One of the main reasons that short sales fail is because they were never really qualified short sales to start with. Just because it looks like a short sale and quacks like a short sale doesn't mean it's a short sale. If you're planning to buy a short sale, you should talk to the listing agent. At the very least, before writing an offer, ask your agent to speak to the listing agent. You'll find different skill sets and education levels among real estate agents. They are not all the same.
What Is Your Level of Short Sale Experience?
If you ask this question, followed by clarification, the agent is more likely to answer you if the agent doesn't hear an accusatory tone in your voice. You don't want to make the agent defensive or adversarial. You can say, "I'm sure if you were buying this home, you'd want to know that the person responsible for the success of this short sale has experience obtaining approval over and over."
How Many Lenders Are Involved in This Short Sale?
Your easiest short sale is not necessarily a short sale with only one loan because that one loan might carry mortgage insurance. When there are two loans on a short sale, you can be relatively assured there is no MI and no MI approval required. Some mortgage insurance companies have gone out of business, while others demand stiff seller contributions because the MI is required to cover a certain percentage of the lender's loss.
What Can You Tell Me About the Lender(s)?
The best answer to that question is this a Wachovia short sale. Because Wachovia short sales are generally approved within two to 14 days. Many banks also process short sales through an online software service such as Equator, which greatly improves response time and lessens the chances that documents will be lost.
Is This a Fannie Mae, Freddie Mac or Other Type of Government Entity Short Sale?
If the short sale falls under the HAFA Short Sale program and the process has not begun, then you can expect a delay. A Preapproved HAFA short sale is different from a regular HAFA short sale. Freddie Mac and Fannie Mae short sales carry their own set of guidelines, especially if they are HAFA. An FHA short sale follows another procedure.
What Type of Documentation Do You Have From the Seller?
Ideally, you want to hear that the seller has a financial hardship, although an astute short sale listing agent will not share that type of private and confidential information with you. But you do want to know that the agent has at the very least tax returns, bank statements, payroll stubs, and W2s, in addition to the hardship letter.
Do You Know if the Seller Is Agreeable to a Contribution or Whether a Contribution Has Been Discussed?
Sometimes short sales fail because sellers did not realize a seller contribution could be required, and they either don't have the money, or they refuse to participate. In states that allow deficiency judgments, a seller contribution is often the only way to get a release of liability. Without a release of liability, some sellers have little reason to close a short sale.
What Is Your Procedure After the Seller Accepts an Offer?
The best answer here is the agent will send the offer, plus the HUD and short sale package to the bank immediately. If the agent says he or she will have to check with a manager or the agent doesn't know what happens next, you might want to skip this short sale.
How Many Offers Do You Send to the Bank?
There is only one correct answer to this question, and that answer is the best offer. Banks do not want to see more than one offer. If a bank receives a second offer, the bank might reject the first offer. There are ways a seller can cancel your short sale contract if the seller so desires, so ask about it.
How Long Do You Estimate for Short Sale Approval?
There are no guarantees except for preapproved HAFA short sales. No agent can guarantee a certain time period, but many should be able to give you an estimate of time based on their experience with similar types of short sales. Establish how long you will wait for short sale approval in advance.
What Are Your Expectations From a Buyer?
In my short sales, for example, we expect the buyer to release the earnest money deposit to escrow. My sellers also demand that the buyer and buyer's agent not write multiple offers, and we get this promise in writing. Buyers who don't want to comply are not buyers in my book. But like I said, every agent is different. So, find out what is expected of you and whether you can live with it.