biggest picture?

  13. Hi Ardell,

    All is well; I’m just super busy this month.

    I think it’s wise to look at short sales from lots of different angles.

    First we must start with the homeowner. Does the homeowner HAVE TO sell? If the answer is yes, then selling is preferable over foreclosure for many obvious reasons, right? Not so fast. Since homeowners will be asked to pay back the difference (the shorted amount), some homeowners who are not willing or able to pay back the difference might not want to sign a new, unsecured note at closing. If for some reason the homeowner gets the debt forgiven by the lender (don’t count on this) then the homeowner is going to get taxed for the difference and some homeowners may not like those consequences.

    Depending on the types of underlying liens (first? second? purchase money mortgage? cashout refi? tax liens?) during the foreclosure process, if the first mortgage lender is foreclosing, do all those liens just go away? Maybe, maybe not. Kary did a post over on the SREP blog about a recent state supreme court opinion on this topic, which is why it is always CRUCIAL for a homeowner to receive legal counsel on all short sales.

    Some homeowners, when faced with the reality that they’ll be asked to pay the bank back, and there are no questions about junior liens, may decide to just go through foreclosure rather than pay back the shortfall.

    Each of these short sale (or foreclosure) homeowners are individuals with individual stories and circumstances.

    It may or may not be better for an individual to go with a short sale rather than just let the home foreclose.

    One crucial detail: Short sales are reserved for homeowners who are in financial distress. if the homeowner actually has the money to pay back the difference, then there is no short sale transation. Instead, it’s called a “seller brings cash in at closing” transaction. Sometimes when homeowners are told that they will have to PROVE to the bank that they are financially insolvent, they decide that they don’t want to do the short sale after all and will just let it foreclose and save their money for first/last month’s rent on a new place.

    If they don’t have to sell there are other options. Could they rent the home for enough to cover most of the payment? If they don’t want to sell and their financial crisis is only temporary, would they be willing to take on a tenant to tide them over?

    I believe it’s important for individuals to consider all their options. If Realtors don’t know all the options, send the homeowner to a HUD-approved Housing Counseling Agency that offers default counseling. and then click on “talk to a housing counselor.”

    So is it better for the country somehow?

    If we give too much weight to the needs of the homeowners, we’re going to be out of balance with what the lenders need. The reason we should care about lender losses is because this will effect our future retail residential lending interest rates and fees. We need to try and maximize good consequences for the most number of people, and minimize negative consequences for the most number of people.

    It’s a balancing act and nobody’s going to come out a winner in this market. Well, except for the attorneys. 🙂

  14. Jillayne wrote: “What if you were the agent who sold the homeowner that home?”

    I still wouldn’t do it. I’d refer it out to someone who does a lot of short sales.

    BTW, a question posed on another site was: “Is it fair to ask for a referral fee on a short sale?” Given the risks and extra work involved, a good argument can be made for no.

  15. Ardell wrote: “Isn’t it better for oh…maybe the Country somehow, if foreclosures were prevented via short selling? Who does it benefit for the home to not go into foreclosure looking at the biggest picture? ”

    Clearly (I don’t think you even need to look at the “big picture”–even the “little picture” is better). But unfortunately the banks haven’t gotten that message. It the banks were responsive, prompt, reasonable (or just the first two) I wouldn’t have a problem doing short sales. The banks make something that should be routine damn close to impossible as they can. And that’s not in anyone’s interest, especially the bank’s interest.

  16. Jillayne wrote: ” If for some reason the homeowner gets the debt forgiven by the lender (don’t count on this) then the homeowner is going to get taxed for the difference and some homeowners may not like those consequences.”

    I’m pretty sure there’s still an insolvency exception to discharge of indebtedness income. The seller would still get a 1099, but they could claim no tax owing (or less tax) if insolvent if I’m right (consult your tax advisor). If so, however, the question might be what does the IRS consider insolvent? I’d guess this is something your average tax preparer wouldn’t know about off the top of their head.

    And as you note, unless you are in financial distress, it’s not really a short sale. So unless the IRS has unreasonable definitions of what constitutes insolvency, they’d probably get at least partial relief (assuming the exception still exists).

    Finally there is one big benefit to an owner getting foreclosed. They basically got to live in the house rent free for 6 months (under WA law). I don’t think that benefit outweighs the negatives, but I did think it should be mentioned that it’s not all bad.

  17. I just did a quick look, and it’s apparently Form 982 you file if you have discharge of indebtedness income and are insolvent (or bankrupt, etc.). It’s not entirely a free ride though because certain tax attributes do need to be adjusted to account for the exception–but most people probably don’t have much to be adjusted.

    BTW, most my tax information is rather old, which is why I talk about not being sure whether these things are the case. I went to law school in part because taxes were the most interesting part of my undergraduate major studies (accounting). But I discovered while taxes might be exciting compared to accounting generally, they’re rather dull compared to most areas of the law. That and they change too damn often. Caused me to lose interest.

  18. As I shared in post #11, and Jillaye shared in post #15, there are many, many landmines in the short sale process. Sellers and agents who think the best option is a short sale are well served to have the SELLER get counsel through either HUD counseling agency or an attorney.

    I don’t want to come close to a position of advising on the tax consequences. At this point I think my job is pointing the seller to the correct advisers or counsellors.

    And Kary, I agree. No referral fee for a short sale. Whoever handles the transaction works their rear off and earns every penny.

  19. I was just looking at a listing, which is apparently an undisclosed short sale. It’s listed apparently below the amount owing on the first (based both on the original loan amount from last year and the foreclosure starting bid amount), there’s a second (also apparently in foreclosure), and a lis pendens related to drug activity in the house (which is why the listing is so cheap) where the county is presumably trying to forfeit the owner’s interest. None of this is mentioned in the listing (nor any mention of a short sale at all).

    My guess is that whoever is a successful bidder on this property will not be a successful buyer. I don’t think the seller can sell. My guess is the agents don’t have a clue what is going on ( I won’t even describe the three phone calls I’ve made). That said, maybe it’s me who doesn’t have a clue, and this might actually be a short sale that’s a bargain (it’s probably priced about 66% of value once you restore the electrical system and patch the walls and floors where the ventilation system was installed.)

    Anyway, since all of this is undisclosed, I guess any listing can be a risky venture, right?

  20. Any listing can be a bad value…that’s for sure. My guess is it will sell for the price it should sell for…and not necessarily what they are asking.

    What’s the asking price vs. assessed value? How much of the assessed value is the land and how much the improvements?

  21. Ardell, are you talking about my post 21? My point wasn’t that it wasn’t a good value at that price, but that I don’t think they’ll be able to sell at any price that’s even close to reasonable (well above what the list price is).

    Was it you that in another thread had an incredible story about a short sale success? I seem to recall someone had a good one, but I don’t recall it being so good that the second and the King County Sheriff agreed to accept nothing so that they could sell the house used for the manufacture of drugs! That would take some serious persuasive abilities! Whoever can do that should be sent immediately to the Middle East to negotiate peace!

    I once handled a case for a bankruptcy trustee where the debtor withdrew money from his pension and used it to make his first drug buy–from the cops. They arrested him, then he filed bankruptcy. We had a hard time convincing them to give that money back for the benefit of his creditors (with any leftover going back to them). They were convinced it was evil money even though it came straight from Boeing!

    Maybe the owner was somehow unaware of all of this. I don’t know. But I just don’t see this sale happening even if you made an offer 10% for the asking price.

  22. Kary,

    You seem to be saying that buyers should steer clear of short sales because it’s a lot of work for the agents and the agent may not get paid. That it may not be able to be sold seems to be the justification for your refusing to do them. Clearly your prerogative to not include short sales in your biz model. As I said, I don’t go looking for them either.

    But when the best house for my client is a FSBO or a Short Sale, well there’s not much I can do about that. I have to pursue the best house for my client, and if that happens to be a short sale, I can’t put anything else into that equation.

    As to the house being used for drugs, I don’t run into those scenarios. Seems to me though, that a vacant house of a former drug dealer being bought by a buyer who will occupy it to good purpose, is in everyone’s best interest. Just because the seller was a drug dealer doesn’t mean the buyer is. You lost me on that one.

    Yes, I did have an incredible story about a short sale from the past. Today I have a not so incredible, simply a mundane story, of a short sale. Truth is, it is just the best house for my clients. So let’s just hope for the best. It’s the best house on market for them and they have been willing to put up with the mess so far. I think we’re all hoping there will be a better house for them, but after many months the right one just happens to be a pre-foreclosure. Sometimes it just turns out that way. Que sera, sera.

  23. Not quite that extreme. I was looking at the listing for a client that was specifically interested in that house because of it’s location.

    I’ve told him we can write an offer, but prepare to be disappointed. So it’s not like I’d refuse to write an offer on a short sale property, but I will fully advise the client what they’re up against. Here, however, because of no information coming back from the agents involved, all I can tell my client is I suspect the worst.

    I mainly wrote about it here because of the apparent undisclosed short sale situation. Putting unsuspecting buyers (or their agents) to that risk isn’t right. I hope I’m somehow wrong on my facts, but the documents I’m relying on have all been either recorded fairly recently, or I have Internet sources with updated information (e.g. the status of the first).

    BTW, this has been one of the best topic here for a while. Nice choice.

  24. I coach agents to blog TO their clients in generic fashion. This post was written for my actual client, though the specifics were changed a bit for confidentiality reasons. I usually do that on my blog and not here on RCG. But I figured if my client needs to hear this, maybe lots of other people do too.

  25. Banks don’t “go quietly into that goodnight”. But that is no reason for someone to overpay either. You have to have a very, very good idea of the value AND you deserve a discount for the inconvenience on top of that.

  26. Sharon wrote: “I had no idea there was so much involved in buying a short sale.”

    That’s why this is such a great piece. Most people just think it means it’s a bargain–something that Ardell and I can disagree about. It’s a lot of work and a lot of risk, especially if the listing agent doesn’t know what they’re doing.

  27. We can’t disagree as to whether or not “IT’s a bargain”, because that’s a house to house issue, same as every other purchase. Some are good values; many more aren’t.

    Many, many people have overpaid for houses that are not short sales. They are no different, if you value the property incorrectly.

  28. Sharon,

    They can get very complex, depending on the number of lien holders. I sold one year’s ago where the guy owed five years of condo fees, was in arrears on two mortgages AND had judgements against the property from other debts.

    The number of debtors you have to negotiate with, increases the complexity. Once in awhile, I debtor comes in out of nowhere at the last second.

    Still, if it’s the right house and a really good price, it’s worth the hassle.

  29. Ardell,

    Great post again… or should I say as usual. And, I too will be linking to it. There seems to be a lot of sentiment in the comments above suggesting agents and buyers avoid short sales. In a perfect world, that would be great. In the world I live in (Fredericksburg, Virginia) that is simply, almost impossible.

    I recently had a buyer looking to purchase a home in the $250,000 range. That is at the lower end of our price spectrum, but, my initial search netted approximately 95 homes in the communities in which she wanted to live. After eliminating short sales and REOs we were down to 8 properties to look at. In every search I do in our market, I see that 1 out of every 2 to 3 properties are either a short sale or REO.

  30. Pingback: Should You Buy a Short Sale Property? « Fredericksburg’s Real Estate Voice

  31. Jeff,

    Only 8 out of 95 homes for sale not short sales or REOs in Fredericksburg? I find that hard to imagine. Is your area that transient that everyone bought their homes during the upswing? Or do you attribute this to cash out refinances and home equity loans?

    I remember in the bad market of 1990 in Jersey, everyone was on a pulpit yelling about the evils of home equity loans. “Don’t suck out the equity in your home to buy a car or go on vacation.”

    Lots of writings about loose money for purchases, but a lot of the short sales here are debt piled on top of debt via home equity lines of credit and cash-out REFIs.

  32. Thomas from comment #9.

    Having worked at a Bank for 19.6 years prior to selling real estate, I can add a bit of advice for agents who are frustrated with how the banks are acting. The Bank is not meeting your expectation because there is a minor falacy in your expectation.

    You said: ” If we take a short sale listing without reducing the offer of cooperation, we are setting ourselves up to be liable for the full coop fee regardless of what the bank agrees to. We cannot force a buyer’s agent to accept less than we offer because “the bank would only allow x%

  33. P.S. to the comment above. Consider the Active vs. Passive “charge-off”.

    If the Bank Employee does nothing, the Passive event is that the charge-off was caused by Foreclosure. If the employee actively participates in debt forgiveness, they could be fired for being too lenient too often. One Employee with many charge-offs by active means is not as good for that bank employee, as many charge-offs caused by the passive events of Foreclosure.

    Any active movement on the part of the employee better be backed up by an extensive file justifying their actions. That includes it getting within a hair of the Courthouse steps. If they give up too easily, would you respect that choice? Will their employers?

    As with any negotiation, you have to see the other side of the table very, very clearly, to be successful.

  34. Ardell,

    Yes, the area is very transient with several military bases and the federal government being a huge employer in the area. The specific area where this occurred is about 20 miles south of the city. It was the cheapest place to purchase a home during the upswing, thus was the hottest selling area. So, most of the short sales and REOs are from purchases in 2004 and 2005. Some of them, obviously are cash out REFIs, but that is a smaller percentage.

  35. In comment 37 Ardell says: “For instance, if the home owner is paying their mortgage on time and trying to sell it short before it affects their credit, the Bank is not viewing the loan as a bad debt. The person you call has ZERO incentive to work on a short sale, if the owner is paying their mortgage. You might as well beat your head against a wall.”

    I can think of several examples where the bank was motivated to work with the homeowners.

    Short sales happen when:

    1) the homeowner MUST sell, and;
    2) the homeowner is financially insolvent.

    Reasons for having to sell and reasons for insolvency could take up an entire second post, but sometimes a homeowner is in a situation of being forced to transfer to another city due to employment circumstances. They could have been paying “as agreed” and now they have found that values are lower than their mortgage balance(s).

    The second test must also be positive: In that case the homeowners must also be financially insolvent.

  36. Jillayne,

    Start looking for beefed up transfer packages where employers suck up the “shortfall”, vs. the banks.

    Also, insolvent today may not be insolvent for long if they are moving “for employment purposes”. Banks would be better off to sign off, but continue to follow the bad debtor to their new place of employment, and get a judgement to attach to their future earnings and assets.

  37. Hi Ardell,

    Right you are. If the homeowner has the ability to repay the shortfall, often the homeowner is asked to sign a new unsecured note at escrow, at the time the home is being sold, promising to pay back the shortfall in regular monthly installments.

    Many, many homeowners are surprised to hear that the bank will ask them to pay back the difference.

  38. Being asked to sign the note has one advantage–you don’t need to worry about the discharge of indebtedness income issue we discussed above! They are not forgiving the debt, so there’d be no income from that source. The may be from other parts of the transaction though because you are still selling property. So again, consult a tax advisor.

    Oh, and if you plan on filing a bankruptcy, I’d let the attorney know the precise nature of that debt. I’m not so sure it would be wise to do a short sale, sign a note and then immediately file bankruptcy. But again, that’s something to discuss with your professional advisor.

  39. BTW, I’d suggest any agent considering doing a short sale listing read Legal Bulletin 169 from the NWMLS, and then read the original piece again, and then think long and hard about whether you really want to do it.

    We had someone into our office today talking about short sales. I’ve only attempted one, and the net result was the sale of several shares of Citibank stock when I realized how screwed up that bank was. The banks really need to get their act together on this front and realize that the agents are doing them a favor and help the agents out–a lot! Being slow, otherwise non-responsive, and then asking an agent to cut fees for doing more work than would be necessary if the bank was doing it’s job right–that’s just not right.

  40. I referred a client to this blog where our offer turned the situation into a short sale situation. She said something like: “It was very off-putting.” Anyway, no interest in pursuing it as a short sale.

    The banks really need to learn that not returning phone calls, taking forever to make a decision, and trying to screw agents doesn’t make them any money.

  41. Kary,

    At the end of the day there is no “bank”, just employees who go home and make the same amount every day whether the bank makes money or not. Maybe those who think agents should be salaried employees should think twice and look at the banking model before thinking the Future of Real Estate is in salaried agents.

    Glad to be of help to your clients. Better to buy into it knowing what may be coming down the pike, then to be into it up to your neck only to find that there’s more to it than you thought when you started into it.

  42. Ardell, I’m not going to blame the employees. Personally I think the banks need to increase staffing in this area (and perhaps increase pay to make the staffing more stable). They need to be better able to determine those situations where they’re better off not proceeding to foreclosure, and then do what they can to achieve that result.

    I think doing that would have as much of an impact on the market than freezing the teaser rates.

  43. Kary,

    When you say that the bank doesn’t return calls, you’d have to agree that is a human function more than a corporate function. The reality is that the person the agent wants to call them back may not be returning the calls because they have no authority to provide the answer desired. Kind of like barking up the wrong tree.

    The person who can approve a short sale is usually not involved until the loan is severely delinquent and in default stage. To speed up the process to make it easier for short sales to happen, may not be in anyone’s best interest except the agent who is trying to close a sale.

  44. Or it could be the person isn’t returning phone calls because they’re overworked.

    I’d disagree that the situation changes because the loan is more delinquent or closer to foreclosure. That’s bank-think and that’s what’s wrong with the system. Unless the owner’s financial situation significantly changes, or the market significantly changes, the situation is just as bad six months before foreclosure as on the eve of foreclosure. The only difference would be unpaid interest, and the last time I checked, banks don’t make a lot of money off of unpaid interest. 😉

  45. So, as a potential buyer of a short sale, if it (the price) sounds too good to be true, it probably is? Would that be correct? I’m looking at making an offer on a property at about 3% less than the asking price. The asking price is 20% below the county accessed price and 31% below the original purchase price of less than two years ago (when it was built). So it seems from what I am reading that the purchase price is somehow just dreamed up by the seller and their agent without any knowledge of what the bank may or may not accept. Would this be a correct assmption?

  46. In the above scenario the difference from the original sales price to the asking price is about 250k for what that may be worth…

  47. this is in northern virginia. not a dump either, actually it rocks, even still smells new, excellent condition, beautiful inside… all high end fixtures, appliances, etc…

  48. Pretty much right there, Rick. You start into it and don’t get vested in the outcome and hope for the best and stick to it through thick and thin. If and when you get out the other side you say Woohoo! 🙂


      • Sue “short” means the sale prices is “short” as in inadequate to pay off the debt owed. It has nothing to do with “short timeframe”. The nightmare is often with regard to incorrect expectations. If you understand it from the beginning, it goes smoothly as in “according to plan”. You just have to have the right plan.

  49. Thanks, that is what I intend to do. We are actually in no hurry, so we can wait and follow the process through. If it happens we make out great, if not there will be plenty of other houses coming on the market. I am beginning to look forward to it so I am trying not to get too vested in the outcome in case it doesn’t happen.

  50. Rick,

    You said: “So it seems from what I am reading that the purchase price is somehow just dreamed up by the seller and their agent without any knowledge of what the bank may or may not accept. Would this be a correct assmption?”

    Coincidentally, I was helping someone yesterday who was helping to “dream up” a price on a very similar house here in Bellevue. Built in 2006, sold in 2007 and now a pre-foreclosure/short-sale.

    I didn’t spend one minute thinking about what the bank might take. The person asked what a 30 day price would be vs. a 60 day price. From the potential buyer’s perspective, I need to figure out what it is really worth and not what the bank may take. While the market did not come down by the amount it needs to be discounted, the original sale price was way over fair market value, and the assessed value is too high as well.

    If I compare it to other newer houses and discount it for distress issues, it would be $1.2M or so. It originally sold for $1.5 in early 2007, which was way over the value at that time. Because the comparable newer homes are not real close to the house, you have to then check that price with the realities of everything you can see from the house. Since building is curtailed, the new house will more than likely remain in the middle of other “tear downs” in a beat up old neighborhood. Given that reality, the house may only be worth $980,000.

    Moral of the story, just because it is 31% under what it last sold for and less than assessed value, does not in and of itself make it a bargain. In this case a fair price, and not a bargain price, is in that range of discount.

    The “dreamed up price” is what someone “should” pay for it. Whether or not the bank will agree to take that amount, is not part of the valuation process.

  51. I understand, it just seems that the current asking price is a minimum of 100k under the fmv when recent comparables in the neighborhood are taken into account and in some case it is 140k under comparables from last spring. There are actually carriage homes (3000 sq ft) across the street in the same price range of this house (which is 5600 finished sq feet) and the same age, same builder, and greater quality. But who know, we have nothing to lose and may just get lucky. Or maybe 6 months from now our price will be the norm…lol. With the current market, who knows.

  52. LOL! All too true! Keep us posted from time to time if you can. The one I’m working on now should close by year end, and we started the process on 10/23. Just to give you a rough idea of timeframe.

    What you may be experiencing with your purchase is to some extent like trying to sell a new car for what you paid for it. It only gets the “new car” premium until the wheels leave the showroom lot. In an up market many don’t notice that effect. In a flat to down market, new depreciates a lot faster than old.

  53. Funny how perception and reality all mix up in real estate. My fiance and I put a bid on a short sale back in the beginning of Nov. We were told through the sellers agent that the bank would approve it, and we would hear back by mid Decemeber. We still have not heard to this date if the offer we put in is approaved. Only 25k less than the asking price.

    Unfortunately, we are now on a time line, and the carrot and the stick game seems like we are finally close. Yet, we are beginning to doubt if we are going to get the carrot at all. Especially since the stick is being held by Countrywide.

    Would you suggest at this point to forget the process and just go to a property where there is an actual seller who wants to work with us, than rather get a better value or savings in a short sale? That even if the bank gives a green light that we may still be in it for another few months trying to close? (By the way both mortgages on the property are owned by the same lender)

    Frustrated in LA – Jonny

  54. Just because both mortgages are held by the same lender doesn’t mean that each loss mitigation department manager cooperates with the other. Is the seller short on paying off the second mortgage or both the first AND the second mortgage?

    You must find out if the seller is willing to pay back the shortfall. If the seller IS willing to do this, the deal will close. If the seller is not willing to pay back the difference, then there has to be some sort of process that happens in which the bank decides whether or not there’s enough evidence there to forgive the seller’s debt.

    In order to get your question answered, have your real estate agent find out from the seller’s real estate agent how MOTIVATED the seller is to pay back the shortfall.

    You need to figure out how long you’re willing to wait for THIS home. Then, let your agent know that end-date so that information can be passed on to the shorted lender.

    Good luck!

  55. LOL… Looks like I’m in the same boat. I guess I’m in for a long wait as the mortgage holder in my case is Countrywide and I have now been told by the sellers agent that Countrywide says at least 15-30 more days (originally I was told 10 days, which have passed…). I would surmise that after 15-30 days I will hear the same thing. Good thing I’m in no hurry. It actually gives me time to take a vacation and look at homes in other areas. Maybe I’ll end up in Orlando or Charleston, SC….

  56. My short sale (I had the buyer client) closed yesterday. WooHoo!! Thank you Lynlee!!

    We started escrow on October 23 and wrote the offer on October 19. The buyer said yesterday that I told her about 90 days, so she said YAY…we closed 9 days early! LOL

    We never stopped looking at other homes, but this one always turned up the best house for them, regardless of the value issue. I stretched the closing date a bit at a time so they would have an out if they found a better house before it closed. They didn’t…and it closed.

    The value issue alone can’t be the only reason. It has to be the right house too with no other being as good.

    We had a crazy glitch at the end where the property went back to Active on the MLS because “the Broker took a class and was told to do that” just days before it closed. I was holding my breath.

    Did you teach that class and tell agents to do that, Jillayne? They said the MLS agreed, but I think it was supposed to go to Pending BU and NOT Active!

    I’ll be checking on that next week and doing a post on it. The buyers nearly freaked out to see it Active in the MLS after they had waited in escrow at pending since October 23rd.

  57. P.S.

    It is my understanding that the seller was not going for forgiveness of the debt, as Jillayne says. I didn’t have the buyer seller side, but that’s what I was told by the seller.

  58. Pingback: Sunday Round-Up » The Real Estate Blog by Cari McGee

  59. On 1/28/08 I made a “full price” offer on a short-sale home around Bakersfield, CA. It will be my first home. My mother is a broker and her commissoin will be going back into the down payment. (Total 20% down), but she’s not real familiar with short-sales (despite being a broker since ’82 – she’s more into her horses) We feel very comfortable at this price as far a value. It would be great for someone to come up with a checklist for buyers who intend to reside in the house. There’s a of “get rich” info for investors on these deals (poor dads?), but not much for regular buyers. Does anyone know of any additional resources, perhaps more specific for California? It’s just so hard to get my mind around the fact that even a “full price” offer means a chance of closure (by my uneducated estimates) of less than 50%. Thank you!

  60. Alden,

    Unfortunately for you, the “chance of closure” lies more in the seller’s hands than yours. This post was written specifically to help buyers who intend to reside in the house, set realistic expectations.

    The only red flag I see up there is to make sure that YOUR lender knows about the “gift” toward the downpayment and approves the method in advance. Also, often your Mom’s commission will be cut in the short sale to not more than 2.5% of the purchase price, sometimes less and pretty much NEVER more. So don’t be counting on the wrong amount and don’t have your lender finding out on the HUD 1 and not beforehand.

  61. I just received written confirmation and have signed the contract for a short sale home that i will be residing in for 3-5 years. The price was appropriate for sales in the last 3 months for the neighborhood. Total cost i paid was 253k, but the house was originally purchased for 380k (in the booming market of course). After reading some of the posts, i’m starting to feel a little nervous about whether or not I made the right decision. In understand that many factors will figure into the resale of this home 3-5 years down the road. My closing date is set for the 25th (Feb), maybe I’m just looking for piece of mind.

  62. PS- I wrote the offer on friday, February 1st, so i thought the process went well. My agent said the chances weren’t good at getting it and the wait could be a while for an answer, but here it is, 12 days later and the bank wants to close the 25th, am I missing something, or was this just unusual? See why i’m nervous?! Also, just FYI, the property is in VA.

  63. Tom,

    Peace of Mind, like real estate, is often local. We can’t be back seat driver’s on your decision, but we do wish you luck and hope you will keep us posted.

