How Can a Buyer Make an Offer Directly to the Short Sale Bank?

man talking about documents with banker
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Question: How Can a Buyer Make an Offer Directly to the Short Sale Bank?

A reader asks: I have been trying to buy a home in Roseville, CA, but the agent says it is now active short contingent. She's not taking any more offers. I want to make an offer on this home. I mean, I don't even understand why the seller is involved in this at all when it's the bank that is approving the offer. Why can't I bypass the seller and go right to the bank? How can a buyer make an offer directly to the short sale bank?"-- Short Sale Buyer

Answer: That's an excellent question, short sale buyer. Let's begin by looking at the facts of a short sale. In a perfect world, the kind that exists in dime store novels, people make their mortgage payments on time and banks are happy. As long as banks are getting their money, the banks aren't very much interested in talking about taking a short payoff on their loan known as a short sale.

When a bank believes the security for its loan is in jeopardy and / or the seller is destined to become delinquent and stop making mortgage payments, the bank is then interested in talking about doing a short sale. Sometimes, the fact a home is underwater is enough to induce a bank to consider a strategic short sale. But most of the time the bank wants the seller to have a hardship, in addition to negative equity.

Authorization for Third Party to Talk to Short Sale Bank

If a bank is a stickler for details, and most are, the bank might not talk to any Tom, Dick or Harry who calls to discuss a particular short sale. That's because the bank will most likely require a third party authorization to be signed by the borrower. The borrower is unlikely to sign this authorization, allowing a complete stranger access to the borrower's personal information, which would be anything discussed about his loan with the short sale bank.

This does not mean you could not send an offer to the bank yourself, because you could. The bank is simply unlikely to contact you directly and might route the offer back through the listing agent.

Why Buyer's Agents Cannot Go Directly to the Short Sale Bank

Your problem will be finding an agent who is willing to draw an offer for you. Agents want to get paid for their work. The most common way a buyer's agent gets paid is by the listing broker. The REALTORĀ® Code of Ethics specifies how agents are to interact with each other, and a buyer's agent cannot go around or interfere with a listing agent's business.

This means you will need to draw up your own offer or contact a short sale lawyer to write an offer for you. You might not want to worry about all of the details and simply write a letter to the bank, along with proof of funds and a preapproval letter, explaining the price you would like to pay.

Finding the Short Sale Bank to Submit Your Offer

You may need to do your own property search of the public records all by yourself. It is fairly easy to find out which lender originally made the loan for the borrower, but many loans are sold over and over. However, most records are kept in digital format nowadays, so it's relatively easy to do a search at the courthouse or County Recorder's office.

Why Is the Seller Involved in Selling the Short Sale?

Bottom line is the seller is the owner of the home. The bank is simply a secured debtor. The bank does not do the short sale; it approves the short sale and its payoff. It is the seller who deeds the home to the short sale buyer, which is why the seller gets to choose who buys it.

Sellers generally have little incentive to try to get the highest price possible. Listing agents are reluctant as well, due to fallout from HVCC, because they know that the price a buyer will pay is not always the price a buyer's lender will approve. Low appraisals can be a common problem among buyer's lenders.

When I receive a second offer from a buyer, the seller knows submitting that offer to the bank will probably start the process over, and sellers don't want to start from scratch. Therefore, sellers generally request that we accept that offer as a backup offer and withhold it from the bank. It's the seller's prerogative, the seller's home.

The bank might not want to see another offer, either. The bank wants market value from a qualified buyer. Your best option in these scenarios, if you really want to make an offer directly to the short sale bank, is to offer all cash and more than list price.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.