Making the Bank Accept Your Short Sale Offer
Why would a bank agree to a short sale?
There's one inarguable fact when you're negotiating a short sale: Just when you think you know everything there is to know about the process, the rules will change.
That's because there are actually few hard-and-fast rules, except for those associated with the Home Affordable Foreclosure Alternatives program (HAFA). And those are often loosely interpreted. So there are more than a few strategies out there.
Some have been known to work...but others not so much.
Document the Market
It might sound reasonable on the surface that you'd want to show the bank how much money it stands to gain or lose in the short sale transaction, but this rarely works.
The bank has already done the math if it's considering a short sale offer. It's already looked at its pooling and services agreement (PSA) and it's determined whether it will make more money from a foreclosure or from a short sale.
The bank already knows the answer to this one.
That said, a short sale agent can show the bank the direction their local markets are moving. It might make sense to accept an offer this month over next year, for example, if home values are falling.
But for the most part, banks aren't interested in the opinion of a local real estate agent. Their negotiators aren't looking down the road at the future. They're looking at more immediate dollars and cents and what they can do today.
Return All Documents Promptly
Your agent might send you a document that you know you've already signed, but forms such as an arm's length affidavit, a short sale listing addendum, or a short sale contract addendum are constantly being tweaked and changed by the bank's lawyers. The version you signed might be outdated by the time you're close to short sale approval.
So send the document to your agent or loss mitigator immediately if the bank wants an updated bank statement or payroll stub. The bank's negotiator might take their time about picking up your file again if you don't show urgency by quickly responding to the bank's requests.
Many tasks have deadlines. Your file could be closed if you or your agent misses one.
Send Complete Documents
Send every page of that tax return, and every page of that bank statement. Don't make the mistake of thinking that bank prefers the shortened version. It doesn't. It wants every page.
Make sure your loan number is on every page.
Banks generally want to see both the seller's and the buyer's names on HUD loans. Sometimes banks want to see any junior lienholder's names spelled out as well.
Always make sure that the buyer's side of the HUD is completed if it includes credits from the seller to the buyer that aren't really credits. Negotiators often don't understand why a seller credit is a buyer's debit on the HUD unless they see it in black and white.
Send a CMA to Justify the Price
Resist the urge to lowball here. Send a reasonable and fair close-to-market value offer.
Sometimes banks will tell you that they want a higher sales price based on a broker price opinion (BPO). That could mean that the bank doesn't want to do your short sale because it will make more money through foreclosure, but it could also mean that the BPO agent made a mistake, so ask your own agent to send a CMA.
The Finishing Touches
Show the bank that you're strong and committed. Provide a copy of your earnest money deposit, and make that deposit significant—as much as 3%, if possible. This earmarks you as a serious buyer, and this can be even more important if you're an investor.
Send a preapproval letter from a lender, dated and signed within the last 30 days. Include a bank statement as proof of funds.
And know that this whole process is going to take some time. Attempting to pressure the bank for an answer too soon won't work and could possibly backfire. Short sales can take months to be approved.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.