    The closing date here is set between the buyer and the seller, not the bank. Then if everything is in order on that date, it closes or extends.

    I don’t want to say anything to make you more nervous. Let’s all hope for the best. No two situations are alike.

  64. We placed an offer to a house listed as short sale. 2 weeks had passed and we asked for an update from the sellers agent. According to my agent, the sellers agent has not even submitted our offer along with 2 other offers because she is still waiting for the lender to get back/respond back to her from the first offer that she submitted 3-4 months ago for a short sale. So basically, the house is not yet approved for a short sale while she posted the house in the mls and taking in offers. I understand it takes a while for the bank to respond but what I don’t get is why cant she give the bank the new offers if it was better than the first one she sent to them. She said the lender won’t take it. Not until they finish reviewing the first offer given. Are we suppose to be a back up offers here? Few days after we gave the offer she removed the mls listing and placed it in inactive status. Said that she has several offers on hand and did not need anymore. I guess its just one big guessing game at this point if the lender is gonna allow a short sale or foreclose the house. My question remains why cant the sellers agent submit to the lender better offers if she has it on hand? Thank you. Lots of good info here to piece out how this long process of short sale goes.

  65. Hi Frank! Long time no hear.

    There are a lot of new polices going into place around here by the mls and Brokers that are going to make them impossible to close. Too many cooks in the kitchen and none of the them the seller or the buyer. Once the CYA people get in gear, no one wins. Still I haven’t had one in 17 years that hasn’t closed…so I’m still hopeful.

  66. Hello! I found these posts very helpful. Currently I have an offer in on a home in Maryland that is a short sale. We jumped on thehome sinceit was in our price range and in good shape. We made a full price offer of 201k which is 41k less than the seller bought it for 15 months ago. Our closing date is set for April 30th. We are told that the offer has been submitted to the bank and could take 30-45 days. We live in an apartment and can go month to month on our rent. Should we consider getting the seller/seller’s agent to provide us with written documentation of when the information was recieved by the bank? I am not sure if they have one or two mortgages on the home all I know is that it was bought as an investment and is currently rented until the 31 of March. I am weary of the process and my agent has taken classes on short sales but never actually sold a short sale (now she has two). We were planning on using a CDA mortgage but have now secured a back up plan if we can’t. We don’t want to pay application fees, appraisal fees and home inspection fees before even finding out whether they will sell the home. Can buyers request an extended closing date to get the financing, appraisal and inspections done after the bankhas approved? Any advice?

  67. Hi Stephanie,

    “Should we consider getting the seller/seller’s agent to provide us with written documentation of when the information was recieved by the bank?”

    The servicing departments at lending institutions are going to be pretty darn busy for the next decade or so. I’m personally not confident that they would give this request top priority. The seller’s agent may be able to provide you with proof that all the necessary information needed BY the bank so the bank can make a decision, was sent to the bank on a specific day. This information may be in the form of a checklist that the bank would have given the homeowner. Sometimes this is referred to as the “short sale package” or “preforeclosure workout package.” This package of information has a checklist. Ask for confirmation that the seller has provided the lender with ALL REQUIRED DOCUMENTATION needed for bank approval.

    You might also think about having your offer to purchase the home expire in a certain number of days. That way you’re not waiting around 30, 40,45,50,55,60,65,70…days.

  68. Stephanie,

    The lien holders, and there may be many, are actually approving payoffs which are “good through” x date. So if you extend past those dates, the interest and penalties go up and the “bank approval” is no longer any good. It’s better to get your docs into escrow and then have them up dated when the payoffs are approved, than wait on your loan until the lienholders are ready.

    I did the one above in short extensions of 10 days to two weeks past the first 30 days, so that the buyers always had an out if something better came on the market while they were waiting for a final go ahead.

  69. Ardell,

    This is the best Short Sale post I’ve seen! I work alot of short sales and I always seem to end up with the buyer’s agent who calls daily wanting an update, or who’s buyer is trying to time the closing perfectly, as you mention in your post. I’ll be linking to your post and also directing all buyer’s agents to it in hopes that it can help set tir expectations. Thanks for such a thorough explanation!

  70. Christopher,

    Do you process the sale in escrow with both the buyer and seller having signed the contract first? Lately everyone seems to be waiting for the lender to approve the contract vs. a payoff and telling the seller not to sign the contract until after the lender approves it.

    Also they are leaving the property on market and taking offers up to the last day of closing. How is that fair to the buyer that is “hanging in there” only to be booted out after processing and waiting for 90 days?

    What buyer would agree to wait without seller approval subject to short sale on the contract? What buyer would go through all this with the bank free to take offers up to recording? These new policies are contrary to everything I know to be successful means of closing short sale properties.

  71. My daughter lives in Las Vegas where the housing marketing is crazy. She had jumped at the chance to purchse a home as she is a school teacher and had previously been priced out of the market.

    She made an offer on a foreclosed home, and found out that she lost that one because someone came in an offered 50K more than the asking price. She then fould (with her friend/agent) a home that she was told was a HUD home. The home was listed at 175K and had an estimated appraisal at that time of $236K she made an offer of $180K. Now, she has found out that the house only appriased at $172K – so my first question is, if she decides against this home does she get her earnest money back.

    Now, today she has found out that the home is a short sell. Her friend/agent is new, we know nothing about short sells. I have been trying to read up on them to see if this is worth the effort. She loves the home (emotional attachment!) and wants to still try to get it.

    My second question would be: She wants to make an offer of the $172K with closing costs – would they accept paying closing costs?

    Next question: Could she end up paying more than she offered? And also, it looks like the agents take less, would that also apply to the buyers agent?

    I guess I am looking for reasons to tell her to walk away! She is afraid that she will loose her earnst money if she does, which for a school teacher – was hard to put away!

    Any preliminary advice before she gets mixed up in this would be much appreciated.

  72. Part of what you are saying sounds like she is already in contract at a price of $180,000. Other parts sound like she is still free to “make an offer”. Can’t tell which it is.

    If she is already in contract, instead of asking us, call her “new” agent’s broker fast. She does not have much of a timeframe as to legal outs. Maybe a conference call with agent and broker and you and your daughter.

    Short sales are not usually a surprise.

  73. I have enjoyed reading all of the postings in this blog and I’m hoping maybe someone can give me some advice. My wife and I are first time home buyers and have been approved for 85k on a FHA 203k loan. The house we really like is listed as a short sale at 98,000. After going through the house we and the realtor noticed that it needed a ton of work, approx 20,000-30,000 worth of it which is not a problem with a 203k loan. The realtor said we could easily get this house for 85k with closing costs included, but after reading all of these listings, how could he really know? I know every home buyer wants to get there house as cheap as they can and usually it doesnt work this way, but how would you know what to offer. The comparible comps in the area are listed at 120k for move in condition. I do not know what is the “actual” amount owed is but it would seem to me that you should be able to get the house closer to 70k with all that needs repaired. The house is vacant and utilities have been turned off. Foreclosures are poping up all around due to a large manufacturing plant going out of business. I have no problem playing the “waiting” game with the bank if necessary since we are on a month to month contract with our apt. Maybe you can give me some advice.

  74. Jonathon,

    Give it a try, what do you have to lose? More important than whether or not the bank will accept $70,000 is whether or not someone else will offer more. Generally banks can accept a higher offer, even if that offer comes in two months after you have been waiting for an answer.

    It ain’t over till it’s over, so don’t get excited until it closes.

  75. Thank you for responding, I never thought house hunting with my wife would be so frustrating. I have been told that it is best to have a contractor (which we have as a family friend) to go through the house and est. the cost of repair, is this the case? I have also been told that if he does the inspection to have him inflate the costs a little bit. Is this the best way to show why I am offering what I am?

  76. Generally you would need an appraisal (which your will need for your lender). Submitting accurate, and not inflated costs to repair defective items is helpful, but not for remodling or other improvements.

    Remember they appraised it when they did the loan that is now in arrears. Having a more recent one would be of value and something ou need to do anyway, but you have to get into contract first and apply for your loan. The repair costs should be for things that became defective after they made the original loan.

    I would never suggest asking the contractor to lie and inflate the costs. If they catch you then they won’t believe anything you are saying. Better to be honest.

  77. Hello,

    Just stumbled across this great site and have a question please. We are looking to buy a condo in San Diego for our sons who go to college there, since it would cost more to rent them an apartment. We have found one we all like, which was listed at $249,000 since October and then dropped several weeks ago to $174,000 in a short sale. My agent tells me there is already an offer of $174,000 on it, but sellers agent suggests submitting lower offer as the first offer is perhaps not a well qualified buyer. Condo in same complex sold for $174,000 this week and $166,000 two weeks ago. What would be a good first offer on this property? We are cash buyers. Does that make a difference? Also, if we put the offer in this week, what is the likelihood of our sons being able to occupy the property when they start school in September? Could it take that long?
    Thank you so much for all the good information.

  78. Seems to me in a short sale situation if you offer more for it the bank is pretty much obligated to take the higher and stronger offer. Make sure the offer makes it to the bank. Sounds better than being in backup.

    Those are my thoughts. Allow 90 days or so.

  79. I have a question regarding buying a short sale and will really appreciate if someone can help me with it…..though all the info in this blog is very helpful….
    there is one property in our area and i decided to go thorught the sellers agent and made an offer for that property ..the seller signed it and me and my husband signed it too …now should the agent make that listing even thought the bank has to approve it or it remail active because my concern is the agent is collecting all the offers and we are hanging without even knowing where our offer stands

  80. Eileen, if other units in that complex are selling for at or below the list price of the short sale, why would you want to mess with the short sale? I’d suggest seeing if your agent can find a vacant unit in that complex where the owners have a lot of equity. Your cash will mean more to them than the bank, because it will mean a faster sale.

    mansh, that would depend on the rules of your local MLS.

  81. I have made an offer on a short sale, two loans on the property, but both loans are with the same bank. Is that a benefit? Offer submitted to lender (after being approved by the tenants) on 5/13/08, I got a “negotiator” assigned 5/30, it was appraised 6/2 and we *cross your fingers* should hear from the bank by 6/13. Is it a benefit that the 1st and 2nd are both with Chase? If we actually do hear back by the 6/13 deadline given can I stop cringing as much becuase they are sticking to their deadlines, so far?

  82. My husband and I made an offer on a short sale in Manassas, VA. The house originally sold for $370k back on 9/2005 and now is listed at $199K. We made the offer for the full asking price. The house was only on the market for 3 days There are similar townhomes for sale in the complex and most of them are short sales. In fact most of the homes in the Manassas area are short sales. As first time home buyers we are very frustrated. We have looked at over 30 places and ALL of them are either foreclosures or short sales. We are willing to go through the processes but we feel like the fate of our future lies in the hands of the bank. I don’t understand why the banks would delay the process if by waiting the way they do would only give them less in the end. We are scared but there is really no other way to buy a home in our price range in VA. Any advice? Thank you.

  83. Andrea,

    There really is no way to speed up the process. There is not single entity to answer you. I worked in a bank for many years and quick decisions are hard to come by in a Bank. There are files to be built up and committees to review the file and bosses of bosses of bosses to be consulted. It’s just not a fast paced, quick decision environment.

    Remember that the Bank is making a decision to walk away from a lot of money. The fast answer is no, the slow answer is yes. That’s true for most things in life.

    Why do you fear the process or the length of time? The asking price sounds kind of bogus though. Have others sold that low recently? Is anything selling at all?

  84. Thanks Ardell. I have looked at others in the complex/area and all of them are in the $180k range to $220k range and most of them sold for $350k or more two or three years age. Price William County in VA is the most “distressed” area in the country right now. The reason they are like this is because mostly Latino familes (legal and illegal) bought in the area and they were all taken out with no money down piggy back loans. With the major recent crackdown (it has made national headlines) of illegal immigrants they are FLEEING the county left and right and abandoning their homes. Many can’t get work as day laborors cause they are afraid to go out and therefore the 15 of the living in the home together can’t pay the mortgage. This is the reality here. Prices have plummeted and now people like myself and my husband are buying them up like crazy. My realtor said sales are up but 90% of them are foreclosures and short sales. He has currently over 25 of them he is working on. It’s just a mess here. The banks should realize that this entire area here on Manassas/Northen VA is like this and by people like us buying these distressed homes would only benefit the market and area.

  85. I will repost, looks like the two Andreas got mine overlooked :(. Also, my post is for Nor Cal.

    I have made an offer on a short sale, two loans on the property, but both loans are with the same bank. Is that a benefit? Offer submitted to lender (after being approved by the tenants) on 5/13/08, I got a “negotiator

  86. #88 – remember the bank only cares about mitigating their losses and anyone can make an offer at anytime, nothing to stop them. All offers must be presented to the seller by law. Not sure what their obligation is to present higher offers to the lender.

    Back when you asked this question, most were leaving them Active an that was a “blip” until it got straightened out by a new addendum. Whether it goes pending or stays active on market is something you have to negotiate in the contract terms.

    Still a higher offer could get in there and the bank is more interested in how much they are losing than how much you are paying.

  87. Andrea Guzman,

    It ain’t over till you own it. 30 days from start to finish is not the norm. Close as soon as you can. Get everything you need to do totally done so bank approval equals CLOSED within hours or days. Don’t give them a chance to change their mind or for the payoff to decrease by costs of carrying the property increasing.

    Same bank being both the 1st and 2nd is good…how about utilities? Are they turned off? Taxes? Are they falling behind. The higher the costs the lower the payoff to the bank.

    If you get this done from start to finish in less than 45 days, let us know. The norm is 90 or so.

    Sorry for the delay. Yes, I may have thought the two Andreas (my daughter’s name BTW) were the same…but the bigger problem is I am not getting emails when someone leaves a comment. So if you drop off the sidebar I may miss it. We’re trying to fix that.

  88. Has anyone delt with EMC? I just found out that the 2 loans on the property for the short sale are both with them. Thanks.

  89. Andrea, as the buyer you are mostly on the waiting side. These issues as to what is due by the seller are between the lienholder, and the seller via the closing agent.

    I ask that you read the post again, several times if needed. The bank does not approve a price. They approve a short payoff. The closing agent is trying to get those costs together and project them to day of closing. But if the closing is delayed 60 days from now, those costs continue to increase and the payoff continues to decrease.

    That is why you should be on top of your being able to close within the shortest period of time once the seller side is ready. Did you do your inspections? Are your loan docs at escrow or ready to go to escrow? Loan docs expire, so even if docs go to escrow and you sign, they could expire before everything is in place from the seller’s side to close. If your side takes 15 days after the seller’s side is ready, the costs will go up in that 15 days and cause the payoff to be incorrect and you are back to square 3. So get all of your ducks in a row and keep them there as the docs expire. I don’t know if you said you were a cash buyer. If you are a cash buyer, then these issues don’t matter.

    I don’t think anyone can keep you in the loop, as you don’t have a vested right to every detail of the seller’s info, even though you are impacted by the outcome. Nor does the seller have a vested right to know every detail of your ability to get a loan or your credit history…even though that can impact your ability to close.

    The issues are on the seller’s side and I doubt anyone has the written permission of the seller to disclose all detail to all parties in the transaction. If you ask escrow they may tell you, but I doubt they will be willing to put it in writing. In CA and WA buyers only get their side of the HUD 1 as a Buyer’s Closing Statement and they don’t see the seller side. Same goes for the seller. In some parts of the Country all parties get the full HUD 1 showing all costs and payoffs of delinquent loans and delinquent taxes. Not so on the West Coast.

    As to taxes, likely the taxes are paid through June 30. If it closes on Jul 23rd, it could fall into 23 days of taxes due. I believe CA like WA is a 6 month payment of taxes and the period ends on June 30. so today all taxes may be and are likely OK if the lender was paying the tax bill and not the owner. After June 30 that could change for the tax bill for June 30 to year end. In fact that bill is not likely due to be paid until the fall, so there will be an additional deduction from the lender’s payoff come July 1 and thereafter, most likely.

    You can’t track every dollar that is moving on the seller side. Just be sure you are ready to close within 48 to 72 hours of their side being pulled together, or it will go sideways during the time you are preparing your loan docs and signing, etc and “kick out” for a new approval of the shorter payoff.

  90. I just made an offer on a short sale in Southern California that was accepted by the owners and has now gone to the lenders. I asked both my realtor and the listing agent what they expected the time frame to be and pretty much got a range of 2 weeks to 2 months before hearing anything from the lenders. I was under the impression once we enter escrow it will be the traditional 30 days. Is this not the case?

  91. Not usually Bill. It depends how far behind the seller is with his payments and what stage of default he is in. 30 day escrows are very rare in short sales. If yours makes it within 30 we’d love to hear about it.

  92. On mine, I enter escrow as soon as the buyer and seller sign and before the bank is involved so escrow can assist with the short sale package between the seller and the lienholder and so escrow can do a mock closing statement to submit with that package.

  93. We are financing, we have been approved for the loan I think approve is the right word, we were pre approved and now we are actually approved (so the money is being held for us). We have not done our inspections yet, we have 17 days to do inspections from the point the bank accepts our offer, and we plan to get them within 2 days to move things along. Escrow is not open yet, our agent says to wait until the offer is accepted before opening escrow.

    As far as I know we are ready to open escrow now…..

    And hopefully inspections go smoothly, otherwise we could be adding on another 2 months if the don’t go smoothly…..

  94. Andrea, you may want to see if you’re locked and if not, what is the ceiling on the rate you’re approved for.

    For example, if you’re approved right now based on a loan amount of x, this means you have a monthly payment of y. The payment (debt ratios) is what determines how much you’re approved for.

    There is a limit to how much monthly payment you are approved for so if the interest rates continue to rise, so will your payment (if you’re not locked, which you may not be since the closing may take a while).

    Just my 2 cents! 🙂

  95. We are approved for much more than we would ever care to buy! Our rate is not locked at this point, but I believe our loan person will lock for 60 days once lender approves the offer becuase short sales do take a long time.

    Thank you for all the great information!

  96. Well of course, we were supposed to get an answer on our offer on 6/13, we heard on 6/13 but we heard “30 more days”:(. I was thinking of withdrawing our offer, waiting 5 days and resubmitting $10,000 less. Any thoughts on this?

  97. Still waiting to hear about a short sale offer I made in Vegas about two months ago. I haven’t even had a chance to deal with issue like the ones described in this article. Oh boy…

  98. I have one going now that I’m hoping will be much quicker, as we stopped the auction an hour beforehand. Still…not as quick or as easy as I hoped. While the 2nd would have been knocked out at the auction, they are being less than reasonable so far. I’m hoping the 1st will give them a little room.

    Do you have an 80% loan to purchase,G.K.? Sounds like you are a little out of the loop if you are “waiting for 2 months”. Hopefully someoene’s keeping you posted about what is happening.

  99. We’ve been working on a SS for about a month and a half now. We’re the buyer, and our agent warned us it would be a slow, annoying, frustrating, irritating, and possibly fruitless process… But we’re moving through it. We’re not investors, this is our dream home. We’ve seen other REOs that would be sure things and close in a predictable manner, but the 2 homes we’re bidding SS have a lot of add-ons that really do add value…

    Country Wide seems to really suck at this. The most irritating thing so far is that the interest rates have gone up a whole point since we put the offers in…

  100. Doobers,

    Had you read this post first, you would have been prepared for it to take 90 days 🙂 If the one I’m doing now goes faster than that, I’ll let everyone know with an update. But generally, expect it to take 90 days.

    I’m in a 10 day waiting period for the 2nd to perform a BPO. I think it’s important to know what is happening in each step. Then the waiting doesn’t feel like a long waiting period. Short waiting periods with a purpose to each helps you understand why the process takes so long. We’re lining up a response from the first to the 2nd so that when the BPO comes in, the 1st is ready for round two.

  101. We are close to the 70 day mark and holding on by a thread. Your post is as real as a seller/ seller agent could see it. However, the buyer is totally blind to this and therefore, restless. Thank you from the insight from a buyer who has had to do all kinds of searches to figure out the situation.

    We placed and offer on a short sale two months ago; we offered full price minus closing costs – the seller countered and asked us to close within 14 days – we received the letter from the bank approving the SHORT PAYOFF to the seller (investor who was selling the property to us after the short sale was approved). So our transaction is dependent upon the approval of the short sale to the investor.

    Apparently, the investor did not like the SHORT PAYOFF the bank approved as he later found out that there were liens and back taxes that werent accounted for in the preliminary HUD (title search done after bank approval – mistake 1!). So now the investor, who cares more about his money than the sale of the property and/or the credit of the actual mortgagee wants to renegotiate the banks bottom line putting us on hold for as long as they need in order to get their money.

    What do you recommend I do in this case? How long does it take after they have submitted the second HUD-1 with all costs from title search and a lower pay-off to the lender – and how likely do you think is that the bank accepts 10K less than their previous bottom line?

    All comments are welcome. Thanks in avance

  102. “Apparently, the investor did not like the SHORT PAYOFF the bank approved”

    Seems you had a contract directly with the seller. Where does “the investor” fit into the picture?

  103. Isn’t the investor the lenders ‘investor’? It’s a lot like dealing with the Great Oz! I am the Great Oz, the lender and/or the investor, and I won’t talk directly to anyone! 🙂

  104. I don’t think so, Leanne. Usually it is as Michael said. None of the ones I have personally done had an investor middleman. But in areas where short sales are in abundance, there are basically “carpetbaggers” who get in the middle and buy it from the seller for much less than the “Andrea” is willing to pay. If the middleman can convince the underlying lender to take “their” payoff, then they assign the sale to Andrea and pocket the difference.

    It is the middleman that the new laws were trying to flush out. That’s why it was said that the legislature forgot to eliminate Realtors from the law. But it is too easy for them to simply get a license, so I think the legislature was correct in what they did.

    I’m not sure if Andrea is privy to that contract, but it would seem that she could submit her offer directly to the bank.

    Michael, have you ever seen the real buyer go around the middleman?

  105. I am wondering if anyone can give me insights on a short sale I am considering? I want to place an offer before Aug. 1 because it then goes to auction if no offers are made. The home is listed at $184k and has 2 lenders, Citi, and Countrywide. My first question is: Is it better to try to buy it at auction or to go forth with my offer? I have all the patience in the world to see this through and dont need to hurry this for any reason. However, this is my first time buying a short sale and I am nervous. How do I get the information I need since I am dealing with an agent, not the listing agent but one who agreed to post a sign for the listing agent because she was out of the area. Secondly, the house is in amazing condition, used to be a model home, and I am suspicious of the listing price since I was able to find out that the actually price the home sold for was $484K??? Is this too good to be true? Our area in Phoenix, AZ has dropped significantly and seems to do so by the month. The agent told me that a package has been filled out but that it hasn’t been submitted to the bank yet, is this a red flag? The agent said its a waste of time to do so without an offer so is this a bogus listing just trying to get people to bite? I really want this home and willing to wait the process out but not sure what to ask and how to be ahead of these agents and not get taken by them wasting my time. Any help would be appreciated.


  106. BH again,

    This was a reply from the listing agents helping agent. Any response as to the truth in this would be greatly appreciated:

    Yes, a majority of short-sales do have two loans involved. From what I’ve experiencing and have heard from other agents as well, is that the 2nd usually ends up bowing out gracefully; most of the time just accepting $1000 as payment in full. The 2nd knows that it,s going to lose and doesn’t put up any fight. They’re happy with a mere $1000, more than they would have received otherwise. I wouldn’t worry too much about the 2nd.

    The banks generally don’t really want to foreclose, costs them at least $25k-$50k in attorney and other filing fees. They’d much rather settle on a short-sale. Less paperwork and hassles for them. Usually if there is an existing offer in escrow, they’re willing to extend the auction/sale date. Just hard to convince them to move the date if there’s been no offers. There is one other person talking about putting in an offer this week. This is good, so the listing agent can get the ball rolling. With an offer in hand, the listing agent will also be able to submit request to extend the auction/sale date. This would be good for you for it would give you more time and you can still submit your offer when you are ready. The bank will continue to accept offers up until one is selected, negotiated, and approves one. It can take many weeks just for the bank to approve an offer. Thus, this is partly why the whole process takes so long. I believe it’s because the banks have hourly wage personnel, not commissioned, and they have hundred of files on their desks. There really is no motivation for the clerks to respond quickly.

  107. BH again,

    I am posting a response from the agents helper that came to me in an email. Just curious if this is correct info?

    Thanks in advance for any help anyone can provide me on the buying of a short sale:

    Yes, a majority of short-sales do have two loans involved. From what I’ve experiencing and have heard from other agents as well, is that the 2nd usually ends up bowing out gracefully; most of the time just accepting $1000 as payment in full. The 2nd knows that it,s going to lose and doesn’t put up any fight. They’re happy with a mere $1000, more than they would have received otherwise. I wouldn’t worry too much about the 2nd.

    The banks generally don’t really want to foreclose, costs them at least $25k-$50k in attorney and other filing fees. They’d much rather settle on a short-sale. Less paperwork and hassles for them. Usually if there is an existing offer in escrow, they’re willing to extend the auction/sale date. Just hard to convince them to move the date if there’s been no offers. There is one other person talking about putting in an offer this week. This is good, so the listing agent can get the ball rolling. With an offer in hand, the listing agent will also be able to submit request to extend the auction/sale date. This would be good for you for it would give you more time and you can still submit your offer when you are ready. The bank will continue to accept offers up until one is selected, negotiated, and approves one. It can take many weeks just for the bank to approve an offer. Thus, this is partly why the whole process takes so long. I believe it’s because the banks have hourly wage personnel, not commissioned, and they have hundred of files on their desks. There really is no motivation for the clerks to respond quickly.

  108. Another buyer chiming in here.

    I’m in the SF Bay Area where housing prices have been super-inflated for the past few years and in some areas are plummeting with a flood of REO and short sales on the market now. This has finally brought some markets here down to my price range and I put an offer on a short sale on July 13. It was signed by the seller and submitted to the bank on July 13 as well (the seller claimed it was “pre-approved” by the bank and had the distress package ready to go though I haven’t physically seen anything and don’t really expect too).

    The house was purchased in April 2007 for $580K for what is legally listed as a 2 bed, 1.5 bath. The short sale list price is $259,500, less than half of what it was purchased for a year ago. Now, the house was owned by a licensed contractor before it sold in 2007 and actually has 4 bedrooms and 3.5 baths. Compared to other 2 bd/2 ba comps in the area, the $260 is right on the mark — and in fact, some are going for much less since it’s an “up-and-coming” neighborhood.

    The offer we put in was for the full short sale list price with a 17 day contingency for inspection, a 3% earnest deposit (though the copy of the check was sent with the offer, it hasn’t yet been deposited into the escrow account), and with the pre-approval for our loan with 20% downpayment.

    The current owner does have two loans for the house but both are with the same bank. According to the county records dept, he received a notice of default for his late 2007 or early 2008 property taxes, amounting to something like $10K. I don’t know if there are any HELOC or other liens on the property.

    Here are my questions:

    1. How likely do you think it is that a bank would accept our payoff, being that it’s a substantial loss from what was paid last year (and we believe the owner had zero down).

    2. Should we still hold off on having our agent put our earnest deposit into the escrow account? (she recommends waiting until the bank accepts the offer)

    3. Should we spend the money to do the inspection before the bank accepts or should we hold off until the bank accepts (if they ever do)?

    We really, really like this house and have been looking for more than a year already. We offered on a previous regular property but were outbid. Since then, we’ve not seen any other property we like as much and have been touring open houses and seeing properties with our agent once a week for the past four months since then. Should we hold out, or is this a lost cause?

    BTW, no word yet from the bank on assigning a mitigator. We’re told that’ll happen sometime in the next week.

  109. Buying a short-sale is one thing. Listing them is a nightmare. I’ve had some very good (and some very bad) offers on some of my listings. On numerous occasions the buyers have backed out of the contracts because the lenders are taking soooooo looooooooong to make a decision on the short sale offer.

    If you are going to be involved in short sales, at least on the buyer’s side you don’t have to deal with the lenders.

  110. For those thinking about putting an offer on a short sale: My husband and I put an offer on a house May 12. July 21 we finally heard from the lender and we were negotiating purchase price and credits, escrow was supposed to open August 4 (today). August 1 I get a call from my real estate agent that the people in the house have filed for bankruptcy, the house has to come off the market and might come back on the market as an REO in 6 months! Believe every horror story you hear for short sales and then be prepared for even worse. At least we had not paid for inspections, etc, before these people decided to be honest! Bet the lender is kicking himself in the butt now!!!

  111. Becky W., I tried to buy a short sale in the North Bay (Santa Rosa) same situation, 2 loans, one lender (thought it would help). If you can keep the offer in and forget about it for 3 months then do it, for me it was so so stressfull to hear on just another week, just another week, then you hear a negotiator got assinged, and it seems like that may get the ball rolling, then another month goes by and the investor still has not been assigned, investor gets assigned after the negotiator makes his reccomendations.
    I would not spend the $ on inspections now (the pest inspection would probably expire before you hear a peep from the lender!), and our real estate agent kept our earnest deposit becuase escrow should not open until you have an accepted offer (from the lender)! I wish you luck!

  112. Andrea,

    It doesn’t sound right that you should lose your Earnest Money if the seller was not able to perform. How could “your” agent do that? If it didn’t close on the contract date because of the seller and not you, how could you lose your Earnest Money? What was the explanation given? The seller isn’t supposed to get any money in a short sale, so who got the Earnest Money?

  113. Sorry, I meant my agent kept the physical check in her office, we had to write the check but it did not get cashed becuase we never even had the chance to open escrow. So I was saying that to open escrow before the bank(s) ok the short sale is risky becuase if you wait too long and want to withdraw your offer and offer on a new house your $ is tied up where it should not be.

  114. It depends. If you want the property to come off the public sites, which my buyer clients do, then you have to open escrow and yes, the Earnest Money is deposited.

    Each time the closing date comes you either extend the closing date OR get the earnest money back based on the fact that the seller couldn’t perform by the closing date.

    Any way you slice it you reall DO have to proceed as if it will close…otherwise it won’t, as yours did not. If you had started with the idea that it would take 3 months, you wouldn’t have been so stressed at 3 months.

    No one should start something they don’t intend to finish, as lots of people did a lot of work for 3 months. After three months or if something else happens, like the seller files for bankruptcy, then you can rethink things. But you really don’t have anything going if your Earnest Money is not deposited. That is just verbal maybe if, not a contract.

  115. Well even though it would not have made a difference because we were lucky enough that no one else was brave enough to offer, that is very good info to know!!! If I am ever crazy enough to offer on another short sale we will definatley have then open escrow and deposit the Earnest Money!!! Great info, thank you.

  116. This is a really good site hope someone will be able to answer my questions.

    Last week we found a house we really like to raise a family, we know it is a short sale but don’t know if it has been forclosed. The house has been in the market since April for 180k, this month they reduced to 170k. We offer full asking price, the seller who still lives in the house signed two offers and they both have been sent to the bank, one of them is ours. We offer cash and willing to match the other offer if it is higher than ours. I think the lender is GMAC. Has anyone dealt with GMAC, are they difficult? If the house has been foreclose would the seller be still allowed to live there? Would cash offer make us a stronger buyer and how long do we have to wait to hear the news? . The seller agent called to tell that she hasn’t heard f from the bank. She seems to be as anxious as us I wish the bank keeps her posted. Please help

  117. Sorry it was for 190K in April reduced to 170K in August. It is in Michigan where the economy is really bad. So may people losing their jobs and so many forclosures.

  118. Cutepup,

    I don’t think you have escrow there. I think your closings are done by the Title Company. Find out from the closing agent how many liens there are against the property and how short the bank(s) will be at a sale price of $170,000. Mostly, stay calm.

    Yes, cash offer is good, but not if substantially less. Try to speak directly with the closing agent at this point to see how soon it can close. Don’t be anxious…be patient.

    Not likely it foreclosed. The owner wouldn’t be signing the offers if it foreclosed as they wouldn’t be the owner anymore.

  119. I think they have one loan only with GMAC when they refinanced. The seller bought the house in 1974. We have a title insurance in mind to do the closing, but what’s an escrow?. Sorry, don’t understand the system much. We offer the full asking price and we are also letting the agent know that we are willing to match other offers so I don’t know what else we can do to make sure we seal the deal and to move the process faster. I’m not so sure but I heard GMAC will take a 90k loss if they accept 170k.
    Thanks for your help.

  120. Well if that means the bank also had some say in the price reduction, then the main issue is whether or not the other offer is higher than yours and the process will likely be shorter by say half at 45 days to close vs. 90.

    The wild card is not guessing what the seller and the bank will do…it is guessing what the other buyer has done. That’s true of all mulitple offers, and not a quirk of short sales and foreclosures.

    Let us know what happens. I expect you will hear by Friday, given everything you have said.

  121. Since we are willing to match the other offer and ours is cash offer, don’t you think our offer has a better chance of accepting by the bank. I have a feeling that other party offered a few thousand dollar more than the asking price but we have let the agent know we’ll match their offer, does that make any difference?
    I’ll let you all know when it happens.
    Thanks for your help.

  122. No I don’t Cutepup. Verbal means nothing and agent is not in the room with the bank when they make a decision. Often not even in the same State. I don’t know any agent who would let you rely on a verbal representation.

    The bank doesn’t care if it is cash or a loan as their accounting systems simply reduce everthing to money in and money out. They don’t care where the money in is coming from, you or a lender.

    Always put your best offer IN WRITING! What you will and won’t do next means virtually nothing. What you have on the table is the only guarantee of what you are willing to do. Keeping a higher offer in your pocket is not a good way to go unless you are the only offer, and the agent is in the room with the seller at time of decision and signing. You have neither of these factors.

    “but we were willing to…” after the other offer is accepted, does you no good.

  123. ARDELL,
    Thanks for your advice. We submitted our matching offer in writing yesterday. We are still in the waiting game.

  124. Hi Ardell,
    Our agent called to let us know that the bank appraiser agrees with the listing price which is also our offer price. The seller agent also said that our is in an excellent position. Do you think the process will move faster because the bank appraiser price and the listing price are very close or almost the same or would the bank disagree even with their own appraiser’s opinion?
    I appreciate your answer.

  125. Yes, it should take faster! Generally weekends don’t exist for banks though, unlike other real estate transactions, so not much can happen before next week at this point. Often once the bank agrees, you can close pretty much at any time. The only reason it takes longer is waiting for the bank to respond. Once they do, it is sometimes shorter than an average transaction.

    We’re crossing our fingers and toes!

  126. Having worked at a Bank for 20 years, I can tell you that it would have been a little easier for them if you beat the other offer by a small amount. They are generally not good at looking at two offers that appear to be the same and picking one based on factors other than price.

    Have you done your inspection? Is your offer still contingent on inspection? Do you know if the other offer has an inspection contingency?

  127. The reason we did not want to offer a higher price is because we don’t want to change this offer into a bid. We have thought about that and decided that matching the price is the best we can do.

  128. Its been three weeks since we submitted our offer, last week the agent called to let us know that the bank wanted us to change something in the offer. We did exactly what they wanted, its been a weeks now and no word yet. What do you all think?

  129. That’s good news, Cutepup. Remember, banks are primarily processors and operate that way. If they asked for something, they likely are processing your contract.

    You have to be clear on what you are waiting for. If you and the seller both already signed a contract, the bank does not necessarily sign it too…they just close. So stay in close contact with your closing agent. You don’t seem to ever mention the closing agent and they are the key to your knowing what happens next. Usually what happens next is it closes and the bank says nothing to you or the agents…just to the closer.

    Talk to your closing agent and ask when you can sign your papers. That will bring you up to date and accurate info. If she shedules you to sign…you know it’s going to close. If she won’t schedule a signing appointment, she will tell you why and what she needs before doing that. Closing agent is usually a Title Clerk (settlement States) or an Escrow Officer or an attorney in and around NYC/North Jersey.

    Who is your closing agent?

  130. Cutepup,

    i.e. Sometimes in relo sales the contract isn’t signed until close of escrow and all papers are signed at the same time. Signed contract is sometimes not as important as “proceeding in good faith to closing”.

  131. We made a short sale offer Aug.6. Our offer ended up being very close to the BPO orderd by the lender. They have since sent the package to the MI company for some reason. I think the MI company has already completed an appraisal prior to Aug. 6 according to the seller. I feel confident the appraisal will also be very close to our offer.

    My question is: How might a MI company respond to a short offer and can there be any negotiations between the Lender and MI?

  132. Hi Sal,

    Mortgage insurance is used by the lender when the homeowner defaults and goes into foreclosure. Sometimes, depending on what the contract says between the MI company and the lender, the MI company WILL pay a partial claim to the lender in the event of a short sale.

    Your lender/servicing company is sending the seller’s short sale package on to the MI company for approval. This is normal and customary. Typically, the seller and the buyer do not enter into negotiations between the lender and the MI company.

    Usually the lender and the MI company already know how much the MI company will be paying the lender; the MI company is just asking to see all the documentation provided by the homeowner.

  133. I thought MI was for a “complete” default on the loan. I didn’t realize they may pay a partial claim for an account that is soon to be defaulted. Can a Lender accept/decline an offer without a MI’s blessing? Shariff sale approaching.

    Thanks for you response.

  134. Hi Sal,

    A lender is under no obligation to accept any short sale offer. They’re looking for MI to agree to pay a partial claim. If the MI co says yes, great. If the MI company says no, then your deal could go to auction…..especially if the sales price is way low; lower than what they could get at the auction.

    Not many buyers out there at the auctions these days so your real competition is what the lender AND the MI company think they could get if they foreclosed and resold it as an REO.

    You’re closer to the numbers. How do they look from your end?

  135. Jillayne

    Our offer is 22% of the loan amount not including closing and fees so far. The offer is within $1000 of the BPO and very close on an additional Appraisal. The offer was made according to Market Value. We completed our own comparisons and had my Broker give us a value as well. The house is three times the average house value in the county. No offers were made in the six months on the market. This info was submitted as part of the package. (This is not an investment property but for my primary residence)

    My worry is that since the offer is at 20% of the loan amount, there is no insentive for the Lender to negotiate with the MI. Also, the MI see’s an offer at market and they may think they can get others when the market changes. They can pay now or they can pay later. I would pay later and take my chance since I have one offer.

  136. Things have changed. With Merrill Lynch and Lehman Brothers collapsing yesterday my husband I are having a second thought of buying the house at the price we offered 6 weeks ago which was $ 170k. Do you agree with me that the real estate price is going down 15% more in the coming week which will make the house worth 15% less?. We don’t want to kill the deal completely but at the same time we wonder if the bank will take our offer 15% lower than the offer we put 6 weeks ago since it is a cash offer, what should we do with our earnest check, put a stop payment or write a new offer with the new price we are willing to pay.

  137. Cutepup,

    If it is a contract, you need an attorney ASAP. If it is an unaccepted offer (if the Earnest Money Check hasn’t been cashed in six weeks that may be the case) then you must immediately withdraw the offer in writing before it is formally accepted.

    Do not mention the words cancel contract or changed your mind to anyone. You simply want to withdraw your offer. Offers can be rescinded at any time prior to acceptance. But if you have a contract with the seller and the Earnest Money has been deposited, that’s a whole nuther story and needs immediate legal advice.

    Should you? Hell everyone knew the market was going down and a short sale price should have reflected that and be a discount to market value in the first place. So I can’t answer if you should or not. More importantly is time is ticking and if the approval comes in before you withdraw, then you have to cancel which could cost you your Earnest Money.

    So get off the blog and get to an attorney’s office within the hour. Time is of the essence. Withdrawing an offer is simple. Cancelling a contract is not. The difference is not in your control as the difference involves the other side accepting before you withdraw…so don’t waste any time!

  138. Thanks Ardell,
    We did withdraw the offer and got our 25k ck back an hour ago. I still like the house though, hopefully it will be there for us 2 months from now at 15% less in price. If the bank had not taken so long to get back to us we would have bought the house 5 weeks ago at 170,400 we would hove been fine and the bank would have gotten rid one of its many problems. But you snooze you lose. There is another offer that was submitted along with ours in a much lower price and they need a mortgage. I assume it going to be even harder to get a mortgage after the collapse of Lehman and Merill Lynch.

  139. I got a lot of good advice here especially from Ardell so it is only fair that I update our short buy.
    We had a closing today!!!! and the house is ours yeah.
    It took exactly 7 weeks from the day we put an offer to the day we do the closing on this short sale. Not bad huh!! Remember we pulled out our offer because we thought that the market was going to crash completely and that we’ll get a better deal somewhere else? 4 days after we pulled out our offer the bank started to work out a deal with the back up offer. They (GMAC) got everything ready to close but the back up offer also canceled the offer so the agent called us back. Since the goverment bailed out AIG we realized that the market wouldn’t be as bad as we thought so we got back in the game asking the bank to reduce the price by $2,500. They only reduced $1000, but we decided to go with it because a. we like the house and the location, b it is still a good deal c everybody, including the listing agent worked really hard on this deal. My husband who is a broker represented us with no commission and we used American Tittle Com. We paid the closing cost but it was very little since we don’t have a mortgage. The bank took a $88,000 loss on this deal.The 3% commission all went to the listing agent. I’m happy we got the house but I feel very sad for the previous owner.
    It was a roller coaster but we finally got the house!
    Thanks for all your help and good luck to everyone.

  140. YAY Cutepup! Thank you SO much for taking the time to report back to us. It is people like you that remind me that the time I spend blogging is not for naught. Enjoy your new home!

  141. Great read!! We have a strange situation with a short sale

    About 3 weeks ago we put an offer in to a seller on a house which they accepted. Well… I got a call from our agent saying the accepted. It turns out the bank took control of the house in the process of the owner accepting. The house was relisted about 3 days later at the same price.. with a different ML number. Of course we’re like.. what the heck! So basically the selling agent went from a normal sale to a short’s obvious he doesn’t know anything about short selling (and neither did I until I found this article)

    So here we are…exactly three weeks later waiting to hear something from the bank or whoever’s handling the paperwork now. We did give the agent an ultimatum which is today to get something done or we are pulling the offer. After reading the comments on this site I’m going to contact our agent and tell him to stay with the offer. I had no idea what was involved with a short sale
    And we REALLY want this would be a steal..approx ½ of what the assessed value is

  142. I was wondering if you could answer a couple questions. Actually…more looking for an opinion on what may happen next.

    My girl and I found our dream house and it happens to be a short sale. I was looking around one day at houses in the area on line. I was mostly window shopping at prices quite a bit out of our range. I stumbled across what I consider exactly what I would want my house to look like. In fact I printed a picture out of this place just in case.. in the future..I wanted it built. The house started at 229,000 and was already down to 189,000. There happen to be an open house that weekend and it was less than a mile away so we stopped in. For the open house they lowered it yet again to $179,000. I joked that we should throw a low-ball offer in at 150K. Well the day after the open house it was lowered to $149,900. We saw that and put an offer in at $145K. Here we are almost 3 weeks later and we are still waiting. I just received a call from our agent that there are at least 2 other offers in. I’m assuming that they are higher than our and we have no intention of getting into a bidding war, so here’s my question

    1. You say that a short sale is the bank agreeing to receive less than is owed. But if we have a signed contract (which we don’t) saying they accept our offer at 145K how can that number change? I know school taxes are due in a couple days which happens to be about $3800 on that house. Is there a chance we could be responsible for them if we get this place?
    2. As far as the bank (and this is where I would need your opinion) . If there is a higher offer (which I’m sure there is)..should I expect the bank to give us another shot at a higher offer? We have already agreed on not going any higher than 150K so there isn’t really much room.
    3. How would you guess the bank qualifies an offer? We have 20% down and no contingency. Example..our offer of 145K..20% down and no contingency VS offer #2 of 150K 5% down and contingent on the sale of their house. Even though our offer is less would our seem stronger? Offer #2 does exist on the house as one of the offers. I’m just trying to get a feel for what to except. I have no problem playing the waiting game. In fact longer this takes…if we should get the house.. the better it would be for me.
    Thanks for all the awesome information!

  143. “I just received a call from our agent…” Unfortunately those are the words you dare not speak. Once you have identified that you have an agent, I cannot be a backseat driver. Your agent can contact me with these questions if she wants to compare notes, but I cannot interject if you have hired an agent to answer these questions. It is called “contract interference”.

    I can say that if you read the post you should know that you are acting inappropriately and unreasonably. You should never make an offer on a short sale if your expectation is to be given a definitive response in 3 weeks. It usually takes 3 months. You should not be out of patience, you are just starting, and given this is your dream home, you should stop playing games and give it your best shot (which you haven’t done) and be patient.

    “I joked that we should throw a low-ball offer in at 150K. Well the day after the open house it was lowered to $149,900. We saw that and put an offer in at $145K”

    Makes no sense. How will you look your girlfriend in the eye if someone else gets it for $147,000 when you both know you could have taken a better shot at it? From what you are saying, this opportunity is like a dream come true, and yet you seem to be trying your best to blow it.

    Often the one who gets it is the one left standing in 90 days. Let everyone else lose patience. You? Give it your very best shot.

  144. Actually we when we put the offer the time it was a non-disclosed short sale. When the offer was written myself and my agent had no idea. It was disclosed (and added to the ML add) a couple days after. With that being said when the offer was presented I did indeed expect an answercounter in normal time. So…now I’m trying to my best to get educated on what’s involved with a short sale. I am curious as why I am acting inappropriately (serious question)? We are at or extreme high end of our price range considering taxes are $8700 ($8677 to be exact) on the place. As I stated, the longer this goes the better it is for me for a number of reasons. Are you suggesting I offer the max we can afford (150K) and leave no room for a counter offer? That though did cross my mind on the way home from work today but being I (nor my agent) has any experience in short sales…I don’t know what standard protocol is.

    And girlfriend and I have completely different taste when it come to housing..this is the first place that we both absolutely love.

  145. Bob,

    Hopefully you also saw that the person whom I gave that advice in post 138 did get their house by comment 158 and it took 7 weeks. That’s one of the shortest we’ve seen or heard about.

    Having worked with many couples over the last 18 years, it is a rare day when both like the house equally. Short sales are hard to get through and there is no set protocol. It’s more like a lottery. But when you win and it’s a house you really want, you know the effort was worth it.

    I wish you the best of luck and urge you not to walk away, as often another buyer may have a higher offer than you but THEY walk away in frustration. I feel badly that the short sale was a surprise, but that could mean that it is not very short, and that’s a good thing.

    Please keep us posted of your progress. The primary job of an agent is to help you do your best in what you are trying to do. When there are other buyers in the room, you don’t leave any of the cards in your pocket.

  146. Pingback: Options for Homeowners Facing Foreclosure | Rain City Guide

  147. Pingback: Short Sales - Another “Buyer Beware” Aspect | Rain City Guide

  148. Hi,

    I am interested in a short-sale property….a true “fixer-upper”…not inhabited (or habitable) in its current condition. I was able to find out the exact amounts of the 1st and 2nd mortgages…together they add up to 770 K. The seller bought the property for 950 K a couple years ago. The short-sale asking price is listed by the seller’s agent as 800 K.

    Problem is this: The seller’s agent is extremely difficult to deal with (doesn’t respond to phone calls, states that he has multiple offers on the property but has not submitted any to the bank, etc.) The property has been listed on MLS for over a month and a half and the seller’s agent still says that he has not submitted any of the offers yet to the banks! Basically, the seller’s agent does not seem to have any real interest in getting this property sold in a reasonable time frame.

    Is there any way to bypass the seller’s agent and make an offer and/or directly deal with the two financial institutions that provided the seller’s 1st and 2nd mortgages? I like the property and am willing to pay the entire amount of the 1st and 2nd mortgages, maybe even a bit more. Also, with the seller’s asking price, is this still considered a true “short-sale?”

    Thanks in advance for your valued advice.

  149. There possibly could be huge delinquencies on such a property. I was one the other day where the delinquency was six figures! And that was just the first mortgage. You can sometimes get more accurate balances owing by looking at Notice of Trustee’s sale documents, which are available on-line in most counties.

    Also, I think the property I ran across involved a case of mortgage fraud, because the amount paid on the most recent sale was almost 2x the amount paid a couple of years earlier (and I was told there was some criminal charges being brought). So don’t base value on what the prior price was.

    Finally, if it’s a short sale, contacting the banks won’t do anything. It’s the owner that controls the shots, at least when it comes to first accepting an offer. The banks only control whether the offer can close. If you make an offer and it’s not going anywhere, or you’re otherwise having trouble with the agent, you could always try the agent’s broker.

  150. Hi Joseph,

    Excuse me for saying so, but it doesn’t appear that you are approaching this correctly. Why haven’t you submitted an offer? It’s not unusual for the banks not to see the offer until the seller picks an offer. The seller’s agent may not, and rightly so, want to deal with you directly. It’s hard enough to do a short sale let alone try to do one with an unrepresented buyer. Too much liability and usually unnecessary. The banks are most often willing to pay for both parties to have separate and equal representation. Too much liaibility to deal with unrepresented buyers or be a dual agent, especially in a multiple offer situation.

    In our mls, the seller’s agent can’t list the property for an amount that won’t clear the table without pre-authorization from the bank. New “rule” that makes no sense really, since banks rarely give that kind of info prior to receiving an offer.

    There are several steps the seller must do before an offer can go to the bank. The first step is not the offer going to the bank. Listed for a month? It often takes a couple of weeks after the seller accepts one of the offers for it to go to the bank…a month even. I don’t want the bank to see the offer until all other contingencies are removed, for example. Pre-inspected in multiple offer situations OR submit to bank after one offer is accepted and after that buyer removes the inspection contingency. Getting it in the bank’s face is not the first step…not by a long shot. The bank doesn’t want to see an offer until the seller’s “package” is submitted and the seller isn’t going to go that route if one of these offers can get to “clear the table” status.

    They are likely countering the offers up to a non-short sale level and you are not in the game…where’s your offer? Talk? Why are you talking? Get it on paper and fast and not by talking to the agent for the seller. The agent for the seller has zero reason to be talking to a buyer who has no offer on the table, and then the agent talks to your agent, not to you.

    The agent for the seller is not supposed to talk to you. They may be revealing things that are not in the best interest of the seller, the person they represent. If you were the only buyer sniffing at the tree…well yeah, the agent for the seller would talk to you. But with multiple offers?

    Sorry if that sounds mean, but I’ve been there with six offers and a 7th guy calling to talk to me. He did end up getting the property BTW 🙂 But when you have 6 offers the last thing you want is a buyer calling you asking you all the seller’s business. That’s an awkward situation for the person who represents the seller, don’t you think?

    You seem to be worrying about whether the seller and the seller’s agent are on top of THEIR game…when you are not on top of yours. Get your offer on paper and pronto, preferably with an agent at this point and a good one. You may already have set the stage for bottom of the pile treatment by talking too much and acting not enough. Not to be mean…just trying to get you on the right track quickly before you miss out on the opportunity.

  151. Thanks for the great comments.

    Just to clarify, the reason why I have not submitted an offer yet is that I haven’t decided which agent to use. I have a relative that is a real-estate agent/broker, and am trying to decide whether to ask the seller’s agent to also be my agent (I obviously would only go this route if this will help me get a “leg up” on the competition since there are multiple offers on this property). I assume the seller’s agent will get a higher percentage commission if I ask him to also be my agent (thereby possibly improving my odds of successfully getting this short-sale property or having my offer be the one that is eventually presented to the banks). If there is no benefit to me in asking the seller’s agent to also represent me, please let me know…

    Also, the seller’s agent stated on the property listing that they are waiting for “bank confirmation” of the short sale before submitting offers…not sure what that means…

  152. I used the listing agent as my buyer’s agent in my recent short sale purchase, with great success.

    Originally, I asked Redfin to show me the place. When they said they didn’t do short sales, I simply called the listing agent, who offered to show me the property the same day. I was impressed by his promptness in responding; so, when we met and I’d determined that he’d sold a couple of short sales before, I hired him as my buyer’s agent on the spot. I also hired an attorney for a small flat fee, since I was a first-time buyer who’d never done this sort of thing before.

    Having the listing agent as my agent helped in a couple of ways:

    1. I saved money.

    As we negotiated with the two lienholder banks, I did some simple math and determined that the first lienholder bank had a bottom line number they needed to net. With my agent gettting a *total* of 3% for representing both side, I didn’t have to pay two commissions. Thus I was able to save the 3% buyer’s agent commisision on my purchase price, and determined my price based on the amount necessary to give all lienholders what I figured were their minimum bottom line net numbers, plus my agent’s 3% commission, plus taxes and such.

    I completely ignored the asking price, the previous sale price, the taxable assessed value, and eventually my lender’s appraisal, except insofar as they helped me confirm that I was getting a screaming deal.

    2. I saved time and was able to successfully complete the sale.

    Not having another agent in the picture meant eliminating one middle man in dealing with all parties, and ensured that the transaction went much more smoothly and quickly. If I had had a buyer’s agent, things might have been slower and different.

    That’s why I had the attorney, though. I wanted someone looking out for my interests and my interests alone. At a flat fee, that was a very well-justified expense.

    BTW, if you sign up for, you can determine just about everything about a property, including the amounts and interest rates of mortgages. You don’t need an agent to do that, and you can use it to figure out an offer the banks will take.

    On the first lien, netting 75-82% is the bank’s bottom line, depending on the bank and mortgage type. On the second lien, $5K should be enough. Then there will be unpaid HOA dues, excise taxes, agent’s commission, etc. But the liens are the key numbers to use in determining an offer that will be accepted by the banks.

  153. Of course, this is all non-credible advice from an anonymous loser who has nothing better to do than comment on a real estate blog at 5:30 in the morning. Take it for what that’s worth 🙂

  154. Sampai, chances are the agent only represented the seller, not the buyer. You can check the front page of the P&S agreement to see what the agent THOUGHT they were doing. But in general if you didn’t have a signed buyer’s agency agreement with the agent, they were only representing the seller. (As I recall, Ardell thinks that just checking the box on the P&S agreement is sufficient, where I disagree, and in any case, until that agreement is actually signed they clearly would only represent the seller.)

    I will say that with respect to short sales, there are probably fewer issues with not being represented, and you did say you hired an attorney. The main thing would be knowing whether or not you could expect advice from the agent, and whether they’d be under a duty to keep their mouth shut regarding certain things you said.

  155. Sampai wrote: “On the first lien, netting 75-82% is the bank’s bottom line, depending on the bank and mortgage type. On the second lien, $5K should be enough.”

    I’ve heard the second part is true if the first is not getting paid in full. I’d certainly hope that the first part isn’t true at all, but given how incompetent banks are at dealing with short sales it probably is true. If banks had a clue what they were doing, what they would accept would be property dependent. On the one I mentioned above, where mortgage fraud was likely involved, they’d be lucky to get 60% of the prior sale price for a new sale price, which on an 80/20 loan package would mean the first would get about 68% in what is a horrible situation for the bank. If they stuck to some arbitrary number they’d just end up owning the property. If they set their arbitrary numbers at that low of a range, in other situations they’d not recover anywhere near what they could.

  156. Use the listing agent. I believe, from personal experience, that a large percentage of agents listing short sales strive for dual agency. At the very least it certainly couldn’t hurt and it certainly provides the agent with incentive.

  157. And no, I am not one of those agents. I have only had to deal with them. Perhaps this provides yet another reason why many agents refuse to deal with short sales.

  158. “netting 75-82% is the bank’s bottom line”
    Good negotiators routinely negotiate lower than this. Payoff in the 40%-60% is not uncommon regardless of what payoff number the bank is telling everyone prior to negotiation. Someone has to be able to sit on hold. Some has to wait for the stressed out overworked underpaid loss mitigation employee to call back after losing the file twice and not miss the call.

  159. Michael wrote: “Some has to wait for the stressed out overworked underpaid loss mitigation employee to call back after losing the file twice and not miss the call.”

    I just mentioned this in P-I land. If banks would staff at levels adequate to process a short sale in 10 days rather than 100, they’d save $6,000 in interest on a $400,000 loan at 6%. Assuming the employee could process 10 loans a month (which I think is conservative), each employee would save $60,000 a month. I don’t think they’re paid that much! 😉

    Also, if they processed these things in 10 days rather than 100+, more buyers would be interested in short sales, which would increase the recovery price.

    Banks sort of remind me of stubborn sellers. They don’t have any realization that their power is dependent on the market. Right now banks don’t have any power, but they’re pretending they do by being arrogant and sticking to their old-fashioned ways.

  160. Kary, I did have a written buyer’s agency agreement. And the agent did his best to represent the seller and me to the banks. That turned out for the best for everyone involved. The 3% total commission was forced by the first lienholder bank, not me.

    I’m glad I had an attorney as backup, though 🙂 Agents by nature are optimistic. Attorneys are much more guarded. By getting both sides of the argument, I was able to make some good decisions that helped me along the way.

    Michael, I guess the bank’s bottom line depends on the mysterious “investor” who owns the note. They set the bottom line, and the “negotiator” is just making sure you hit that number. I’m sure in California, the bottom line is lower. In Michigan, it’s probably ridiculously low.

    Things get complicated with FHA, mortgage insurance, etc. e.g. If there is mortgage insurance, I doubt the bank has much of an incentive to negotiate. That may be one reason they’re so slow to get back on some offers.

    I was lucky in finding the right property at the right time. Not all short sales will go as smoothly.

    I do believe, however, that banks are getting smarter about doing short sales and recouping whatever they can. I had written approvals from both lienholders within two weeks. If that sort of quick approval becomes the norm, and people realize that short sales can be easy, the “short sale discount” will not be so large anymore.

  161. “I assume the seller’s agent will get a higher percentage commission if I ask him to also be my agent (thereby possibly improving my odds of successfully getting this short-sale property or having my offer be the one that is eventually presented to the banks).”

    I don’t want to turn this into an agency discussion, so let’s stick to the dollars and sense of it. It is rare that the lienholders will approve a payoff with double commission to the listing agent/agent for the seller. Also, in a multiple offer situation it clearly is unethical for you to “win the bid” based on commission issues, and pretty much against “the rules” for a seller and agent to put you to the top of the pile for that reason. Without an agent, the listing agent and seller have increased their liability, and after the sale is over they would likely prefer the clean break that your having your own agent gives them.

    But, the banks…IF the HUD 1 facsimile is done so that the net is higher (and it is not likely going to happen that way) you could have an advantage. But the odds of it going that way are slim to none given the agent for the seller will likely equalize the commission issues of all offers (and legally can do that).

    An agent would have to be pretty sleazy to push an offer because he makes more money on yours, which kind of makes you a bit sleazy to suggest an agent would do that. Again, sorry for the bluntness, but given this issue is “in play”, you need to get up to speed quickly if you want to participate.

    Even though this could take another 2-3 months to completion, if you don’t get in at this point, the odds of your being there at the end diminish each day that you do not submit a written offer.

    Don’t worry so much about the wording of the listing regarding how the offers are going to be handled. Things don’t always play out as planned. Generally IF it is a short sale, and this one may not be with multiple offers involved, the bank wants to see:

    From the seller:

    1) the or all of the contracts
    2) a HUD 1 showing the net, after costs, of all offers
    3) a 3rd party authorization to talk to the agent as they usually will not talk with the seller about the offers
    4) A hardship letter from the seller as to why they should accept an offer less than the payoff (as opposed to the seller bringing the shortfall to closing)
    5) A financial statement completed by the seller

    It is a minomer for people to think that because the value is less than the liens that it is a “short sale”. It isn’t a short sale until and unless the lienholders agree to the fact that this particular seller can’t (not won’t) come to closing with the difference. If the seller own’s other property with equity or has sufficient income and assets, the lienholders are not going to approve the short sale just because the offers are less than the amount owed.

    No one knows that, often not the listing agent or the buyer’s agent or even the lienholders…when an offer is received. Banks are not simply looking at “an offer”, they are looking at “a package” and the buyer and the agents are not privy to the details of “the package” in many cases. It’s confidential info between the owner and their lender(s).

    If the agent for the seller/listing agent does have a copy of the whole package, they really can’t tell the buyer the contents of that package. So stop trying to figure out what the seller and the seller’s agent are doing and start working on doing your part as well as you can.

    Most often when the client is focusing on what I am doing, they are not doing what they are supposed to be doing. Happens every time. Every time a seller is micro-managing me as to the wording of the property description or the flyer photos or every detail of what I do…they are not doing what they are supposed to be doing. Pricing well and getting the house in the best possible condition and keeping it that way and dealing with price reductions, if needed. Looking over someone else’s shoulder before doing your own stuff…is not a good sign.

    So Joesph, do your thing well. Get your best offer in and hire someone who the listing agent is going to believe and rely on. The worst thing that can happen as far as the listing agent is concerned is if the buyer they choose can’t or won’t close. The more you talk and do not act…the less likely the agent for the seller will be drawn to your offer if they have other offers that were submitted promptly and with few questions. We call it “acting squirrelly”. Nothing worse than a buyer who is not acting as expected…because they tend to keep acting inappropriately all the way to the end. The damage may already be done in that regard.

    When you deal directly with the listing agent you reveal your weaknesses…not a good idea.

  162. “Someone has to wait for the stressed out overworked underpaid loss mitigation employee to call back after losing the file twice and not miss the call.”

    LOL Michael…ain’t that the truth. Getting them back on the phone is next to impossible. If people knew the detail of how these things really work, they would not be trying to second guess how it works. It’s a freakin’ circus act. LOL

    Perhaps the test of whom to hire to do your short sale is who answers their phone the most. Missed calls are HUGE, so if you can’t get the agent on the phone…not a good choice.

  163. “An agent would have to be pretty sleazy to push an offer because he makes more money on yours, which kind of makes you a bit sleazy to suggest an agent would do that. Again, sorry for the bluntness, but given this issue is “in play

  164. Jennifer,

    The only person I remember approaching me directly thinking his offer would “win” in mulitple offers because I was the listing agent…was another agent LOL! He did get the place, but not for that reason. He got the place because he was the only one who had an agent who could write a decent offer 🙂 I refused to write it until reviewing all other offers. I gave specific instructions to all the other buyer’s agents as to terms needed (not price). Not ONE of them met the required terms in their offer, and all expected me to write the offer correctly for them on counter. It was quite hysterical and every agent was mad as hell…except the agent who got the property.

    Making other agents happy has never been my forte.

  165. I’m not saying to feed or not to feed. I’m just saying it is a fact of our industry, a nasty fact, but a fact none the less. There is a lot of sleaze in the RE business, second only to politics…. lol and sometimes they go hand in hand.

  166. Jennifer,

    I’m not a Pollyanna…I’m a Joan of Arc ala Norma Rae with a touch of Erin Brockavich. The latter meaning I take what is and push it in the right direction, best I can in the moment.

    It’s not that I don’t acknowledge the sleaze is there, I just turn my back on it with visible force in hopes the offender will notice it isn’t acceptable. If more did that…it would not disappear entirely, but it clearly would diminish.

    Don’t expect and acccept sleaze to the extent that you fuel it. Anyone who grew up in the sixties and seventies understands the value of pushing back on things with great force and grace. Without that we would not have the current President-Elect. Once people refused to hear it…participate in it in any way…it diminished to the extent needed. Eradicate? no Diminish to the extent needed? yes

    Bad things happen when good people shrug their shoulders.

  167. “Without that we would not have the current President-Elect. Once people refused to hear it…participate in it in any way…it diminished to the extent needed. Eradicate? no Diminish to the extent needed? yes

    Bad things happen when good people shrug their shoulders.”

    Well, as long as we are moving into the political arena to explain things I just can’t help myself. Yes, bad things do happen when good people shrug their shoulders. Let’s just hope that the President-Elect does not end up being one of those things. A lot of people shrugged their shoulders in regards to his background and lack thereof. Not that the alternative was anything to be elated about.
    I too am a product of the 60’s and 70’s (used to be a radical) only I came to realize that idealism is for the youth and confused, reality is for grownups. Rather than turn your back on things forcefully and hoping (that damn hope and change mantra) how about confronting the sleaze when it appears. I have and I do. Yes, it is a hassle to build a case and go after the perpetrator and while not always successful, it at the least puts the perpetrator on notice much better than turning your back forcefully and hoping for the best.

  168. Sampai wrote: “Agents by nature are optimistic. Attorneys are much more guarded. ”

    Very insightful! Agents tend to think everything will work out, because usually it does. Attorneys tend to think everything will fall apart, because that’s when they typically get involved (after the fact).

    BTW, as a somewhat related aside, my undergraduate degree was accounting, and I went to law school because I liked tax. I quickly discovered that although tax was the best part of accounting it was the worst part of the law. Part of that difference was due to the way lawyers think.

  169. LOL Jennifer, given you are choosing to be “anonymous”, I’d say we’ve moved to the point of private debate.

    It depends on the intent…I’m more of an intent person than a “bad acts” judge. If someone does something sleazy, but they honestly think it is the right thing to do, I educate. Intent is the key…though I understand if you don’t agree.

    There are many bads, but very few of them start with the intent to be bad. Bad intent equals report.

    So let’s call me a youthful, naive grown-up 🙂

  170. Thanks again for all your helpful comments.

    In your experience with banks and short-sales…for a true “fixer-upper” property that requires about 60 – 90 K before it becomes inhabitable, would a bank prefer an all cash offer of 725 K …or a 60% cash/40% loan offer of 825 K?

    As I mentioned in my prior post, there are multiple offers on this property already and there will likely be more in the coming weeks. I really like the property and would like to present an offer to the bank that will increase my odds of being the “chosen one.”

  171. Joseph,

    Cash is King for two reasons.

    1) because it always is

    2) If the property is truly not habitable then the buyer’s lender is not likely to want to fund the loan on such a property in this mortgage environment.

    Now to your question:

    $725,000 cash or $825,000 as a $495,000 cash and a $330,000 loan


    $825,000 cash 🙂

    As I said, if the property is truly not habitable, and the listing agent agrees and it has not been occupied (proving that it is habitable), then a loan of any kind on it may not even be an option.

    Many times I have seen a buyer say a house was not habitable, when in fact an owner was living in it. The owner would not agree LOL.

    If the house is that bad, what makes you think you can get a mortgage to buy it? Not saying you can’t, but do you have a lender you have spoken to that wll lend money on a house in that condition? Seems it would have to be a portfolio lender.

  172. The main reasons for buying a short sale, rather than buying at auction or subsequently as an REO, are:

    1. A short sale may result in a lower purchase price.

    2. You don’t have to pay cash.

    3. Short sales are generally in better condition. The owner has an incentive to not damage the property.

    If you’re paying cash and buying a fixer-upper, why not just do it at the foreclosure auction? No hassle, no agent’s commission, no second lien, no negotiating, no waiting for months to hear back from some bank bureaucrat…

    At this moment in our economic cycle, it’s unlikely that anyone will buy a >$700K fixer-upper as a short sale. Or at foreclosure auction for that matter. In all likelihood, the listing agent is simply lying about having multiple offers, let alone cash offers. In general, from what little you’ve told us about this agent, I wouldn’t believe a word he’s saying.

    If you’re a cash buyer *and* are willing to buy a fixer-upper, you’re in the catbird seat. Just look up online if a notice of trustee sale has been sent to schedule an auction date for the property, and then buy it at the auction. That’s how you bypass the sellers, the agents, the bureaucrats, etc.

    In general, I’d suggest hiring an attorney, rather than asking questions like this on a blog… As I found out, attorneys’ fees can be surprisingly reasonable.

  173. The disadvantages of buying at auction are: You pay cash and get a fixer-upper, right? That seems to be Joseph’s position anyway.

    And consider Joseph’s numbers here: “I was able to find out the exact amounts of the 1st and 2nd mortgages…together they add up to 770 K. The seller bought the property for 950 K a couple years ago. The short-sale asking price is listed by the seller’s agent as 800 K.”

    If I were in Joseph’s position, I’d expect to buy this property for no more than $600K. In fact, since it’s a fixer-upper, I’d pay much less than that. That’s the price to bid. It’ll sell at that price or less, one way or the other, to whoever’s got the patience to wait. Short sale, foreclosure, REO, whatever. Paying $825K or $725K at this moment in time, for this property, would be ludicrous.

  174. I’m sorry…I had the wrong numbers listed in my earlier post…

    This property sold in 2004 for 1,055,000 (back then it was not in its current fixer-upper condition). It has not been occupied for approx 9 months and almost everything has been stripped from the house (no appliances whatsoever, kitchen/bathrooms need to be completely redone and retiled, landscaping, etc.) Estimated remodeling costs will be 60-90 K (conservative estimate).

    The 1st mortgage is 685 K and second is 160 K. I’ve been told that over 900 K is owed by the seller due to delinquencies, etc. Nevertheless, I like the neighborhood and still think the property has good potential.

    ARDELL, I was confused by your answer to my prior question…did you mean to say 725 K cash was the better offer?

    Thanks again to all for your helpful advice.

  175. I don’t understand the basis for having $100,000 difference between your cash offer and your partially cash offer. I think if there are 5 offers for $750,000, the cash one will win. But if the property can carry a mortgage, the seller may not make much of a distinction between cash and not cash.

    They get the sale price in cash whether they get that cash from you or your mortgage provider. Makes not much difference to them unless there is no one who will make a loan on the place.

    If you weren’t following sampai’s story, after they accepted his higher offer, there was trouble funding due to the reserve position of the HOA. Once sampai learned of that weakness, he lowered his offer and they took it.

    Knowing if a lender will lend on it, and how difficult that may be, is needed to determine offer price.

  176. To clarify, I am only planning on making a cash offer, but am trying to decide how much it should be. I heard from the seller’s side that there currently are several all cash offers on the property, as well as a 60% cash/40% loan offer which is significantly higher than the all cash offers (at least 100K higher than any of the cash offers).

    The house is definitely not habitable in its current condition…are there any lenders out there that will provide a 60% cash/40% loan mortgage? If so, and if this kind of offer is at least 100K higher than any of the all cash offers, will the seller’s bank decide to ignore the cash offers?

  177. Ignore the seller’s agent’s claim that there are “several cash offers.” You should pay what you think is fair, and will get you the place.

    The agent is probably fudging anyway; he probably has some 25-year-old “short sale specialist,” fresh off one of those seminars, claiming to be able to offer $200K for the property. That’s probably this listing agent’s definition of “other cash offers.”

    With the updated numbers you’ve provided, if I were in your place, I’d see myself as having the following options.

    1. Buy it as a short sale.

    Since the two loans add up to no more than 80% of the purchase price, there is no mortgage insurance, and the lienholders will want to deal. The price they will accept is likely 685K * 80% (first lien) + 5K (second lien) + other expenses ~= $600K. If you think that’s a screaming deal for this property, and you want to get the offer accepted, there’s a good number. Ideally, you’d wait until the foreclosure auction date was a few weeks away, and then submit an offer. That would put the right kinds of pressure on the lienholders, especially the second lien.

    2. Buy it at foreclosure.

    Here, the price will depend on what the first lienholder will take. If they’re stupid, they’ll set the minimum bid at $685K. If they’re smart, they’ll set it at $685K * 80% = $548K.

    3. Buy it as an REO.

    Perhaps the best option of all for you. The listing agent’s commission is lowered here. You don’t need an agent on your side; hire an attorney instead. You end up saving 4-5% on agents’ commissions, and don’t have to worry about the second lienholder since they got wiped out at foreclosure. Also, with the several months that will have passed by the time this place comes on the market as an REO, it will be priced based on market conditions. I expect market conditions to get much worse over the next 6-12 months, as deflation kicks into high gear.

    But what do I know? I’m not a real estate professional…

  178. I was in a hurry last night, so couldn’t go into the disadvantages of buying at a foreclosure auction. They include:

    1. I don’t believe you can buy title insurance as part of the sale. About the best you can do is a lender’s policy if you borrow funds to buy. And that will only provide limited protection, and end entirely when you pay the loan off with a permanent loan.

    2. Financing options are much more limited and expensive.

    3. You really need to research title to make sure that there are no surprises of things that won’t just go away, like a prior lien, or in the case of one house I saw earlier this year, a drug abatement proceeding by the King County Sheriff.

    4. Unless the house is being listed prior to the foreclosure, there will be zero opportunity to conduct an inspection. Not only could there be damage and garbage left, but some drug manufacturing activity or other environmental issues can make a property essentially worthless.

    5. The occupant might not leave, meaning an eviction proceeding will be necessary. When being evicted they may damage the property and/or they may file bankruptcy and further delay the eviction.

  179. Unless that second is a HELOC, or perhaps a prepayment penalty on the first at a time more funds were needed, I don’t know why there would be a first and a second on property that total less than 80% of the prior sale.

  180. It may well be a HELOC after the purchase. After the buyer put a bunch of money down to buy the house in a hurry, they realized they could “unlock the value in their home” and get some cash back to play with 🙂

    I find myself in a very similar situation now (my lender’s appraisal was way over my purchase price, and my loan was way under 80% LTV), but decided to not get a new HELOC. Instead, I’m taking advantage of Ben and Hank’s generosity to refi my conventional mortgage at a much lower rate. With the same lender, and very minimal closing costs 🙂

    I’ll “unlock the value in my home” by selling it after several years, after we’ve been through about a year of deflation and a few years of hyper-inflation.

  181. sampai,

    This scenario makes more sense to me. He bought the house and then used the Heloc to add improvements, which is why he removed those improvements when he lost the house. Makes sense. Not saying he was right. Just saying that’s how people think. If he bought all stainless steel appliances AFTER he bought the house, he probably didn’t want to leave them behind. He might have left them if they were the same appliances that came with the house when he bought it.

    Often people will strip out anything they paid for, as Heloc monies are likely still due after the property is foreclosed on. If they don’t take the things that the Heloc paid for, they will still have to pay for the things that they left behind. I’m not sure that’s true in all cases, but it’s how people think.

  182. Joseph,

    I think what the owner is doing here is trying to at least hit current appraised value. I don’t think all of these advices about x% of what is owed are at all relevant in a multiple offer situation. Nor do I think the agent is lying. I’ve seen agents lie about having an offer, but I’ve never seen one lie about having several cash offers. That would take a huge set of cajones.

    The processing of short sales is changing and banks are less likely to accept less than current appraised value, especially with multiple cash offers.

    I would do a reverse escalator…all cash. $825,000 cash offer not to exceed X$ more than the highest offer. That way your agent gets to see the other offers, or at least the one offer that pushed yours up.


    If you had an appraisal done at time of purchase, how far was your sale price from that current appraisal done by you?

  183. Joseph,

    An offer submitted to the bank supported by a current appraisal…and I would get Title Insurance even though you are not forced to do so with a cash offer.

  184. ” I’ve seen agents lie about having an offer, but I’ve never seen one lie about having several cash offers. That would take a huge set of cajones.”

    Ardell, he said he had some offers. He didn’t say they were any good 🙂

    One of the downsides of the market we’re in is that dumb people who want to get rich quick are making offers on short sales and foreclosures that are a nuisance at best. The listing agent can still use these, however, to claim that “there are cash offers on the property.”

    These are the same sort of young idiots who tried to flip properties at the height of the bubble, and have now created short sale and REO purchase opportunities for smart young people like me 🙂

    There’s a young, get-rich-quick sucker born every minute. One batch tried to flip properties. The next batch tried to buy foreclosures. And the latest batch makes absurd “offers” on short sales.

  185. BTW, if I were in Joseph’s place, and knew for certain that someone was offering $725K cash on this property, I wouldn’t match that offer. The property simply doesn’t seem to be worth that now, based on the limited information we have.

  186. sampai,

    1) that’s why I recommend the reverse escalator. Say he puts in $825,000 cash or $10,000 more than the highest cash offer on the table. (I use $825,000 for reasons other than you). Then let’s say the highest offer on the table is $500,000 using your logic. That would get him the property at $510,000, with an offer that gets their undivided attention with an $825,000 cap. He can keep running that offer at $10,000 over the next best offer for as long as the lienholder’s want to hold out for better.

    2) I suspect that your appraisal came in low for reasons I can’t reveal here to protect your “coyness” 🙂 So tell us. Sale price was what % of appraised value? Amount owed is not the be all end all. Past purchase price is not either. Current appraisals are coming in high, but they are at least better than what an owner may have paid two years ago.

    Joseph…most lienholders are doing updated appraisals and making their decisions accordingly.

  187. “Ardell, he said he had some offers. He didn’t say they were any good.”

    Absolutely agree, sampai. I’ve worked that truth myself many a time. There’s a huge difference between lying and working the truth to the max. Working the truth to the max is our job.

  188. I didn’t bother doing an appraisal or CMA before deciding on my purchase price. I mainly looked at the liens, to see what I needed to make the banks happy.

    The resource I trusted the most was the Seattle Bubble pricing calculator. I put in my offer when I was certain that I was objectively rolling back the price to pre-bubble levels. When my offer was well below what that calculator said, yet enough to satisfy the lienholders, I knew I had a good deal.

    I ignored the taxable assessed value, until you pointed that out. I did look at the Zestimate, but considered it far too inflated; so I ignored that. I used the previous sale price only insofar as I marveled at how high it was.

    The lienholders did the BPO thing; but they didn’t tell me what their numbers turned out to be.

    After I’d put my offer in, I went to a couple of open houses for similar properties, just to see what I was missing out on by focusing on my short sale. I ended up laughing at the inflated prices, the poor staging, and the general cluelessness of those sellers and agents. If and when I sell my place, I’ll wipe the floor with the competition.

    The first time I finally saw an actual “appraisal” that cost more than $100 to do was when my lender did one. And that came in far above the purchase price, even though the appraiser seemed to be trying pretty hard to get it down to that price. So I have no faith in those $400 appraisals now 🙂 I wouldn’t have paid that appraised price.

  189. Totally agree with eveything you said…BUT my question still stands. I know “you had an appraisal done” albeit by paying your lender to do it (which is what I meant and not prior to offer). What % of that appraisal was the sale price? That’s what Joesph needs to hear. Banks are using current appraisal, and I don’ think they are taking 75% or less of current appraised value. Let’s assume that their BPO and Appraisal result (they usually do both) was in line with yours, and your answer is relevant to Joseph’s and other readers need to know.

  190. Funny thing about the BPO: The second lienholder did a BPO, but the first lienholder did… nothing! No BPO, and no Appraisal. They may have done a CMA, but I have no way of knowing.

    In the case of the second lienholder, their BPO must have come in at a point where they wouldn’t make any money in a sale anyway (thank you Housing Bubble!) So the “investor” who owned that “note” authorized the “negotiator” to take $5K regardless of my purchase price. Better than getting $0 from a foreclosure auction.

    As for the first lienholder, the “investor” who owned that “note” must have authorized the negotiator to take a net 80% of the principal they were owed. I inferred this as the price changed over the course of our negotiations, which I documented on this blog.

    As for the appraisal that I paid for through my lender, that’s between my lender and me. I didn’t even share that with my agent, let alone the lienholders 🙂

    So Joseph should look at the liens and the Seattle Bubble Calculator, not at whatever other “estimates” – Zestimate, assessed value, CMA, BPO, Appraised value – there are. If other people want to use the estimates to overpay, let them do so. There isn’t going to be any shortage of interesting properties over the next year.

    P.S. Two months ago, I barely knew what “escrow” was. If I can buy a short sale, anyone can.

    P.P.S. My agent tried the “we have multiple cash offers” trick on me before I hired him. I wonder whatever happened to all those offers when my loan temporarily fell through and it looked like the deal was dead 😉

  191. I hired him because he answered his phone immediately, offered to show me the property the same day, had short sale experience, and tried to get the best deal for his clients in the same way you admitted you would have. I wanted someone like that on my side. And it worked out very well.

    At work, my job is to hire, manage, and motivate people. Everyone has strengths and weaknesses; everyone’s not the same. The trick is to recognize a person’s strengths and weaknesses, assign them the tasks that suit those strengths, and then reward them in tangible and intangible ways when they succeed. Lather, rinse, and repeat. Works in real life too.

  192. Thank you for the valuable comments…I’m learning a lot about this process.

    ARDELL, you mentioned: “I recommend the reverse escalator. Say he puts in $825,000 cash or $10,000 more than the highest cash offer on the table.”

    So you recommend that I only compete with other cash offers?
    In your example, if there is a real offer on the table right now for 825K (60% cash/40% loan) but the highest cash offer is 710K, then my offer using the reverse escalator will be 720 K? In this scenario, which offer would the bank go with? The seller’s agent said that all offers will be submitted to the bank…Would the bank even consider or counter my 720K cash offer or just go with the higher 60/40 cash-loan offer?

    Another question: since the house is absolutely not habitable in its current condition…are there any lenders out there that will provide a 60% cash/40% loan mortgage? If so, and if this kind of offer is higher than any of the all cash offers, will the seller’s bank decide to ignore the lower cash offers?

    Here are the estimates for this property (although I don’t think these online appraisal websites account for the current condition of the property, which needs approx 60-90K of work before it is inhabitable).

    Low – Estimate – High

    Zillow $947,010 – $1,157,005 – $1,261,505
    Eppraisal $886,755 – $1,043,004 – $1,200,011
    Cyberhomes $822,182 – $913,119 – $1,055,005

  193. Joseph,

    It’s hard for me to answer that without seeing the property. My concern is that you would be competing with an offer that is basically a dead offer if no lender will finance it. That’s a big if that I can’t answer without seeing it. My thought was even if you are 2nd behind the offer with the financing and they accept the offer with the financing and it can’t close…you bump up to first.

    You lose me when your price cash vs. with part financing is $100,000 spread. I don’t know any seller willing to take $100,000 less because it is cash, unless financing is not possible.

    Usually the decision as to how to proceed with an offer, from an agent’s standpoint, follows discussions with the listing agent that provide more info both directly and indirectly. So giving advices without personally having spoken with the listing agent is…well, blog gossip. Entertaining and insightful, but as someone said, it’s for helping you with the thought process more than anything.

  194. Joseph, perhaps you should hire someone like Ardell to look at the details and advise you. Short sales are one scenario where agents really do earn their commission through their experience.

    If you were looking at a “normal” purchase, or a foreclosure auction, or an REO, hiring an agent might not be worth it. But this is a short sale with many variables; so it’ll probably help to have someone with real estate experience and negotiating savvy on your side.

    Don’t hire the listing agent, since he won’t return your calls. Hire someone like Ardell, who will look out for you.

  195. I know you have very limited info without having seen the property, but I would like to get your take on the likelihood that a property like this will be able to obtain a loan for 40% of the offer price. If it very unlikely, then I won’t try to compete with an offer that is basically a dead offer.

    Almost everything has been stripped from the house (no appliances or cabinets in the kitchen, no fixtures/sinks in kitchen or bathrooms, landscaping needs significant work) Conservative estimated remodeling costs are approx 60-90 K.

  196. In this market I find it very hard to believe a lender would, but some of it depends on the borrowers qualifications. Often a lender makes a decision to finance based on the buyer vs. the house. Very, very strong buyer can get a loan on something a weaker buyer on the fence decision could not. So I don’t think there is any way to tell for sure.

    We need to ask Rhonda and Roger and the lenders, who are on other threads. I’ll see if I can grab their attention.

  197. Joseph,

    Email the property address to me. I’ve worked in 5 States and know good agents in several (not all). I won’t reveal it to anyone you wouldn’t hire though, because they could have a buyer. But maybe we’ll get lucky and it will be in an area I’ve worked in.

  198. Joseph,

    Here is Roger’s response on the ability to finance a home that is not habitable. I had to ask it on a different post where I knew Roger would be.

    cut and paste from another post:

    Re Ardell’s question

    “Roger, do you know if a home with no kitchen cabinets or bath fixtures can be financed with 40% down. The question came up today on my Short Sale post.

  199. You are very welcome, Joseph. And I appreciate your asking these questions on my post, as your questions and the answers of many help readers whom this info helps today and in the future.

    RCG is 2nd to none, I think, in providing info via the comment conversation, and without people like you doing the asking, that would not be so.

    If you happen on an online conversation regarding short sales that has been equally of value, please post the link here.

  200. For a short sale all cash offer, what kind of closing time frame is recommended? I’ve heard numbers ranging from 10-30 days are most common. Will banks show preference to the offer with the shortest number of days?

  201. Isn’t there a closing time frame that has to be spelled out in my offer…in other words, the time to complete the transaction after the bank has accepted the offer? That is what I am asking about.

  202. I believe Ardell mentioned using a 30-day closing time, and then continually extending it by a month while waiting for the bank(s) to respond. That way, the sellers know the buyer is willing to wait, and the buyer has a way out every month.

    In my case, we just used a closing date 90-days out, with the sellers bound to not entertain other offers during that time (I had 3% earnest money down; so I was committing to the deal too.) The banks responded quickly and, despite some hiccups, I closed well before the 90 days were up.

    Banks don’t care about the closing date you’ve agreed to with the sellers. Their bureaucracy will take its own sweet time to respond, and then insist that you close in a hurry. However, if you can’t close in a hurry when the bank accepts your offer, you can get an extension or two from the bank(s); it’s better for them to extend the date than to foreclose.

  203. Sorry for the delay, Mary, and thanks to all for jumping in with good answers. We just brought my sister back home and all went very well with the surgery.

    Mary, see 1) in the post above and this highlighted piece “Most often short sales involve a series of extentions strung together until it closes.”

    To make your offer attractive I would put a normal closing date, which will likely be extended because they are not ready yet. But I would include wording like “to close within 10 days of banks acceptance”. Most state laws require that you put an actual closing date. But you can add the sweetener that you are ready to close when they are.

  204. I would disagree with sampai on this:

    “However, if you can’t close in a hurry when the bank accepts your offer, you can get an extension or two from the bank(s);”

    Closing when the bank accepts, vs. proceeding to do your “stuff” when the bank accepts, is my recommendation always. Costs increase as time passes, and the bank’s OK is often based on a certain payoff amount. Bank approval should be the last thing that happens and I have closed as early as next day after bank approval.

    Sometimes “we are ready and can close tomorrow” is what turns a no into a yes from the bank.

  205. The extensions should be for the seller side, as needed. The buyer should be ready to close within 10 days and should get to that place ASAP from time of offer.


    Did you do an inspection after you had bank approval? How long after bank approval did you close. Often the approval is “good for 10 days” like a regular payoff expiration timeframe.

  206. I didn’t wait for bank approval to do some things (like an inspection.) I was actually prepared to close as soon as they approved.

    However – because of those loan issues we’ve discussed – I ended up getting the banks to extend the closing deadline they gave me when they approved the sale. I think there’s more room to do that than most people realize; banks hate to foreclose.

  207. I got a second extension when it looked like my lender may not be able to make the tight deadlines from the first extension. I didn’t need to use that second extension, though. We closed very quickly.

    Like I said, banks hate to foreclose. If they have a legitimate, committed buyer, they’ll play ball.

  208. The bottom line is that the closing date for a short sale should basically reflect how committed you are to buying the property, rather than what you think the lienholder(s) will do.

    If you’re committed, set a 90-day deadline, put down a sizable earnest money deposit, get the sellers to stop entertaining offers, and do things like inspection immediately.

    If you’re not sure that you can wait for three months, then set a 30-day deadline, and extend it every month. In that scenario, the sellers may still want to entertain other offers, and you may or may not want to commit to expenses like inspection before the banks have approved.

    Once the banks have approved, try to close as quickly as possible. If their deadlines are unreasonable, they’ll be able to see that too; get an extension. Or two.

  209. wow, a lot of info. here to grasp as a non-realtor…….it seems to me that purchasing a short-sale is like being on a roller coaster. after reading thru, i am a little uncertain of how the bank comes up with their final number……..pls correct me if im wrong, but it seems like if an owner has a mortgage for 500k, and can no longer afford the house payments, they turn to a short sale to avoid foreclosure…correct? then the bank might take 450k although the note is for 500k. correct? however, does this 450k the bank comes up with- is this based on on appraisals of the area? based on a calculation/formula the bank has???? im confused b/c currently, in this market and for the past few years houses were overpriced- so how can the bank go based on appraisals if the appraisals would be inaccurate…do i make sense? pls explain……i might want to make a short sale purchase, but before i do- i will do my homework

  210. sorry- in addition, these banks not moving fast makes absolutely no sense….time is crucial! isn’t common sense that the more time that goes by, the more money they lose?????? and then we wonder why these banks need to be bailed out! then again, we will just approve them for another 30 billion free dollars…..DOESNT THIS PISS ANYONE ELSE OFF??

  211. Steve,

    You asked: “I am a little uncertain of how the bank comes up with their final number”

    The bank doesn’t really come up with their final number, the buyer does. If the bank wants $450,000 and the highest offer they can get is $325,000, it will eventually sell for $325,000, either as a short sale or after foreclsoure as a bank owned property.

    As a buyer, you just have to figure out the most you would want to pay for it, whether the bank will take that or not. The only thing stopping you from getting it at $325,000 is another buyer who is willing to pay more.

    Why would you let the bank determine the price for you, the buyer?

    You asked: ” in this market and for the past few years houses were overpriced- so how can the bank go based on appraisals if the appraisals would be inaccurate…do i make sense?”

    You make perfect sense, and that is why some houses end up selling for much less than an offer the bank rejected earlier, based on appraisal findings. Still, they have to justify the price, and appraisal is the only means they have. This is less of a problem going forward the next 4 months than it was in October through February. 3 comps from weakest 6 months will be more accurate than back in October and November when 3 comps came from a higher 6 month period.

    If it is a short sale, they have to use an appraisal. Bank owned properties are different as the bank is the seller, and so has to price the same way every other seller does…based on what a buyer is willing to pay. Buying a short sale property (from an owner who owes the lender) vs. buying a bank owned property, are two different things. Bank owned properties are often easier, cheaper and a better way to go.

    No sale involving a bank, be it a short sale or a bank owned, can ever be as fast as a regular sale. Sellers can answer nights and weekends, banks can’t. Sellers have only “one file on their desk” to attend to, their house. They can answer faster than a bank who has hundreds of files on their desks.

    A short sale or bank owned or relo or estate sale is always cheaper because there’s no one there to tell you anything about the house…they never lived in it. That “risk” is worth a discount, always. So banks wanting appraised value really makes no sense, and no buyer should pay the same price for a house that’s been vacant and not cared for as they would for a “pride of ownership” owner occupied home.

  212. Ardell- Thanks for all your knowledge. So basically the owner puts the house up for less than he/she holds the note for…..if the note is 200k, the owner might put it up for sale for 180k. and this low number is done to attract customers and essentially get out of the house before foreclosing- not to totally kill their credit! However, does the bank give a final number on the note the owner is paying? In other words, that 200k note maybe the bank will settle for 175k…………….does the owner get the final number the bank will settle for?? pls let me know if im confusing!

  213. Hi Steve,

    There’s no “one size fits all” short sale, anymore than there is total agreement among all sellers regarding “correct” asking prices. It’s a real estate “market” with thousands of variances. That said, let’s see if I can follow you.

    “So basically the owner puts the house up for less than he/she holds the note for…..if the note is 200k, the owner might put it up for sale for 180k.”

    Not really, no. Let’s say the owner bought it at peak in 7/07 for $200,000, full price, zero down and the closing costs were added and financed so the house sold for $208,000 with an 80% first mortgage of $166,400 and a 20% second mortgage of $41,600. Let’s say these are two different “banks”.

    One of the two banks is about to foreclose on the house. If the 1st forecloses, the 2nd likely has to walk away with nothing. So the 2nd usually agrees to as little as $.10 on the dollar or less, sometimes a flat $5,000 IF the short sale is negotiated very close to the foreclosure date. If the seller is only a month or two behind in their payments, the 2nd might tough it out asking for half what they are owed, say $25,000.

    A lot of short sale negotiation is about how close to foreclosure it is and how many lienholders there are. I’ve done one with FOUR people with their hand out on a short sale: 1st lienholder, 2nd lienholder, condo association (5 years in arrears) and a judgment from a car loan. If feels like a game of chicken sometimes. Who is going to get scared they will get nothing and settle for the least amount. Usually that is not the one in first position.

    Often one or more of the lienholders says “we’d rather have the house and try to sell it ourselves as a bank-owned property, than go that low.” Sometimes that’s true…sometimes it’s a bluff.

    It’s kind of like a poker game with more than a couple of players and no dealer to keep things orderly and in control. I just left one that needed a bouncer 🙂

    The owner often doesn’t have a clue what the bank(s) will accept when they put the price on. Often the bank(s) won’t talk to anyone (especially the seller) until there is an offer on the table. So the owner/seller prices it the same way any seller puts a price on. Two neighbors sold for $175,000 in the last 60 days on the same street…let’s price it at $175,000.

    Because of commission issues, if it is listed with an agent in the mls, the agent MUST notify other agents that it will be “short”. That means there is NO money at face value to pay any real estate commissions. When an agent invites other member agents to show the property, they are also promising to pay a commission to the agent who works for the buyer. BUT how can he make that promise when there is no equity/proceeds to guarantee payment to the agent who shows the house? So he MUST put “commission is X% subject to lienholder approval”. The commission is subject to the lienholder’s OK. That is the only reason the owner/seller’s business becomes available in the mls…as a warning to agents re shorted or no commission.

    I’ll answer your other question in a new comment.

  214. Steve asks: “However, does the bank give a final number on the note the owner is paying? In other words, that 200k note maybe the bank will settle for 175k…………….does the owner get the final number the bank will settle for?? pls let me know if im confusing!”

    EVERY closing of every sale involes “lienholder” approval of “the final number”. This is nothing new. Example”

    Let’s say the owner of the house above prices it at $250,000 and you buy that house for $250,000.

    The closing agent orders the “payoffs” from the seller’s mortgage company(s) pretty early on after you are in contract. No one really sees that, but it happens. Then the closing agent sends the amounts requested the day of closing.

    The only difference between a “short sale” and a regular sale is that the closing agent doesn’t have enough to pay “the bills”. The closing agent gets the sale price plus closing costs from the buyer and the buyer’s lender. In the regular sale, that would be $258,000 or so and from that amount they pay the commissions, the excise/transfer taxes, the Title Fees, etc (closing costs) then they pay off the seller’s liens/mortgages, and they give the seller a check for what is “left over”.

    In a short sale the closing agent doesn’t have enough money after all the other costs to pay “the bills”/payoffs of the seller’s liens/mortgages. Now what?? Lots of screaming and wailing and gnashing of teeth. The “shorted” “banks” say “If WE are taking LESS, than the agents should also take less, and the seller should get not ONE THIN DIME!” Most times everyone has to swear on a Bible that the owner/seller did not get any money “under the table”. Things are changing, but historically this has been the case.

    The most important thing to know is there is usually not only one “bank” who is owed money and often they squabble and gripe and create problems up to the last minute about releasing the property when getting less than they are owed. They are not a party to the contract. They do not approve a sale price (and if ONE of them does that is not binding on the other one).

    The best thing is for the buyer to be ready to close when the banks “approve”, within a few days. The bank says, “OK, I’ll take $131,543 instead of the $174,526 we are owed.” Well, guess what…two weeks later there is a higher cost on some other charge (final water bill or something) and that $131,543 is no longer available AND the offer to take $131,543 sometimes EXPIRES in 10 days. So you have an approval…and then you don’t.

    So if the buyer takes 30 days after the “bank approves the payoff”…all bets may be off, and you have to start all over again.

    Best advice I can give you, Steve, is MOST OFTEN WHAT THE BANK WILL TAKE IS NOT LESS IF YOU HAVE NO AGENT TO REPRESENT YOU. Sorry to shout that, but it is true. So there is no reason not to go out and hire the best darned agent who understands short sales that you can find. The best one costs exactly the same as the worst one, and the bank will pay your agent and the price you pay for the house will not be less if you have no agent.

    Any more questions:)

  215. Hi,

    My husband and I put in an offer on a short sale and received an agreement from the sellers for a reduced price of 99K. The sellers agent then flagged the property with “offer has been accepted”. After 2 weeks we heard from the bank with a counter offer of 50K…we met 1/2 way and came up $25k. The bank then stated they were sending in an agent to assess the property and would get back to us. The sellers agent seems very experience as well as our agent (they seem to work well togather). However we are renting a property (month to month, with a 2 month notice) – we sold our home 6 months ago) and our landlord just put the property on the market (we are now extremely stressed). Should we continue to try to get this property (we really like this property and know that there are no liens – however the sellers are becoming more and more disgruntled with providing information …ie…survery, property line). Is there anyway to move this process up quicker..or just move on? After reading your article I now wonder if we are just wasting time…


  216. Three weeks ago…one of my concerns is that we sign the P&S and give notice to our landlord – then the date changes. BTW I live in Boston…don’t know if that makes a diffence with short sales. The bank is located in Texas..

  217. Do you have something in writing that the bank agrees to the price of $125,000? Three weeks is too soon to be nervous about a short sale. What does your agent think? A normal sale is taking 4-6 weeks, so you would expect a short sale to take 6-8, given you had bank agreement within 2.

    Three weeks is too soon to be nervous about a short sale.

  218. Jackie,

    If you can find a house for the same price that you like just as well, you should talk to your agent about that. If not…hang in there.

  219. Ardell,

    Thank you so much for your quick responses. The house currently has a mortgage of $550 and we are looking at $425..I started getting nervous when they countered our $400 offer to $450 and then when we countered back at $425…we were told that they were going to have an agent reevaluate the property (they had previously done this with other agents). I was wondering why they just didn’t counter again…the bank did not agree with the $400, the sellers did. I have started looking at other homes…but I am hoping for this one. If you could answer one more question for me. Who is responsible for the utilities in the home, if the sellers stopped paying on the utilities, and we should get the house would we then have to take over the payments? My husband seems to think it is the bank (so doesn’t our agent), but I thought I read something diffrent in one of your articles…


  220. Jackie,

    I look at this again and respond shortly.

    From your first post “My husband and I put in an offer on a short sale and received an agreement from the sellers for a reduced price of 99K.”

    I thought the price was $99K plus $25 added on the counter…

  221. “If you could answer one more question for me. Who is responsible for the utilities in the home, if the sellers stopped paying on the utilities, and we should get the house would we then have to take over the payments? My husband seems to think it is the bank (so doesn’t our agent), but I thought I read something diffrent in one of your articles…”

    The bank doesn’t usually pay utilities unless they own it, which in a short sale they would not. Water is generally the only “lienable” utility, depending on where you are. The water bill being paid would be part of the closing and the bank takes that much less in their payoff. You shoudn’t get stuck with the old water bill, unless you are buying it at the courthouse steps, which you do not appear to be doing. That’s why buying a short sale vs. at foreclosure has a bigger comfort zone.

    Electric, gas and phone usually just get transferred (by you) into your name after you own it. The old bills are not “lienable” on the property and continue to be old unpaid debts of the former owners. Just be sure to take a reading of the meters yourself on closing day and call the utility companies within 48 hours of closing to put them in your name. Escrow will usually do the water and sewer and sometimes trash if they are all one service. Not gas and electric.

    If the utilities get shut off, they will likely be shut off when you take possession, and you may have to pay re-start fees to get them on in your name.

    Sounds like a good enough deal to hang in for. Do you know how close it is to foreclosure? Given you have had bank interaction and seem to be willing to respond to another counter, if that is what happens next, it should work out. If you have to stay one or two weeks where you are…well “possession is 9/10ths of the law”. Even though you have given notice, it shouldn’t be a huge deal to get a week extension on that, if needed.

    The “odd” part about your situation is the 2 months notice on your lease. Most around these parts do not require that much notice. That is what is making your situation more stressful than most. Usually you wouldn’t give notice until you were more solidly 30 days away from closing. So I don’t see the short sale being as problematic as the fact that you gave notice already, which is not normal this early on in a short sale.

    Sounds like you gave two months notice one week ago (when you finished with the counter phase) which gives you six weeks to close. Doable. Give it a couple more weeks and see where you are.

  222. Thank you so much for your help. Wanted to let you know that the bank has accepted our offer!! We were told that the Asset Manager needs to sign off on the offer and then we will move forward!! Any advice for us from this point?


  223. Congratulations!

    Just do everything you need to do. There may be a hiccup or two near the end, so you don’t want to leave your stuff to the last minute. Get everything the contract and escrow require of you done ASAP, so everyone can deal with the extra work of a short sale.

    Good luck! Keep us posted. Where is the house (generally, not exact address).

  224. can someone help me with Short Sale numbers:

    – Seller has a 300K due for mortgage
    – the property is listed with 250K tag
    – i offered 240K and lender accepted

    As a buyer i do understand the following:
    – i will have to accept the property as it is and will be responsible for all repairs
    – unpredictable wait time and dependency on lender approval
    – due property tax will be paid by Lender

    But i do not understand:

    – who is going to pay for due utilities bill?
    – if lender waves 80 K (mortage was 300K and finally lender got 220K) during closing to the seller, does the Buyer has any kind of responsibility with this waver? or buyer does not need to worry abt this?
    – does ‘hidden lien’ is a problem and it is really that much ‘hidden’ that an attorney or other website can not find before closing?
    – apart from property tax, loan, utilities, assessment fee….does a buyer need to investigate any other areas if the buyer wants to do the home work for all dues on properties? this question is asked to make sure that after closing no 3rd party other than above can come to the buyer and says last property owner has this much due and just because you are the current owner that dues transferred to you

  225. Hello, my name is Mark, my fiance and I have fallen in love with a particular home. It is located in a very nice town in southeastern MA and is in a 6 lot subdivision. I would say that the comps would be 450k+. The home has been on the market for apprx 215 days, it started out at 469,900 but didn’t have any showings. Then the price dropped to 444,000, had some showings with one weak offer( I think around 325K range). Now the home is listed for 399,000 has had about 18 showings and another 2 offers including mine. We have been working soley with the listing agent who gave us the idea that the competing offer is in the 365K range. Btw the agent made us sign dual agency form.

    Balance owed on the mortgage is 417,000

    Our offer:


    76,000 down

    We will pay $500 for TitleV inspection

    Offer good for 45 Days

    The “owners” of the home are divorced, not living there. Sellers have agreed to our offer, but are still waiting for the bank to agree to the short sale. It has been about 3 weeks since the competing offer (~365k) was submitted to the bank. I’m not really concerned too much about the other offer because I think ours is stronger. I have recently locked in a rate for 60 days with my bank. What are my chances that the bank will agree to this short sale and within 60 days. And how long after that will I get the purchase and sales agreement? WE WANT THIS HOUSE!!!!

  226. Mark,

    First, MA and WA are like two different planets when it comes to short sale and foreclosure and bankruptcy issues.

    You would be better off asking someone locally.

    If you didn’t want Dual Agency, why did you work “with” the listing agent who represents the seller before you came? There is no choice but dual in that scenario in a State like MA. Still, he’s telling you what the other offer is as a result, which he is clearly not supposed to do, so you get the benefit of his lack of ethics.

    Wanting a short sale to go faster is like buying a tortoise and expecting him to be a hare. Risky and slow is why they are cheaper. They are not normal transactions and someone can swoop in and beat you out tomorrow. If the seller’s file bankruptcy in MA in the middle of this, you are dead in the water. Accept that it’s not over until it’s over and have some patience.

    I must admit my tone is a bit off because I am annoyed that you know the other offer and you don’t seem to feel badly about the ethics of that. How would you feel if you were the other buyer waiting patiently, only to find your offer was being revealed to other buyers because they choose to work with the listing agent? That is just nasty stuff.

    Whether or not this will go through will depend on how well heeled the sellers are. If they have the money to pay the shortfall, the bank may and likely will expect them to bring money to the table, and will not approve the short sale. Since none of us know the financial circumstances of that seller, we don’t know how lenient the bank is going to be with the seller’s situation.

    It’s not really about the buyer and the seller’s lender. It’s about the seller and the seller’s lender. The package the seller submits is in large part the basis for the lender’s decision, not just the amount of your offer. The bank isn’t selling the property, they are deciding whether or not to let the seller’s sell for less than what is owed. If those people have money in the bank or other assets, the amount of your offer is irrelevant to the bank’s wanting the seller to bring the difference to closing.

  227. Hi Ardell, I was hoping you would respond. I was just stating that the listing agent made us sign a dual agency form, I don’t have an issue with it. I wanted to increase my chances and figured it would of cause conflict with the listing agent commission, getting my own realtor involved .

    “I must admit my tone is a bit off because I am annoyed that you know the other offer and you don’t seem to feel badly about the ethics of that. How would you feel if you were the other buyer waiting patiently, only to find your offer was being revealed to other buyers because they choose to work with the listing agent? That is just nasty stuff.”

    After the showing, we had asked the listing agent a few times what would be a reasonable offer. All that the agent said was, “I would want to be in at least the $360ks’ range.” That lead me to believe that the other offer was no greater than $365k, just specualtion.

    So the next day we met with the agent to make an offer, I originally said lets do 385k. The agent reminded us of the small repairs that need to be done so the agent suggested that 379k would be a good offer. We agreed. After the paperwork was done I asked if our offer was better, the agent said ours was considerably stronger. I never meant to undermine anyone, I just asked the questions that anyone else would have asked in my position.
    I guess I just need to be patient and hope the bank accepts.
    thanks for your insight, I’ll keep you posted.

  228. Hi Mark,

    Thank you for explaining that. There are many ways for the listing agent to do a short sale. Recently I submitted an offer on one and the agent separated them into 1st position and backup offers. By notifying one or more parties that they were backup, they knew their offer was lower than someone’s. In that case the bank had authorized him to submit only the highest and best offer.

    Stll, the bank’s response time is about the seller. The bank is telling the seller whether or not at that net amount to them (not sale price) they are willing to sign the papers needed for everyone to close.

    Part of what the seller submits is a hardship letter and financial statement. They are reviewing the where-with-all of the seller to bring money to closing to make up the shortfall, more than they are choosing a buyer to sell to. That is in a short sale vs. a bank owned. In a bank-owned situation, the bank is the seller and choosing a buyer and a price. In a short sale, the bank is dealing with the seller, and the seller’s desire to sell, not the buyer and the buyer’s desire to buy.

    I generally recommend that the buyer perform all functions so that they are ready to close pretty much within a few days from bank approval, instead of waiting to start the process until they receive bank approval. Ask the agent if that is advisable based on the seller’s liklihood of receiving an approval to sell.

    Doesn’t seem right that the agent talked you into making a lower offer than you were prepared to make, given they represented the seller before you, but the bank may counter even if yours is the highest offer. What I have seen is that the bank makes their decision based on current appraised value vs. what is owed in many cases. So starting your loan process would include having the home appraised. The offer’s relationship to the appraised value is usually more in play than the offer’s relationship to what is owed.

    The things you are saying that are bothersome are things you are saying the agent is doing, not things that you are doing. If the seller ends up being responsible for what is left owing the bank after closing, the seller’s agent taking you on and telling you to offer less than you intended, is clearly a violation of his duty to the seller. At best a dual agent should be neutral and write the offer at the higher amount you stated.

    I understand that you are only trying to do the best you can to get the house, and I wish you luck with that. But you are revealing what appear to be improprieties on the part of the agent, and these things may well help you get the house at a better price. But as an agent it’s hard for me to ignore the breach of duty to the seller, the seller’s lender and possibly the agents for other buyers, in the process.

  229. Wow, looks like there is a ton of great advice to be found here! I have a question or two (ok … five) for the experts…

    My wife and I are currently pursuing a short sale house here in Oregon. Here is what we know: The sellers purchased the house in ’06 for $249k with a VA loan we are unsure if they took out a 2nd but they may have. They have been in default since Nov and the house has been on the market since Dec. The house is listed for $219k.

    When we first saw the property, we were the first to do so since the house was listed, and at that time the the sellers agent said he would recommend offering no more than $200k. We have offered $205k and asked the sellers (i.e. lender) to pay our closing which are around $5800. At roughly the same time, another offer was made, which was rejected by the sellers; ours was accepted by the sellers and sent on to the lender. It has only been about 2 weeks so I know I have a wait ahead of me. That is no problem because we are renting month to month.

    My questions are:
    1) I will be using an FHA loan to make my purchase — are there any special situations/speed bumps/ hurdles that may be lurking for me because of this?

    2) In our offer we stipulated that the inspections (Whole home, P&D, well and septic) will be done after the lender accepts our offer; we don’t want to be out that money if we are not getting the house. After reading it sounds like I would be in a better position to close quickly if I took the risk and did the inspections now — is this a correct assumption?

    3) The seller’s agent said that the sellers are “pre-approved” for a short sale. I have not read anything regarding sellers being pre-approved — is this just some BS from the agent? If not how does it benefit us?

    4) The sellers lender is Navy Federal Credit Union — any idea how they are to work with?

    Last question, I promise — The property is still listed as active on MLS, how do I get that changed?

    I am sorry if these questions have been asked and answered, if so, please point me to the entry. I read through the previous posts but I have to admit that my eyes were getting pretty crossed by the end! 😎

    Thanks in advance for any and all answers to my questions, I appreciate your time!!

  230. Bill,

    I’m a bit stumped as to how to answer your questions, not because you are an FHA buyer, but because the seller is a VA loan seller.

    1) Your being an FHA buyer might be problematic if there is another acceptable offer that has a higher downpayment. But that’s true with any home you want to purchase. FHA may require repairs in order to fund your loan, and getting anyone to shell out for repairs could be problematic and change the underlying payoff and approval to the lienholders. As with any short sale…it’s not over til it’s over. Don’t emotionally buy into it being your house until it closes.

    2) That’s generally my advice for two reasons. One, it closes faster once you do get approval, leaving less time for a higher offer to knock you out of escrow. Two, you don’t waste a lot of time hoping you do get the house, if the inspection reveals something that causes you not to want it. Also, given you are likely using most of your cash to buy it, and the seller has no money to give you for repairs, you could end up with a house that needs something you can’t afford to do. I am less worried about that now than I was when I wrote this post, as you can use the $8,000 tax credit (assuming you are eligible) to make those repairs within a reasonable timeframe.

    3) It’s possible they were pre-approved for a short sale. This usually happens if there was an offer before you that elicited a counter from the lienholders/investors, and the buyer walked before or due to that response. It’s not a guarantee they would accept an offer at that same counter price, but it’s a fairly good indicator.

    Now for question 4 and the hard parts of your question.

    You said: “the sellers agent said he would recommend offering no more than $200k.” I had the same problem with the last person who commented. The “seller’s” agent should not be prompting a buyer to offer less than they might otherwise have made without that prompting. It’s clearly not in line with their role in the transaction. Not your fault, of course. But it does surprise me when buyeys reveal this kind of agent error.

    Now I will say the words I rarely say: “I don’t know” 🙂 Someone will frame that.

    In a typical short sale you have one or two lenders, a 1st and a 2nd and possible more liens. Closing a short sale is about getting those lienholders to take less than they are owed and approving that lesser amount in writing so the property can close.

    Many of the current short sales were 80/20 loans with the first lender funding 80%. The second higher interest rate loan funds the “top” of the value, making them “the biggest loser”.

    Other examples would be someone who purchased with a 95% first and PMI insurance for the top 5% of the value. That might mean you only need approval from one, the 1st lender. Whether or not the PMI company losing the top 5% would hold up the sale is questionable and not likely.

    Then you have FHA, which is a government “insured” loan and VA which is a government GUARANTEED loan. VA and FHA are not the same in that regard.

    So who gives approval for a VA short sale? I’m not sure. The lender is the obvious answer, and only one lender, as VA loans are often 100% even in strict lender guideline times. 100% financing is one of the benefits of VA loans, and as far as I know always has been.

    But given VA loans are government guaranteed loans, the lender is not the one losing the money, so do they have full authority to accept a lower offer? Do they do short sales, or do they prefer to take the property and sell it?

    If I were you, I’d call the lender direct and try to get some guidance before spending any money on inspections. Sounds like you don’t have your own agent and are utilizing the services of the agent for the seller. So in essence you are representing yourself. That should give you some responsibility to do your own due diligence and call the lender direct.

    Let us know what happens if you will, so we have some information on what happens when the government is the one taking the loss. In the meantime I’ll ask Jillayne to pop in if she has any info on VA short sales from her short sale class.

  231. Hi Ardell,

    The home seller should prepare a VA Compromise Sale Package. The forms can be found here:

    The home seller can get assistance with this by contacting his/her local Veterans Administration Office in his/her home state.

    I continue to hear reports that the Veteran’s Administration is doing everything they can to help Veterans with their mortgage problems, even if the loan is not a VA loan.

    The Veteran may have problems obtaining a VA loan in the future, if the VA has to pay out a claim against the short sale.

  232. Thank you Jillayne.

    Bill, do the owners still live in the house? If they do, I would think the VA would be doing something to help them stay in it, vs. sell it as a short sale, unless they are already relocated or relocating.

    My concern for you would be the owners being offered something that allows them to stay, and not have to sell at all. If they have already moved, that is less likely to happen.

    Jillayne’s response also answers the “can the owner be pre-approved in advance for a short sale of a VA loan” as you asked earlier. Apparently the answer is yes, even if they didn’t have an offer on the table. That is often not the case on a non-VA short sale. They usually don’t want to waste their time until there is an offer for them to consider. They just have too many files to deal with. VA on the other hand is more supportive to the VA owner, as is their long established role for veterans, and rightly so.

  233. Pingback: Understanding the terminology of “loan docs” | Rain City Guide

  234. Thanks for the responses.

    To Jillayne’s point, the seller lost his job last fall and just recently found a job in another city. So they are in the process of moving. What you both have said re:VA loans makes a lot of sense — I’m guessing that since they are forced to move the VA has allowed them to short sale the house.

    From your post I can only see one problem with this transaction: my wife and I HAVE fallen in love with the property! It has everything we have been looking for at a price that, if all goes well, I think is a good one! We aren’t blinded by it though we know that if something comes up (i.e. deal falls through, inspections don’t go as planned) we can walk away — we just won’t be happy about it.

    I’ll be sure to keep you apprised of my progress, and thanks again for the responses.


  235. Thank you, Bill. I asked a few agents who work closer to military bases, and sent a general feeler question out on Twitter, but so far haven’t found anyone who has completed a VA short sale. If I do, I’ll email you that there is new info.

    Good luck!

  236. Hi Ardell,

    Wanted to update you on my short sale!! 1 week before we were suppose to close a title search found Federal liens for almost 1/2 million….no more short sales for me!!!

  237. Hi Michael,

    PLEASE tell me how..what do we need to do. Our attorney stated that she never has encountered this type of situation and was not sure of the process or time/money. The seller stated that he would send over all his paperwork to our attorney if we paid her fees to remove the lien…HELP.


  238. the seller or an a person authorized to speak for the seller will have to contact the seller’s IRS agent or Investigator to request a subordination of the Fedral tax lien so the short sale can take place. The documentation will need to show the seller will not recieve any proceeds from the sale. The IRS will want a letter of explanation from the seller and a copy of the preliminary HUD.

  239. This is just a quick update for anyone wondering how long it can take for a short sale property to eventually be listed for sale as an REO (if ever). Obviously, this is an individual case, but it may shed some light on how some of the deals can end up working (or not working, in this case).

    We put an offer on a short sale property in July 2008. It had been listed as a short sale at this point since March 2008. Our offer was accepted by the seller immediately, though they were still happily living in the house with no signs of packing up. We waited about 10 weeks before rescinding our offer and moving forward with a different property we liked better that was an REO. We eventually bought that house without much hassle. We hadn’t heard a peep from the bank about the short sale in those 10 weeks and honestly don’t believe our offer was ever really submitted. The listing agent said he’d received three other offers but ours was the strongest (20% down, offered at asking price, 20 day escrow, short inspection contingency, etc).

    After all was said and done, the original short sale property sat there for many, many more months with the current owners still living there up until last month. The house went for sale as a bank-owned REO this weekend, April 18, 2009.

    We live in the same neighborhood as this property and we continued to see the previous owners there up until about a month ago. The property has gone into further disrepair, unfortunately (you can literally see water damage and mold crumbling the rear wall of the house), and we stopped to say hello when we were driving by and saw them moving and saw them loading up all of their nice, stainless steel appliances as well. I’m thankful that we didn’t spend the extra 9 months waiting in order to buy the house knowing what we know now.

    The house is listed at a significantly lower price, but it looks like it would’ve taken significantly more money to repair and make livable as well as continuing to wait in order to move in. The folks who lived there previously also seemed like they didn’t leave in a great mood since they left piles of junk along the driveway, Christmas lights still hanging (though those were hanging last July too), and the lawn hasn’t been mowed or garden weeded in months.

    This is in Northern CA (Bay Area), if that info helps any. I posted here in the comments looking for advice when we originally planned to put an offer on the house. I’m happy to say that we’re thrilled with the REO property we bought and have been enjoying being first-time homeowners since October 2008. We got lucky with that one having just been flipped by a realtor who over-reached a bit so it was in totally remodeled condition and didn’t need much of anything except our personal touches.

    Hope this info is helpful for any others!

  240. Hi. I am lost in this real estate world. My husband and I have been unsuccessful when it comes to buying a home. We have seen at least 50+ houses, and put an offer on at least 8, to lose all 8 of them! Sometimes we have offered over the asking price. We have been pre-approved for a FHA and a VA loan, which is better to use? We recently put in an offer for a short sale, and the wait is terrible. Should we put multiple offers out at one time? It has been very difficult to find a home within our price range that isn’t a short sale or foreclosure. I know buying a foreclosure is a faster process. We have about $11K saved up and have been pre-approved for $250K, how can we successfully purchase a home? What are some things we should try? What are we doing wrong? We are located in Virginia.

  241. Sunday we went to look at houses (AGAIN) with our agent. We found another house we really liked. My agent called the listing agent who said, “There are 2 other offers on the house, but they aren’t very good.” So we put in a really good offer (according to our agent). Monday the contract was sent in, Tuesday my agent had not heard anything from the selling agent and could not reach her. She said in the agent MLS it stated “Contract accepted, waiting final signatures before changing in system.” The MLS still shows active. So our agent just gave up. Meanwhile, my mother in law has an employee that is also a real estate agent (different state), who looked up the info and stated it said, “Contract accepted, waiting signatures” she felt that since it is still active we have a chance. She said that our agent should be aggressive and continue to pursue it. What does all of this mean? It is a short sell, but my agent says in her sight it looks like it is a REO (even though it isn’t). We asked her to follow up on it anyway, and if she could not get in touch with the lady – could she contact the agent’s agency. The listing agent’s son has been answering the phone and the lady told my agent that she would call her back but never did. What is going on here?

  242. Hi Meka,

    Expecting to hear something on Tuesday on an offer submitted on Monday may be a “right” expectation for a normal transaction, but not a short sale.

    I clearly can’t explain all the ins and outs of the process in this comment. This post was actually written for someone about 2/3rds finished or even 80% finished. I’m on vacation in L.A. until tomorrow night, but will try to write a post on the beginning phases within the next few days after I return to Seattle.

    Regarding your comment 273, being FHA or VA could be the main reason you are having difficulty. Say you offer $250,000 on a property and someone else offers $230,000 with 50% down or $225,000 cash. Your offer is technically “better”, but the net result is the cash buyer is countered with your number OR they may even sell it for less than your offer to someone who is not using an FHA or VA loan.

    There’s really nothing you can do about that. You just have to keep trying until something sticks.

    With multiple offers, often your offer is simply sitting in a semi-backup position. The listing agent may only submit “best” offer or first offer to the lienholder for approval, but hold the others until a negotiator is assigned on the one offer that was submitted. That’s normal.

    As I said, I’m off on vacation until tomorrow night, but hope that answers some of your questions in the meantime. As to REO or not…that’s easy. Who is the owner? If the owner is a bank…it’ an REO. Your agent shouldn’t need someone else to tell her…she can find the owner’s name in the tax records or ask her Title company to check it for her.

    As to it being “active” in the mls, that’s different from mls to mls and does not mean what you think it means. It probably just means it was accepted by the seller and they are waiting for a decision from the lienholder, as I said earlier. The seller can’t sign your offer or anyone else’s, because they already signed one. That’s not really important. Hopefully I can explain this more fully in a separate post by mid next week.

    In the meantime, keep us posted of any further developments.

  243. Update on my short sale …

    We just received communication from the agent that the bank has assigned a Transaction Coordinator and he/she has asked for all offers to be submitted. Apparently, there were a total of 4: ours, the one that was submitted at about the same time and 2 others. The bank also has HUD statements on on all 4. So far this seems pretty normal but here comes the good (read nerve wracking) part.

    The bank has 2 BPOs that came in very high — 250K and the bank seems to be fairly convinced (after all they have 2 that are nearly the same!! ugh) I am perplexed because the sellers paid 249k in ’06, so according to the BPOs the property has not lost value in this market!? My mortgage broker says that the 250k number is suspicious because the county’s market value is about 250 but he says nobody goes by the county numbers. He suspects the people the bank had do the BPOs generated their numbers without leaving their desks.

    The agent is telling us that the sellers are in it for the long haul and will fight to get the place sold and invited us to stick with it too. That is great but to be honest I wish I did not have to deal with the agent — I get this strange feeling that I’m being played — anyway maybe that is just some frustration coming out.

    My question now is, in your experience, do the banks get pretty stuck on the BPO numbers or do they usually have a window that they operate within? Also at this point do banks ever come back and say these offers are all too low, anyone want to increase their offer? This goes back to Ardell’s reply to my first comment because we would have offered more if the agent had not given us the 200k number.

    Thanks again for any and all replies,


  244. Hi Bill,

    I’m still on vacation in L.A. until tomorrow night.

    My advice to my clients is that they get all of their stuff done. Yes, you risk losing the inspection money and appraisal money…big time. In fact consider it money gone. The way I do it, you would be the only one of those offers with everything done, so they say yes and it closes within days…that gives you an edge.

    ALSO, you have an appraisal to counteract their BPO, and it’s from your lender, so you trust it more. AND you have a list of any defects from the inspection to help knock their number down. The inspection is done first and the inspection is given to the appraiser when he comes. All of these things can help the other offers too, so you have to be highest and ready to close in addition to everything else I have said here and in other comments.

    OK, so much for how I do it.

    Usually a transaction coordinator is not the person who gives you an answer. It is the person who gets all the files “in order” and makes sure they have everything before the final stage which is assigning a negotiator. You seem to think you have an answer of some kind, but it sounds like they are trying to get all the offers to their highest possible point before it goes to the negotiator.

    Yes, you are being played, but isn’t the agent the agent for the seller? Isn’t the bank trying to get the highest possible net? I don’t understand your comment there. Why wouldn’t they all be “playing you” to some extent to get the highest possible net? There are 4 offers and they are playing them all against each other to get the highest offer. It is your job to get an appraisal and inspection to point out why their BPO is wrong. That’s how I see it anyway. Their numbers are always too high.

    More math…15% under their number is a common expectation. That’s probably where that list price came from. But there are 4 offers, so that number must be low…or there wouldn’t be 4 offers.

    The agents will always ask you to hang in there. If it goes to foreclosure, they get nothing, if it sells as a short sale, they get paid. Asking you to hang in there has nothing to do with you.

    Lastly, you make your best offer. That would be easier for you to do if you had invested the $400 or so on an appraisal and the $400 or so on an inspection. Easier for you to know what the “value” is and what your offer should be.

    Hope that helps. I know it’s disjointed. But that is how short sales are, connecting the dots vs shortest distance between two points.

    It’s late. I’ll look at this in the morning and make sure all the pieces to the puzzle are there.

  245. Good morning, Bill. I have to pack and get ready for my flight back to Seattle, including breakfast with my daughters this morning. But ask any questions you have on the above and I’ll see it tomorrow morning.

    Back to your question:

    “My question now is, in your experience, do the banks get pretty stuck on the BPO numbers or do they usually have a window that they operate within? Also at this point do banks ever come back and say these offers are all too low, anyone want to increase their offer? This goes back to Ardell’s reply to my first comment because we would have offered more if the agent had not given us the 200k number.”

    My direct response:

    1) “the agent” is not “your” agent any more than he is the agent for the other 3 offers. So make your own decisions. You have no agent. That means you represent yourself. You decide what your offer should be…no one else.

    2) The BPO is basically the counter. The BPO tells them they can get $250,000 if they listed it. The process of their listing it costs them about $50,000. So likely they will end up countering someone. Don’t wait for them to counter, as they may counter someone else and not you. Take charge of your own situation (who else will since you have no agent?) Make your best offer. At least make the offer you would have made if the agent hadn’t talked you out of it.

    3) $250,000 minus 15% is $215,000-ish. If your offer isn’t at least $215,000, it’s probably not good enough at this stage. So your original offer or $215,000 is likely where you should be.

    Regardless of all that…best offer wins. But overpaying is not winning. Banks want to be done now and so buyers waiting to do their inspection until after they get “lienholder approval” just doesn’t make sense. Buyers not wanting to start their loan process until after they get lienholder approval, doesn’t make sense. The person ready to close is the one who took the bull by the horns, who stepped up to the plate. The power of “if you say yes we can close tomorrow” is a whole lot of leverage.

    Could be too late in the game for that though, with 4 offers on the table. The tough nut to swallow is your $800 could help buyer #2, as once the bank sees the inspection and appraisal they will be in a better position to choose one of the offers. Even though you paid for those things…they will be used to move this situation forward…and forward may not be in your direction. Not fair, I know…but such is life. So at least give it your best shot as to offer.

  246. Bill,

    Before I pack the laptop 🙂 I can’t go up and find it, but I remembered your asking shouldn’t the price be less than the owner’s paid for it in 2006? Seems to me you asked that somewhere.

    Not necessarily. In many markets the prices increased a lot in 2006 up to July of 2007 when we had “the mortgage meltdown” that sent prices in the other direction. So when in 2006 and where?

    In some markets the prices are at early 2006 levels now…some markets not. If they bought in the 1st quarter of 2006, then prices now could be what they were at that time. If they bought in November of 2006, not as likely current prices are at that level.

    …closing the laptop…packing the laptop…LOL…

  247. I stumbled on this blog after entering into the purchase of a home that is a short sale. We are in Northern Virginia and prices have been dropping fast in some areas. Our family has seen prices start in our price range for the type of house we are looking for. We have a ratified contract from the seller for 360k, and asked for closing assistance by the seller. The original list price was 379k, and we are now waiting for creditor approval from the owners bank. The original sales price of the house in 2004 was 485k. A similar house next door, also a short sale, dropped the list price to 359k, but has had no offers. This is a beautiful house and in a fantastic neighborhood. The listing agent claims to be experienced with short sales and told us it should be approved in 30 days. There is only one loan on the property.

    I have, up to now, believed that this would happen effortlessly, but after reading the blog I see there is much to be concerned with.

    Bob Brady
    Burke, VA

    • Well, it is as I thought, it is more difficult than it seems to purchase a short sale home. What was promised to take 30 days with an experienced broker listing agent has now gone past 60 days. It turns out that there are 2 loans on the property. The first has the BPO which we are told came right in on the money. The second loan is 19K and the first is making a gracious offer of 1k to get them to release the sale. 2 weeks have passed an no updates. Meanwhile the utilities have just been turned off on the home, and the weeds are growing around it. There are no other offers on the house. We have signed our second extension notice for another 30 days.

      Bob Brady
      Burke, VA

      • Hi Bob,

        I just wrote a new post with a new post with a graph showing how the utilities often go from increasing due amounts to off, prior to closing.

        I wrote it for Larry below, but you may find it helpful as well.

        From what you are saying my guess is yours will take the 3 months indicated in this post to get from start to finish, if you close within 10 days of lien holder approval.

        Let us know, and thinks for keeping us posted.

        • Ardell,

          Thank you for the illustration. This really helps me understand the process we are experiencing first hand.

          Great blog/s

          Bob Brady
          Burke, VA

          • The second creditor lost the paperwork and the seller had to resend it. Meanwhile we continue to wait, adding more time to the already longer than expected time frame.

  248. I put an offer on a short sale property at the beginning of March. It was listed at 199k. 245k is owed on the home. My realtor suggested I offer 7% less than list so we offered 185k. The previous owner passed away and a trustee is handling the negotiations on that end. My offer was accepted and was sent to a negotiator at countrywide. It took until last week to get a BPO. I have plenty of time as I’m staying with my brother till I close (if I close) but isn’t 3 1/2 months a little long? Amazingly, today my agent called me and said that an appraisal was done today. My question to you is how long should I expect to wait now that an appraisal has been done and is it safe to assume that the BPO was in line with my offer

    • The fact that the owner passed away could be complicating things. Normally the seller has to claim a hardship and be approved for the short pay due to lack of funds. If the deceased has enough assets in the estate to pay off the mortgage, the short sale may not be approved.

      It’s not always about what the house is worth and what you offered. Sometimes the short sale is rejected and the lienholder demands payment in full. I don’t think that will be the case at this point if they paid for an appraisal. The fact that the owner is deceased could have added to the timeframe and delayed the “seller package”.

      There’s nothing in your comment that would lead us to what the appraisal might say. Unless you are paying cash, you should have your own appraisal from your own lender by now, which should answer that question for you. I will continue in your second comment below this one.

  249. Sorry forgot to metion property is in Jacksonville Fla and no other offers have been made on property. Originally listing agent was accepting other offers till my agent pressured her into posting on MLS that it was contingent. One more question. Is it unethical for agents to accept other offers and use them after the bank approves an offer I made just to get a few more dollars from someone else. Can the agent do that and leave someone like me who put in the time out in the cold. What I’m saying is my agent along with me do not trust the listing agent Thanks.

    • Larry,

      It does not appear that the bank has approved the offer yet, or you would be on your way to closing. Since the amount the bank is getting is less than what is owed, and they are not the seller, they are entitled to the highest possible payoff from whomever. So be prepared to close as quickly as possible once you have approval.

      You have an accepted offer “subject to lienholder approval”, until you have that approval (and sometimes after since the lienholder is not the seller) it would be unethical not to show the seller a higher offer. All written offers must be presented in all states. It would be illegal for the listing agent not to present all offers, regardless of whether or not it is a shortsale.

      Are you finished your side? Is your inspection done? Is your loan ready to close within a few days of lienholder approval? Has your lender completed your appraisal for your loan? Seems to me after 3 1/2 months you shouldn’t be guessing what their BPO and appraisal will look like, as you should have your own appraisal complete, unless you are a cash buyer.

  250. My side is pretty much done. Had home and pest inspection done last month.Bank has appraiser ready to go the day sale is approved. I really don’t want to waste $500+ for appraisal unless I’m sure bank is coming close to offer I made. Your obviously correct on it being ethical to accept all offers to get the most for the client, but doesn’t it make it harder to sell a property if you fishing for the bigger fish instead of taking the one in hand especially if the offers are close. My understanding is that the process though not as long as mine would still be long for the backup as the bank still has to redo it’s steps on the approval. Why would the selling realtor want to prolong the sale? I think disclose must be made to my realtor if there has been another offer on the home, so as far as I know there have been no other offers. As far as I know all appropiate documents have been submitted by the trustee and I’m just waiting on approval. It may be wrong on my part but I just have a feeling that the selling realtor is just waiting on my approval to find out accepted offer range and then go ahead and submit another background offer that may be higher and cut me out alltogether. Also I have a friend that is authorized to do BPO’s and he told me that my offer is in line with the market in that area though the person who does the BPO for the bank could feel considerably different. He also said that the bank would most likely not go through with the added expense of an appraisal if the BPO was not in line with my offer. I’m just looking for a second opinion. Thnaks

  251. Larry said: “You’re obviously correct on it being ethical to accept all offers to get the most for the client”

    Larry, you are absolutely correct in a “regular” sale where the seller/client has ultimate authority to accept a contract. Once a SELLER accepts one, the seller cannot accept others afterward (in most cases).

    In a short sale, lienholder/3rd party approval is required, and that 3rd party is not anyone’s “client”. It has nothing to do with the agents. The agents do not represent the party giving ultimate approval, that being the seller’s lienholder(s).

    The seller is saying to the bank they owe the mortgage, “We owe you $350,000, but the best we can pay you is $175,000, via this accepted offer.” If another offer comes in for $200,000, that seller statement to the lienholder becomes false, and the seller is not allowed to lie to the lienholder.

    You are correct that the seller still can’t accept the second offer. What happens is the lienholder is entitled to know if there are higher offers. If the lienholder has not accepted the payoff of yours yet, in writing, then they do not approve yours. They approve the higher one. They not being the seller are only looking for the amount owed them, no more and no less. They are under no obligation to honor the seller’s commitment to you. They are under an obligation to their company to get as much of what is owed to them as possible.

    It’s a bit confusing, as many talk as if the lienholder is accepting the offer. In fact they are only accepting a short payoff and the highest payoff they can get, regardless of buyer and seller contracts.

    Larry said: “As far as I know all appropriate documents have been submitted by the trustee and I’m just waiting on approval.”

    What you are failing to see is the difference between a seller selling a house under normal conditions, and a short sale. I hope all goes well and no other offers come in. If that happens you will never need to understand the difference 🙂

    I’ll try an analogy. I’ll turn it into a post and put the link here.

  252. Hi Ardell,

    Interesting thread, especially as we just had our offer “accepted” by the seller two weeks ago, and so are starting the long haul of waiting to here from the bank. Although our offer has the inspection contingency listed to come after lienholder acceptance, after reading here I’m likely ordering the inspection this coming week – since we know we want this house upto a price of $X should the bank counter, and we believe we are the only offer.

    So I was wondering how you proceed with ordering the lender’s appraisal? Our lender told me to just return the signed loan doc back AFTER we receive the accepted offer from the bank. I guess I just talk with the loan officer, pay the $400 or so and that’s it?


  253. David,

    It’s usually helpful to give a list of anything wrong from the inspection, even if you are not asking for repairs, to the seller’s agent to give the bank. Might help when they are considering current value.

    As to the appraisal, it depends on how long the appraisal is good for, for your loan. If the approval and closing drags on, it could get stale for your purposes. But if it is lower than the bank’s counter, then you can use it as part of your negotiations. But rarely is it low enough to use to your advantage, in which case you would keep the results to yourself as you are not obligated to hand it over or disclose it.

    Harder to be more helpful or specific without knowing the details. The one I did where I had to get an appraisal, was because they were using the seller’s appraisal from the time the seller purchased it (it was a flip) and I knew that was high. We did our own and that did help with the approval.

    Back then appraisals were good for a longer period. With all the recent changes regarding appraisals, I’m not sure I could do it the same way today.

  254. For locals, the new King County Tax Assessed values are basically a rollback to 2008 assessed values, from what I can see so far. Most received them or will receive them shortly. Sending that “official” form with the new low value to the bank, could help with your approval. It’s worth a try if the new assessed value is close to your office price…within 10% or so.

  255. Bob,

    There are many stories about creditors “losing” the paperwork, but that isn’t really what is happening. They only keep it for a short time as “active”. If the process is prolonged past that point, it needs to be resubmitted. Not because they “lost” it but because it “expired” and was trashed as a result.

    Also, if the paperwork is submitted in 5 pieces vs. all at once, the liklihood of someone putting those 5 pieces together is nil. So if you send something new, you have to send a whole new package, which replaces the first one.

    • Thanks Ardell,

      We received a letter from the sellers first loan creditor approving the loan. They offered the second 1k to release the sale. The second loan creditor has an appraisal and has referred it internally to a negotiator. The approval requires us to close in 20 days from the letter, July 27th, and without second loan approval. The commissions were dropped to 2.5% each. Everything else looks like it is going our way. We are scrambling to secure financing and the appraisal has been ordered. We have asked to have the second loan to be approved by July 24th to have closing on July 27th.

  256. Thank you so much Bob for keeping us posted. These stories help so many people who read but don’t comment.

    Also thank you for confirming that many times the approval has a very short close date, not enough to fully process a loan. So getting the appraisal and loan done except for lienholder approval, in advance, saves a lot of scurrying at the end.

    Let us know what happens. $1,000 to the second is a little short of what most will approve. I’ve seen $1,500 to $5,000. Basically it has to be at least the cost of their doing the paperwork to satisfy the lien.

    Everything will work out…and again, I so appreciate your willingness to post your story here in order to help others.

    • I wanted to give an update on our short sale home purchase. It has become interesting to say the least. Our frustration level has just elevated 10 fold.

      We have been scrambling to meet the 1st creditor approval requirements to close in 20 days from the date of their letter, on July 27th. We were notified 3 days after the date of the letter before a weekend, which essentially gave us 15 days to settle, or 10 pct of the sales price would be added to extend. We are not sure who pays the 36k additional, if that were required.
      Our lender is fantastic. They scrambled to get our loan done, and ordered the appraisal, which would have been done today, except the gas was turned off for non payment, and the appraisal was suspended.
      The second creditor gave us verbal approval, but wanted 2k instead of the 1k originally offered by the first creditor. Today, during a title search, they informed the first creditor, and the listing agent, that they found a lien on the house, missed by the first creditor. The owner purchased a new house in Seattle using this house as collateral. In essence, a third approval is now required to convert collateral to the owner’s new house. The home inspection was canceled for this weekend. Attorney’s are now working on all sides of this issue.
      Needless to say we are not closing on Monday. Our listing agent wants to show us other homes. We are tempted to walk away, but will wait until we get more information from what we already know.

      I will keep you updated.

      Bob Brady

  257. Bob,

    Tough break. That is VERY unusual. Sounds like it might have been a cross collateralization loan. Not many “3rd position” loans out there. Was it Washington Federal by any chance?

    Thank you so much. I so appreciate your taking the time in the middle of this to keep us posted.

  258. I did read this thread and am greatly concerned.

    The internet is a source of entertainment.

    If there is one thing this Real Estate selling season has taught us is that you can get massive amounts of information and still make bad choices.

  259. David,

    I think you would be a happier man if you never came to “the internet”. It doesn’t seem to broaden and brighten your life, as it does mine and many others who use it to expand our worlds.

    Absolute answers are not what people are looking for on the internet…in fact pretending that absolute answers exist is pretty much “out”.

    Knowledge and information is “in”. Absolute answers that do not require thought are “out”. Having more things to think about is “in”. All of those things being “right for you” is the reader’s choice, not the writer’s choice.

  260. P.S. to David…even the very best of choices, does not guarantee a positive result. Knowing you gathered a LOT of info to help make a “good choice” is what people want. An educated guess is often the best choice, and hopefully good result, as a result. More information (more education)to load up that “educated” guess is what the world is about.

    We can never eliminate risk…we can only manage it well.

    Lots and lots of anecdotal data is of enormous value. Where do you “get” your data to make “good choices”, David? Most people these days get it on the internet plus other sources. But on the internet is a “valued source” for most people and not “entertainment” as you suggest.

    Blogging is an effort to produce more info, and some will be good, and some will be good for a time and changed over time. What I wrote in this post in December of 2007 is changing all the time…the comments and experiences of our readers expands the info. That is what a blog is and does.

    I think you should spend more time understanding what blogging is and less time looking like David Letterman not wanting to understand Twitter.

  261. Blogging is about building trust.

    For years you have insulted and chided by for not “understanding” blogging.

    Your comments here speak for themselves.

    Short sales have always been around, the rules never change, the system never changes. The seller is trying to limit liability and the buyer is hoping to buy below market.

    The information about short sales is in the nether world of the banking system. Answering to stock holders and investors comes into play.

    No matter how many disclaimers you put into this thing encouraging mom, dad, and the kids to play this game is just wrong.

    Like 0 down, neg am, int erst only, court house auctions, or hard money these are tools that professionals use. If you play you need to be prepared to lose money.

    Me warning people is a part of the education.

    Shouting people down is stifling.

    • I would like to say whether the system of short sales works well for me or not, I have learned much more about them than I could have ever known by reading about them. I am very intelligent, and would not be taken advantage of, by the process, no matter if we win or lose the sale. I do not feel that I have ever been taken advantage of by a professional organization, hence our good buying position compared to others that have lost money in transactions that did not work for them. I do not plan to enter into one of those type of transactions now, or ever. Having said that, I am glad I have entered into this short sale process, no matter how it turns out.

      I should add, we have not lost a dime to anyone to get where we are today. If we walk away from this deal, we will be financially whole. The education was well worth the time spent.

      • Bob,

        One of the reasons I appreciate your telling your story here (and others too) is that short sales only happen in a down market. Often there are 10 or more years between anecdotal reference points. When the market goes up, nothing is “short”. So the study of them while they are present in the marketplace is invaluable for years to come.

        Once out of this recession and into the next recession of 2030…people will read your story. Because in a good market…no one talks about short sales, and in the last recession, we didn’t have “the internets” for people to talk on 🙂

  262. David,

    Interesting take. Short sales sell at a discount for lots of legitimate reasons, not simply because people are trying to get a better deal. I won’t list those here, as you don’t listen to me anyway, and I don’t want to scare you any more than I already do 🙂

    Short sales are approved and disapproved every day for lots of reasons that have nothing to do with max profit to the bank and the bank’s shareholders. The world of banking is not a “netherworld”, not to me anyway.

    We don’t see much of anything the same way, David, and that’s OK. I don’t come looking for you to tell you that…not sure why you insist on repeatedly coming here to tell me you don’t like me or my methods. If I don’t like someone..I usually don’t visit them as often as you do. Seems masochistic…no?

  263. The process of short sales has always been around, good markets, or bad. It’s a step to foreclosure, which are around good markets or bad.

    what caught my attention was that you mentioned a collateralizing of the purchase of the sellers new home. I was just reading about that on another blog. It is getting to be common here as it was in Arizona. I was wondering how it came up? We usually do a title search during a short sale or at least at the start.

    • There are two creditor approvals needed from two banks on this house. The first loan creditor did not catch the fact that there was a lien. The second creditor did the title search and found it. I am not sure how the first missed it. I am being told that this was known prior to us entering into a contract and had already taken care of by the seller. I believe it was going to be a transfer of collateral from this house to the owner’s new house. It could be a record keeping error on part of the title company, but we won’t know until Monday, the same day our latest extension expires.

      If this is something that can be cleared up without too much difficulty we are still in the game. I think we walk if we need to go through another lengthy process, based on some time constraints we have that are more on a personal nature.

      • People in Arizona would buy a new house then let the house they left go into foreclosure.

        In my opinion my wife, kids, dogs, and the house make the world go around. If it’s a house you want then buy it. Be prudent, but buy what you like, and can afford.

      • Bob,

        A new lien can come up at anytime. All short sales are “it’s not over till the fat lady sings”. You never know if it is going to work until the property is in your name.

        It’s not a “record keeping error”. It’s a means by which they can pull the lien over to clear title.

        The methodology is that if the property goes to foreclosure, that lien will be wiped out, so the creditor is better off attaching it where he can, while he can. Most times that works. UNLESS the creditor decides the cost of moving it isn’t worth it, if he will be in 3rd position on a declining asset no matter where the lien is put.

        There are costs associated with recording these things on both ends, some soft dollars and some hard dollars. If the creditor is going to “write it off”, he’s better off not putting more money into processing the release and reattachment of the lien. I think that’s called “throwing good money after bad”.

        At minimum, someone usually has to come up with the cost of removing the lien, and that is why the first usually throws a pittance amount to the junior lien holders.

        • Our agents broker said the process should be “Substituting Colleteral”. We looked at other houses today and remembered why we like this house. We love this house compared to others we looked at and feel if we can clear the title it would be worthwhile to pursue it.

          The listing agent told my agent today he thinks we can get it cleared up and settle next week. That would be our hope too!

          • Technically correct, but realistically “does not apply”.

            How likely is it that the new property will have room for more liens within its current LTV to expand for a jr lien & more debt?

            If it were a property they bought 10 years ago with no refinances, yes, “substituting collateral” would be the issue. If there is enough real equity in the property they are shifting to, clearly it is a collateral substitution. But if the Sr lien holders have sucked that collateral dry (and they likely have) there really is no collateral left to “substitute” in that newly purchased home, unless they expand behond low risk limits on the LTV.

            Still…for that lienholder…a chance at getting something later, is better than no chance at all via foreclosure of the current collateral.

            If they just bought that other house, how likely is it that a net sold price would wrap a new and additional lien? If the jr lien holder takes a chance on future value vs. looking at current value…then you will win. Let’s hope for that. It is the smart move for them…so let’s bet on their being smart enough to go with that answer.

            What I don’t understand is short sale “buyers” not understanding that the only “lose” position is another buyer willing to pay more.

            “Patience is a virtue” should be the mantra of “Should you buy a short sale?”.

          • Thanks Ardell,

            I believe I understand what you are saying, and we should be hopeful that the lien will be attached to the seller’s new home even if there is now value or equity for them to do so today, correct?

            If the listing agent is not entertaining any competing offers for this house, and time is not a factor, do you think it is best for us to go to the end on the possibility this deal could go through?

            I really appreciate your insight.

  264. David,

    Now you’re really scaring me…so we’re even 🙂

    A short sale is not merely “a step to foreclosure” that can happen in both good and bad markets.

    “short” means the payoff is lower than the net sale price after costs.

    A non-judicial foreclosure (Trustee Sale)is a means by which a lien holder takes possession of a loan’s collateral because the payements were not made as agreed.

    Someone can have a house worth $400,000 and a loan amount of $200,000 and be “in foreclosure” but not “short” if he doesn’t make his payments.

    A short sale is a type of pre-foreclosure, but not all pre-foreclosures are short sales. I learned this in 8th grade, but don’t remember the correct term for that relationship. Something to do with all people being mammals but not all mammals being people.

    In a good market where prices are up, up, up, you can still have a foreclosure and a pre-foreclosure, but rarely a short sale.

    In a bad market where prices are down, down, down, that pre-foreclosure sale becomes a short sale IF the proceeds of that sale are “short” of the payoff, and most times in a down market…that is the case.

  265. David…your “encouraging mom, dad and the kids to play this game” reminds me of the “telling teenagers what a condomm is, makes them want to go try it”.

    I don’t encourage people to “try it” by having a conversation with people who do “try it”.

  266. We have had 125% financing for years now. Divorce, death, or damage are other reasons to sell short.

    It’s all about numbers.

    It depends on the deal and what you can do with it.

  267. Ardell,
    The short sale appraisal from the title owning bank came back at 190k (listed at 199k and I offered 185k)on the house I’m attempting to purchase. However after signing an ammendment that accepted that price, I received a call from my realtor that there is roughly 10k owed to an attorney acting as state trustee as the previous owner died. Initailly the seeling realtor wanted me to pay it. I said no as the appraisal came back at 190k. Then the next day the house was updated on MLS to 200k an increase of 1k. The home is listed as contingent and we are so close to having a contract. Why would the selling realtor raise the price (especially only 1 thousand) if the appraisal came in at 190k? She will not return phone calls from my realtor either. Thanks.

  268. David,

    I agree. “Never say never or always.” But the opportunity for many to study short sales due to the volume of them, is a “bad or weak market” activity. Also, changes for the good are often done when more are talking, than when fewer people see and care about a topic.

  269. Larry,

    If there is not enough money to close out a short sale, it eventually goes to foreclosure. Just how it is. If the person who is owed the $10,000 won’t or can’t sign off on the lien…it can’t close.

    You, the agent, the bank, no one, can change that. Unless you want to take the $10,000 lien with the title (and your lender likely won’t let you) the only way to remove that lien (besides someone paying it or the person who is owed the money voluntarily removing it) is via foreclosure.

    See an attorney if that doesn’t make sense to you. A short sale…to close…requires all lienholders sign off and put through paperwork to extinguish the existing liens.

    Maybe you can buy it on the other side, after the bank extinguishes the liens via foreclosure. Then one bank will own it, and you can buy it from them with no other liens attached.

    See an attorney about that if you plan to buy it AT the foreclosure. I don’t generally recommend people buy AT foreclosure without an attorney, as there are often many risks. But after foreclosure as a bank-owned property, may be your only opportunity here, if they can’t resolve that lien issue.

    A short sale is a house that is maybe for sale….lots of reasons why they may not be able to close no matter how hard everyone tries.

  270. There are always shorts. The process and the reasons are always the same. It’s a negotiation.

    In these two comments from people looking for advice they have shown liens and encumbrances. That’s a big reason for a short sale or foreclosure. If a person doesn’t make the payments there may be other encumbrances on the property as well.

    You either want the property or not. It’s that simple. You go in all the way. You get title, inspection, appraisal, and financing. That’s what the bank wants to hear. They want to hear you are ready, willing, and able to do a deal.

  271. David,

    I think you are mixing different types of transactions. Your last paragraph is true of bank-owned property sales, not a short sale. “what the bank wants to hear” is only relevant if the bank is the owner. In a short sale the bank is not the owner.

    In your second paragraph you are describing any real estate transaction. All property can be subject to other encumbrances”, not only a short sale. Those things do not a short sale make. I just closed a sale with the exact same distressed property issues…3 days before the Trustee Sale date…but, not a short sale. The only thing that makes a short sale is “weak/down” market. In a strong/up market there is more opportunity for appreciation to resolve these exact same issues.

    Your first sentence is simply incorrect. The process and reasons are not always the same anymore than all babies are the same or, the birth process is the same for all women. There are many variations, just as there are different criteria for getting a loan depending on the program and lender. Nothing is “always the same”, especially in times of higher than normal volume of these types of sales.

  272. Often people want the short sale process all laid out up front. That is just not any more possible than laying out everything that is going to happen from the day you get pregnant to the day you give birth. Anyone who says differently with absolute certainty is either kidding you, or kidding themselves.

    Look forward to your “addres the rest tomorrow”, David.

  273. The birth process?

    This is about numbers. Liens, encumbrances, and debt, are all numbers that need to be reconciled. There is the buyer’s agent, the listing agent, the seller, the buyer, and the bank.

    A seller needs a compelling reason to sell short. Hardship needs to be established. Banks want to see medical, job loss, or bankruptcy in considering a short sale. They want a buyer who will perform. After that it’s how to reconcile the numbers to the investor and stock holders.

    It’s simple like that. It’s about the numbers and the compelling reasons why to take less than what is owed.

    This year Bank of American is inserting language in the closing documents to make the seller aware that they need to repay the deficiency. In a foreclosure the seller doesn’t need to sign. We’ll see if there is an increase of judicial foreclosures going forward.

    It’s numbers.

    Now as long as we are talking anecdotally about my personal reason to comment on blogs; I used to own an Italian Restaurant.

    There are two things that come to mind about that. The first thought is the number of people who would complain because I charged a lot of money for a plate of pasta. The second thing is the number of people who ask me for recipes.

    I have always been fine with giving away recipes because in the end people pay for the service. When you cost it out a person at home will pay more to make the recipe than it would cost to go out and have us do it for them. You have to buy the garlic, the celery, the tomatoes, or cream. You have to have the pan, the stove, the timing, and wooden spoon. By the time you outfit the kitchen you have paid more than a dozen meals in my place. Then you have to have the practice to get the timing. When do you shock the garlic to get that carmel color? That’s the deal.

    So I always say about Real Estate that I have no problem giving the recipe. It’s really about the practice.

  274. David,

    Hands down, that is my favorite comment from you I have ever seen, here or elsewhere.

    Of the businesses you have had, which would you say brought out your true passion…that you enjoyed doing most?

  275. Larry,

    I couldn’t help but think that you seem to be paying a lot closer to current appraised value for a short sale, than is the norm. I don’t know where you are, so it’s possible that is more the norm wherever that may be. But a short sale or a bank owned is supposed to have a sufficient discount to compensate for the troubles associated with these types of purchases. Just tossing that out there, for what it’s worth.

    • Ardell,
      Appraisal aside the home has an owed amount of 265k. The original purchase price was 345k in 05 (inflated market of course)I believe I’m getting the property at a good discount. The property is in Jacksonville Fla. It has a private dock in the backyard with access to the St Johns river which leads to the ocean within 5 miles. Swimming/jacuzzi pool 2000 sq ft and 5 yrs old in quiet neighborhood on dead end rd.

      • From where I’m sitting, Larry, that sounds like “a steal of a deal” 🙂 Hoping and praying for you.

        Just give it your best shot. That’s all you can do, and that is usually “enough”.

  276. Hi Bob, I had to bring your comment down here to answer it. This new comment format is so not working out well for me. We are implementing a completely new format for the entire site…so fixing it is not imminent. In the meantime, if you could comment “at the bottom” I’d appreciate it.

    Bob Brady
    July 25, 2009 at 9:49 am

    Thanks Ardell,

    I believe I understand what you are saying, and we should be hopeful that the lien will be attached to the seller’s new home even if there is now value or equity for them to do so today, correct?

    If the listing agent is not entertaining any competing offers for this house, and time is not a factor, do you think it is best for us to go to the end on the possibility this deal could go through?

    I really appreciate your insight.


    Yes as to your 1st paragraph. Collateral substitution is too simplistic. We all like “easy answers”, but rationally “no equity” is not a “collateral substitution”. In this case “equity” equals potential sold price, less cost of sale, less sr lienhlolder payoffs, less excise taxes. less etc. In that chain of events on a recently purchased property, there being any collateral left to “substitute” is highly unlikely. Only you can know for sure, by knowing the purchase price and mortgage amount of the home that was bought. So get that info from your agent.

    It may not help you to know, but it clearly can’t help you if you are not getting that specific, and this property relevant, info on to your table. Don’t be satisfied with a two word answer, with no facts to back up the premise.

    The key issue is in your second paragraph regarding “to the end”. You (and others making offers on a short sale) keep seeing the end as a “yes or no” on the short sale. It’s the old “7 habits of Highly Successful People: Begin with ‘the end’ in mind.”

    What happens to the property if the short sale is a no go, is where you should be focusing.

    In many ways you may be paying more than you have to, and elongating your own process, by staying in the game. If the Sr. Lienholder forecloses, that lienholder may end up “owning” it vs you. But is that lienholder going to move in? No. So that property is still available after that change of ownership, and possibly sold cheaper as a bank-owned vs. a short sale. Lining up ALL the ducks, vs. only the short sale ducklings, is key. This is why investors often end up with the best “deals” (as I said in my original post 18 months ago).

    An offer from an “owner occupant” buyer fails to see the true “end”, and balance their own best interests. A perfect short sale set up is “I don’t care if I get it as a pre-foreclosure or a post-foreclosure. I want it, and I want it at the best possible price, whenever.”

    The people for whom I wrote this post in December of 2007, balanced their personal situation with the options. They bought it pre-foreclosure vs. post foreclosure. They slept on the floor in their son’s house, while waiting for the short sale to be approved, after selling their home in another area. “needing to be in by a certain date” is almost a “no, you shouldn’t buy a short sale”, unless you can be enormously flexible with that target date need.

    Most importantly is this:

    If the foreclosure sale is being postponed BECAUSE of your offer, then your wait is being created by you, and no one else. Odd, but true.

  277. This sounds like a Real Estate transaction in progress. In the comments there is an indication that there is a listing agent, and a buyer’s agent.

    Holding a public forum about or concerning a Real Estate transaction in progress seems out of place to me. In my opinion I would defer to the agents involved.

  278. Your decision and right to abstain from further comments is duly noted, David.

    I am always and ultimately “talking to” my present and future clients, who are participating in short sales here, and only here, in WA. My clients benefit from people coming here to discuss the particulars of their individual cases. My responses are “aimed” at my clients, who benefit from my advice based on review of real data as supplied by those who comment here.

    A blog is a means by which we gather information and expand information to many ultimate purposes. My purpose is always to and for my client(s).

  279. Judging by your comments you are aware that I do avoid this site. The magazine format was brought to my attention by Ray Pepper of 500 Realty. When Ray had his article published I was thrilled.

    I have been “test driving” the new look of the Rain City Guide. It does have issues. That is how I happened to notice this thread about short sales.

    I have been consistent in my warnings about Short Sales. I have listed some lately, but avoid writing an offer on one. In the past, many years ago, and in a different market place, I have written short sale Purchase and Sale Agreements.

    In my opinion, short sales are best left to those people who can afford to lose money. If you have the stomach for it, and the money to burn, then make a deal and stick with it.

    It’s simple like that.

    What I am objecting to is being villified for having an opinion. It makes me wonder how much discussion or information your clients or future clients are actually getting.

  280. David,

    1) Dustin is working on a new format, so this one is temporary, to the best of my knowledge.

    2) Your views on short sales are the opposite of mine. Seems to me buying a property for 17% less on average than a non-distressed property is putting money in your pocket, vs. losing money. The seller has a lot more to lose doing a short sale than a buyer. So I would be 100% more likely to help a buyer buy one than to help a seller sell one. Most times when I speak with a seller about selling one, the best interest of the seller is NOT to do a short sale. Not always, but their attorney and I usually agree that short sale is not the best answer for a seller. Rarely is it not a good answer for a buyer, unless the discount isn’t deep enough to warrant the “issues” involved. Every house is different, of course.

    How does a buyer “lose money” buying a short sale? You lost me there.

    I believe I have complimented you several times in our conversation here of many hours. Why are you feeling vilified? I even said you made the best comment EVER. I didn’t modify or delete any of your comments. We may not agree on a few things…but, you know: “Ask 10 agents; get ten answers”.

    If you would point out where you were “vilified”, I will be more than happy to make a correction in that regard, if you would quote the portions where you were caused to feel that way.

    It is true that I can’t let an “erroneous” statement (from my point of view) stand uncorrected. As I explained, I use the blog to speak to my clients. So they expect me to correct the train of conversation to my best advices, if and when possible. ONLY when I write the post.

    I try very, very hard not to bother you at all when you write on other people’s posts. In fact I try not to notice at all. If it is my post, I get an email. So feel free to state your case on any of Jillayne’s posts. I don’t generally see your comments there and she has written a few on short sales.

    I can’t say I have never spoken with you on someone else’s post…and it may have taken me awhile to “get to know you” well enough to understand where you are coming from. Can’t say I do even now. “vilified”? Short sale buyers “lose” money? I don’t know where you get that, but I’m more than happy to listen and reply, and have given you considerable amounts of my time in an effort to undertand you better.

  281. OK,

    A seller needs a compelling reason in order to sell short. Banks take the loan obligation very seriously. Selling short in a declining market can usually net the bank more than going to auction. A seller, with a compelling reason, who is trying to take responsible action, may be looked at favorably by the bank. In some cases people are just trying to mitigate future liability.

    A buyer of a short sale is at the mercy of the sellers motivation and the banks reaction to it. That’s a little risky. A professional however writes the offer, pulls title, does the inspection, orders the appraisal, puts a loan in place, and asks the bank if they would rather have cash today or not. Title, appraisal, and loan may need to be modified in the process.

    In many cases professionals are offering cash.

    That’s the transaction.

    My sellers have compelling reasons to sell. In all cases the banks were predators. The banks will continue to be pursue and persecute these people. I fully expect to end up in court one day to testify for these people. I am sure that the banks will initiate some legal proceeding to grind it’s heel onto the neck of these decent hard working people.

  282. Update:

    Good news, the lien on the house was released. This was essentially the third approval we needed for the sale to be approved after receiving the seller’s approval over 3 months ago.

    Landmark Corporation used this house as collateral for the seller to purchase their new house. The lien needed to be removed for the sale to continue. The problem occurred when nobody new about the lien until our settlement company found it on a title search, which delayed our closing. We have re-established our settlement date to August 14th. We are determined to get this house, so keep your fingers crossed for us.


  283. Good morning, Bob. Great news to wake up to! August 14th is my Mom’s birthday, it was a lucky day for me 🙂

    We keep you in our thoughts and thank you for keeping us posted. Lots of the work of buying and selling a property happens after there is a signed contract. If nothing else, I love that this post points out that “finding the house” is not the end of the journey. It is the beginning of the journey and a short sale is a much longer one than a house being sold for above the amount of the liens on the property.

    Everyone works hard by the end of the day on a short sale, everyone involved including the buyer and the seller. But sometimes that makes the “getting” all the more appreciated.

    Here’s to smoother sailing toward August 14th.

  284. Ardell,

    Excellent synopsis of what often happens with a short sale property. It is annoying when buyer agents call every 3 days asking if it has been approved as of yet. Our experience is similar in that the only time the deals have not gone through for us if that the buyers either do not want to wait around being impatient (even when they were told up front it will take some time) or just get nervous about the process. Or are scared to pay a couple hundred of dollars for the appraisal fearing that the short sale may not get approved. When this happens, we simply find another buyer and move forward. We have had great success in Philadelphia doing short sales as very few of our competition has been doing them. Of course, a very small percentage of the deals are short sales but that seems to be increasing already. Is a great niche market !

    Am very impressed with all the comments. Great blog ! And you rock !


    • Thanks Chris,

      We were told, and as advertised, “SHORT SALE, 30 DAYS, EXPERIENCED AGENT”. This might be why we thought it would take less than the 3 months. We were told it was possible to complete this transaction, it wasn’t until 2 months into the process when we were told it was a 50 pct chance we would get the house.

      I required my agent to give me an update on the progress every Friday. If this is annoying when buyers are calling agents to get updates, I am sorry. Please walk in our shoes.

      If I was able to close earlier, I would have locked a lower interest rate, I would not have paid for my kids sports fees in our current neighborhood, registered for school, given notice to our landlord 2 months ago, and other costs. There are implications for not knowing how a transaction will progress. The process is only beginning to work better for short sales, I have been told, and it is still not a perfect process. The good news is I am being told that our chances are 95%. It is only because we really love this house that we are staying in the game this long. The incentive needs to be strong, because there are many reasons to undergo a more conventional sale, rather than a short sale.

  285. Thanks Chris! I love this post because often the anxiety during the waiting, is what drives people to quit. This post gives them a place to vent, and get info, all at the same time.

    I like to think it helps them make it to the end and achieve their goal.

  286. Bob,

    Question. If you had read this post before you made the offer, might you have taken the “30 day promise!” with a grain of salt, and have been better prepared for it to really be at least 90 vs. 30? If you started out knowing, it should take 90 days give or take…would that have helped?

  287. Ardell,

    That is a good question. The house next to the house we are buying is also a short sale home. This home was advertised as “SHORT SALE REQUIRES TWO MONTHS, AND SUNTRUST APPROVAL”. We looked at this house and passed because it would take too long, even though the houses were similar. That house was contingent the week after we made the offer on ours. Both houses have been sitting for sale over 3 months. One difference is the other house is seller occupied.

    I honestly believe we would not be here today if it was advertised as a 3 month process, with no guarantee. Now that we are here, I am OK with it. We still don’t know 100 pct if the house is ours.


  288. The appraisal is completed. The house appraised higher than our offer. The HUD-1 is almost ready, and we have verbal approval by all parties involved. We are closer to a settlement on August 14th. It looks good, and we have a green light.

  289. Woohoo! I’m the David from #341160 above, and we move into our short sale purchase tomorrow after having taken just 8 weeks to go from offer to close! Acceptance by the bank took just 5 weeks from placing the offer with the seller, and some loan stuff took us 3 weeks to close (the appraisal was received just 4 days after ordering, so that was much quicker than the horror stories we’re reading lately).

    5 week wait for $100k saving? No complaints 🙂

  290. Ardell,
    Yesterday after 5 months I signed an addendum agreeing to a counter offer from the bank for the short sale property I’m trying to purchase. This afternoon the property went from contingent to active on the MLS and my realtors name was removed from the listing. What kind of game is Watson trying to play? I agreed to a price and now the selling realtor makes the listing active again and she won’t return calls from my realtor. Is this ethical? I know that they must disclose any other offers on the property to my realtor and to her knowledge there are none. I’m extremely upset as I thought we were going to sign a contract at the beginning of the week. Thanks.


  291. Great News!

    We closed the deal on our short sale home today.

    We arguably got the house for nearly 50K-70K less than a non-distressed sale of a comparable home.
    The wait time was 3-1/2 months, (advertised to close in 30 days).
    We were not out any funds, other than the appraisal and the home inspection near the close date.
    3 separate creditor bank approvals were required to sell this house to us.

    If you have the time to wait, short sales seem to be working better now with all parties coming together to make them happen, it might be worthwhile to consider. These sales are complex but the deals can be too good to pass up.


  292. YAY Bob! I told you my Mom’s birthday was a lucky day! I agree on all counts…they are getting easier, as long as people don’t believe the hype that they won’t take very long, and stick with them.


  293. Larry,

    Sorry to have skipped you. I can see you are upset, but I can’t quite make sense of what you are talking about. There is no law anywhere that one realtor has to tell another realtor if there is another offer. If you signed a counter, how would you be going to sign a contract next week? If there is a counter there is already a contract.

    Sorry…I just can’t follow what you are saying there.

    • I signed an adendum that stated I agreed to pay a price that the bank submitted as acceptable. I originally offered 185k for the home and the selling realtor let me know last week that the bank would accept 195k and I agreed to that price. Once I agreed she placed the property from contingent back to active until we called her, then she placed the house back to contingent. We had in our offer agreement that if another offer was submitted we were to be notified within 24 hrs. She told us on the phone that she had 3 more offers which she received the prior week and she was going to submit one of those offers. We have not heard from her since and my realtors office thinks there are some serious ethics violations going on. She also had updated the house as bank approved price after she heard back from the bank. My realtor said that she could not do that as long as the house was contingent. We think I was the used to get a bank approved price so she could remarket the property. Also the house was appraised by the short sale bank at 190K, which means I was offering 5 k more than that. I guess my question to you is in your opion do you believe there was an ethics violation

      • Larry,

        Honestly, the way you are approaching this is so sideways at this point, I don’t think I can help you via a blog post response.

        The general understandings of the “system” do not fit a short sale situation. The system is designed for a regular transaction between you and a seller with no 3rd party interference. You are correct that “contingent” usually applies to a “right of first refusal” with “rules” that apply. Problem is, that doesn’t fit a short sale situation and the more you and your agent expect it to do that, the more it will look like everyone else is doing something wrong.

        The lien holder approval setup does not match your expectations, which leaves you being the one operating incorrectly as to the short sale, by trying to apply the every day parameters of a normal real estate transaction.

        Best man wins in a short sale. The lien holder looking at other offers without telling you is normal and acceptable. Your thinking someone should tell you is the part that doesn’t fit, not what everyone else is doing. It’s not about right and wrong and ethical and unethical. It’s about understanding how a short sale functions, and the general rules of the game and mls system won’t help you in that regard. Your right to see offers is probably with the seller, not the lien holder. Lien holder’s aren’t subject to “rules” like that.

        A short sale is about the lien holder having the right to do whatever they want to get the highest number they can get, since that number is less than what is owed to them. To get there they can break any rule they want and tell the listing agent to do things that move that goal forward. They are not subject to the “rules” you and the seller agreed to.

  294. Hi Ardell,

    We have been involved in a short sale since April 1st. Our offer is for what we were told was market value considering the comps. We have a negotiator that is not very communicative, and keeps delaying getting the acceptance from the investor. She says that they are overwhelmingly inundated with short sale cases. The house has been appraised about 1 month ago. Two weeks ago, the negotiator had said that our offer looks good, and should only be a couple of days for acceptance. The house was set to foreclose on Aug. 13th. We have been asking them to move the foreclosure date for some time, but they didn’t do it until 15 minutes before the auction. That was very nerve wracking for us, since we are living in the house (renting from the owner).

    Since April, housing prices have fallen even more in our area, and are continuing to fall. What should we expect to happen if the appraisal for our lender comes out less than our initial offer? Does the owner’s bank typically roll over and accept that?


  295. Hi Anne,

    It would be helpful to know where you are, geographically. Typically negotiators are generally not at all communicative. They only talk when they have the file open, and they only open the file open for brief periods at critical points. Where are the agents in this mix? Who is actually talking to the negotiator?

    There are some steps missing there that I don’t understand, like do you have a contract accepted and signed by the seller? Your being in the house is unusual. It is the owner who gets the approval to sign. If they are getting rent money from you now, and will stop getting money from you when it closes…well, it seems like a bit of a conflict of interest there.

  296. Hi Ardell,

    We are located in southern Oregon. It started out that the owner was the main contact with the bank, but after about 1 1/2 months, our agent was authorized to be the main contact. Yes, that seems kind of strange too, but our agent has more experience with short sales, so it was decided that she take the reigns rather than the seller’s agent.

    We do have a signed accepted contract from the seller. We also had the listing agent put the status to pending right away. We realize it is unusual to be living in it, and we sort of regret that (because of possiblity of foreclosure), but the owner moved out of town and asked us if we wanted to rent it for now since we are going to buy it anyway. We sold our house back in february, moved to a rental that we ended up hating, so we couldn’t resist to move into this beautiful house. I suppose it would be easy to see it as a conflict of interest, but the owner has moved on with her life, and just wants to get this house behind her.

  297. Thanks for the extra info. That is helpful.

    1) Your agent being the 3rd Party approved to speak with the lien holder is fine. Nothing wrong with that.

    2) Yes, often postponements are done in that manner, last second. It is often part of the process to be told “don’t worry it will be postponed”, but for that not be be easily evidenced until right before the sale. Yes nervewracking I agree, but apparently the system doesn’t seem to be nerve conscious 🙂

    3) If you were my client I’d tell you to take the chance of wasting the appraisal fee and get the appraisal done now. You are living in the house, you might as well get your loan ready to close as soon as you get a green light. Once we had everything at closing including all the buyers money and that prompted the bank to finally give firm and final approval and close the next day.

    If you are hanging back and not proceeding with your loan and appraisal, hard to complain that others are hanging back…no? As to the property becoming active on market, that happens sometimes. It’s hard to explain why, but lucky you…no one can get in to see it without your permission 🙂

    I say get yourself all ready to close and then have escrow call them and say we are closing…sometimes that works. Beats everyone sitting around waiting for someone else to do something.

  298. Anne,

    Very important…just realized this. What ARE you waiting for? You don’t get anything in writing from the bank usually, only the seller does. How do you know they didn’t? Sometimes the seller doesn’t agree with the terms of the approval, and you don’t get a copy of that final “approval/agreement” between the bank and the seller. That has to be signed by the seller for things to move forward. How do you know they didn’t send that to the seller back when they said it would be a couple of days? If the agent for the seller was talking to them, that agent might know that. But your agent is not necessarily privy to all of the seller’s private dealings with that lender.

  299. Ardell,

    We were advised by our mortgage guy to wait until there is acceptance by the seller’s bank before we get an appraisal and lock in our mortgage rate. He said that 9 out of 10 times, if the house doesn’t appraise, then the seller’s bank would agree to sell at the appraisal price. Like I said before, the prices are still dropping around here. My question to you is, have you ever come across a situation in a short sale where the house didn’t appraise for the buyer’s loan, and the seller’s bank easily accepted a lower amount than what was originally offered?

    Why do you find it so important to be ready to close next day after final negotiations? It is my understanding that it takes a week or so for the underwriting. It seems that the seller’s bank doesn’t give a rip about us and our situation.

    You have a really good point about the seller having communications with the bank that we are unaware of. Maybe they want her to pay the difference of the note, and is negotiating. I will talk to my agent about that possibility.

  300. Anne,

    I strongly advise you to see a lawyer ASAP on Monday morning. You are missing the legal steps in the process. Like most short sale buyers you are looking at the lien holder as the person selling the property. They are not, and they have NO authority to lower the price below the amount you contracted for with the seller. They are not a party to that contract. The minute the price needs to go lower than the contract price, the contract becomes invalid. You then have no legal standing until a new contract is agreed upon between you and the seller. Once the contract is invalidated…there is no 3rd party to approve an “it” that no longer exists, and more importantly, no 3rd party to postpone a trustee sale date.

    Your lender may be correct, when the buyer is not living in the house and the seller is only 2 payments behind, and a Trustee Sale date is not set and being postponed. It sounds more like the lender is trying to help you get a lower price, and that is not their role in the process. “getting an appraisal and locking a rate” are two separate things. One is required prior to lender approval and the other is not. They are two different phases of a transaction and a rate can float to close…but no appraisal in hand cannot float to close.

    Your contract is with the seller, not the lien holder. If the amount you want to close on is less than your contract price with the seller…it cannot close without a new or amended contract with the seller. The lienholder does not have the authority to lower the sale price below the amount in the contract. If that happens the contract is negated, and the lien holder is done until there is a new contract submitted by the seller for their consideration.

    If there is no valid contract in place because the house did not appraise, there is no active party in the mix who has the authority to postpone the sale date, and it forecloses.

    You are not buying a house from the lien holder and your written contract is not with the lien holder and you are absolutely correct that they don’t give a rip about someone who is not in a direct relationship with them…the buyer of a short sale. They say yes or no to the seller…not to you. You and they have no relationship at all.

    Trustee Sale date postponements are made by the lien holder ONLY if there is a valid contract in negotiation. If the contract fails due to your lender’s appraisal, there is no “lien holder” involved in an invalid contract. The risk to you is too great to leave the contract facing the possibility of renogotiation, given you are living in the house. If you have no valid purchase and sale agreement once the property does not appraise, you are a tenant and only a tenant. You are a tenant of the seller and not someone in a relationship with the seller’s lienholder. The minute your purchase and sale agreement fails…you are out of contract, and you become a tenant. That is not where you want to be…is it?

    What if the appraisal invalidates the existing contract on September 8, and the Trustee Sale date is postponed from August 13 to September 12th? What will happen on September 12th with no valid purchase and sale agreement in place due to the loan failing on appraisal? Sure, there’s a chance the lien holder will wait for you to get a new price agreed to by the seller…but there’s an even bigger chance that the lien holder will simply close the file and not postpone that Trustee Sale with no valid contract in hand.

    It’s like playing Russian Roulette and gambling the roof over you head.

  301. Ardell – thanks so much for a GREAT blog. Going to look at a short sale tomorrow, but at least now I’m armed with a lot of information about what we may or may not be getting ourselves in for.

  302. Good Luck, Julie. I have a fabulous one going on right now that should close mid September. They really can be great buys and often feel like a miracle happened when they close! They are very often well worth the effort and uncertainties.

  303. Ardell,
    Maybe is was destiny but another house came on the market that I fell in love with. Best of all it is a standard transaction. Lised at 250k and they accepted 205k. we signed a contract Tuesday. I ordered an appraisal on the short sale property before I last wrote you and it came back at 20k less than bank approved price. I think that house is probably going to forclosure. Thanks for responding to all my post. It was short sale process was definately a learning experience.

  304. I am SO very happy for you, Larry! We certainly have a lot of YAY Days around here lately compared to last year at this time. For home buyers anyway. I couldn’t have asked for a better outcome for you.

    The biggest problem with short sales is it is also a learning experience for the professionals as well. By the time 10% of agents “get it”, we go another 15 to 20 years without short sales in the mix, and then we start all over again. (Hence my older than dirt opening of this post)

    The system that had you confused just doesn’t lend itself well to short sale situations. Changing it so that it might be a better fit takes so long, that the market heads up by then and those improvements to the system never take place in full.

    Thank you so much for keep us posted and I’m so glad you are back on “the straight and narrow” road.

  305. Ardell,
    My husband and I just made an offer on a house listed as “approved for short sale”. The house is builder owned and the seller’s agent told our agent that it would only take 2 weeks to get a response. She also said that there is a third party involved to “facilitate the process”. We have already had a terrible experience with a short sale process that lasted over 6 months. I don’t really want to go through it again, but it’s a great house and we have the time. Will the process really be faster due to the approved short sale?

    Also, can the seller’s agent accept multiple offers if they have deposited our earnest money? I learned a lot from my previous experience and the comments posted here, but could still use your advice and expertise.

  306. Maya,

    A builder owned short sale should go much faster and be almost like a regular sale.

    An agent can never refuse to accept a written offer on any property and must present all written offers to the seller, by law, of any house that is for sale. Whether or not the seller can accept another offer is the question. They don’t often do that but yes they can. Since your offer is subject to lienholder approval, all the lienholder has to do is reject yours and accept a different one.

    Always good to be ready to proceed quickly to close once you have a strong indication that yours is acceptable. It’s not over until the property is in your name. If the lienholder gets a higher offer, they really can’t refuse more money, since they are taking a loss. They have to reduce that loss to the lowest possible point. Can the seller hide a higher offer from them? I really don’t think so.

    But usually if you proceed as quickly as you can and in good faith, things will work out just fine.

    • Ardell,

      Thanks for the reply. I just have a few more questions.

      Does the fact that it is “approved for short sale” mean that the seller’s agent may already be aware of a price that the bank would accept?

      The house’s listing price was suddenly dropped by 50%, which is when we bacame aware of it. Is the new listing price what the bank requires for the offer to be acceptable?

      The listing agent said that she was told to list the house at the new price by the third party. Have you ever heard of this? Is the new price real or a ploy to get multiple offers?

      I’ll keep you posted on the progress, if you would like.

  307. Maya,

    It is not uncommon for a bank to instruct regarding the list price. What they will accept is an unknown, even to them, until they have an offer. If no one gives them what they want, they have to change what they want, the same as any seller. Your primary obstacle is not so much what the lien holder wants as it is another buyer willing to pay more.

    I have several times seen the lien holder come back and instruct the agent to raise the price, if thier initial instruction brings in multiple offers that max out at that list price.

    Yes, please do keep us posted of your progress. I very much appreciate people coming by anonymously and giving details. I can’t post the details of my own transactions due to confidentiality to my clients. So commenting on everyone else’s situations in the manner in which I advise my clients is very educational for all of our readers. So thank you for that.

  308. Hi Ardell,

    Here’s an update on our short-sale case. After 5 months of broken promises from the seller, the seller’s bank, & negotiator, we have decided to bail out. We decided that we couldn’t go through the stress of another possible foreclosure date in October (since we are living in the house). We have found a beautiful non-short sale house at a great price (estate sale) and are now in escrow. Fortunatly for us, the seller of the short sale has agreed to continue to rent the house to us until foreclosure date, with the agreement that we show the house for other buyers. The house had a showing right away, and I believe it is pending for some other poor soul to wait, and wait, and wait, and be lied to constantly.

    I appreciate the advice that you gave us, I think it helped us make the decision to move on (especially the part of hiring an attorney, and fork out for an appraisal before bank accptance). We are so happy that we will be able to actually settle.

    Thanks so much for keeping this blog alive. The posts from you and other buyers have been very helpful and interesting. Short-sale buying sure has been a journey, not one that we would be willing to go on again for our primary residence.


  309. Anne! WOW! I am so happy for you! Positive outcome comes in many forms. One thing to learn from all this is you lose all leverage and control if you move in. I am so happy it all worked out for you. The next guy in line will likely benefit as well, since you did most of the waiting for him/her.

    Sounds like a win-win for most all involved and good luck with your new home. Most importantly, thank you so very much for coming here to post your story…it clearly helps me and many others, when people do that. I am most grateful.

  310. I have sold several short sale properties and have not had any of the issues stated in Ardell’s article. While I can imagine them happening, my transactions have been painless. I would still take my client’s to a short sale but I’m always careful to explain what can happen and that “patience is a virtue”.

  311. Sherry,

    Seems odd you would never run into the utilities being shut off by closing day on a short sale. Perhaps in Michigan there is something unusual that prevents the utility companies from shutting off the water and other utilities when the payment is in arrears.

  312. Excellent article! I’m always looking for additional resources to share with my buyers who are looking for bargains and wanting to focus on short sales and bank-owned properties. Personally I’m not a big fan of showing my clients short sale properties and would much rather show bank-owned. Short sales are just too “iffy”. I’ve found that most clients, when they find out the facts about short sales, are happy to cross them off the list of homes they’re interested in viewing. Thanks for your article.

    • Short sales don’t have to be “iffy”, but often the listing agent isn’t asking the right questions or understanding who does and does not qualify from the seller’s perspective for a short sale. For instance, if an owner is not behind in their mortgage payments or has a ton of equity in other property or lots of money in the bank…short sale is very, very “iffy”. But if the house is heading to foreclosure in a couple of days and vacant, very likely the short sale will be approved if the offer price is relatively reasonable.

  313. I have worked on a few short sales before and it is a lot of work. Generally you are better served showing vacant homes. The short sale homes I have seen sometimes have hidden damage or are damaged when the sellers move out. I just don’t think it is worth the hassle. At least that has been my experience.

  314. I have not seen that, Hubert. I think it depends on the area. There is risk, so vacant is often better, but I’ve been pretty darned lucky on the non vacants looking the same when vacated as they did before vacated. Better than buying “at foreclosure” for sure. I think those get damaged more “on the way out” out of anger. As long as the owner is selling short, they feel part of the sale process. Foreclosure happens “to” them, and often creates anger issues.

  315. Ardell,
    I contacted you in late August regarding a short sale that my husband and I had an offer on. The seller was stalling on some paperwork, even though we offered over the asking price and, while we were waiting, my husband did some research into some of the materials used in the house. There was a major problem with the windows, which the seller’s agent confirmed, so we withdrew our offer. We bought another, better house in October through a traditional sale process and we got a great deal. Thank you for answering my questions during the process.

    • Thank you Maya, and glad things worked out for you.

      I was just talking to Jillayne last night at dinner about my not wanting to promote people buying short sales and bank owned properties as their primary objective, by speaking at seminars on that topic, or writing too many posts on that topic.

      I will not help someone who has the “objective” of buying a short sale or a bank owned property who hasn’t found the house to buy yet. That is not a “correct” objective in my opinion, so I don’t want to jump on the wave of the hype of those properties only. Everyone should look for the best home for them at the best price. If it happens to be a short sale, fine, if not…even better 🙂

      I’m glad you found what you were looking for, and sounds like it was an easier process. I do think short sales should be a deeper discount, but that fact alone does not make it the “best house”.

      I so appreciate your coming here to help drive home the message that a good deal does not automatically equal a “short sale” or a bank-owned property. It’s more credible coming from you than “an agent”, even when that agent is me.

      Good luck with your new home!

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  317. I totally agree with this post. Many bargains do go to investors and people inside the industry, because they can handle all the hiccups better than owners who plan to occupy the property. I wish more people would understand this more in depth.

  318. For those with limited budget, buying a short sale might be a good option for you. Just make sure, you also look into the condition of the property so you can really be sure that you are getting a great deal for the property.

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