Nevada Real Estate >> Las Vegas Real Estate Specialist: Utah: Logan

Original Source: Why Short Sales Fail And How To Avoid Short Sale Denial

Short sales are complicated, time consuming, and stressful to all parties involved. Depending on the bank you’re dealing with, it could take up to a year for a final approval on a short sale.

The fact that it takes so long makes it that much more difficult to find a buyer who is willing to wait months before they know if they can even buy the home.

In 2009, it was believed that only 20% of short sales were approved and finalized. That stat tells you, getting a short sale approved is not easy for anyone, let alone someone who is inexperienced. Plain and simple, many short sales fail to be finalized, and here are the common reasons why.

Why Short Sales Fail And How You Can Avoid Short Sale Denial

Incomplete Or Fraudulent Short Sale Package – A short sale package is submitted to the lender when you receive an offer and accept it. The short sale package must be complete with everything the bank requires.

If it is not complete, it could delay the process. Many of the lenders out there won’t even call and tell you what’s missing. They will set the package aside and it will be handled later when they have the time, which will end up delaying the process, and you could end up in foreclosure because of it.

All information in your short sale package better be true or you can kiss your short sale approval goodbye. One example would be to lie about your financial situation. Hiding money in different accounts, pulling out cash to hide it from the bank, or giving money to relatives to hold onto during the short sale could end up costing you big time. Banks do not have to approve your short sale. If they find out you’re not telling the whole truth, you will be denied.

Short Sale Package Not Submitted Properly – All lenders are different and they each have their own protocols when dealing with short sales. Your agent must submit the package exactly how your lender requires it.

If they want it faxed, it better be faxed. If they want it scanned and emailed, it better be emailed. If they want 10 copies, they better get 10 copies! How a short sale package is submitted isn’t you or your agents decision. It’s the lenders, and it better be followed to the T!

Offer Too Low – It is the job of your agent and you to secure the best possible offer on your property when submitting it to the bank. Each lender has their own formula for accepting offers, but one thing they all agree on is getting the most money possible.

It is the job of your short sale agent to give you an accurate analysis of the market and the value of your property. It is their job to counsel you to counter any offer to establish the best price and terms possible prior to accepting it.

Buyer Not Financially Strong Enough – Lenders want to see contracts that have a strong chance of closing. A pre-qualified buyer is not as strong as a pre-approved buyer. It is your agents duty to follow up with the buyers lender, or even better, you may want to have a lender you trust qualify the buyer as well.

If it’s a cash buyer, you will need proof of funds and proof of the ability of the buyer to access those funds in the time needed to close.  Any contingency in the contract could end up costing you the deal. It is best to remove as many contingencies during contract negotiations as possible before submitting to the bank.

Buyer Backs Out – This is probably the number one reason short sales fail. Buyers get tired of waiting, or they find a better house and back out of the deal.

This can be avoided by asking for a substantial earnest money deposit prior to acceptance of the contract. If the buyer has more skin in the game with say a $5,000 earnest money check, they will be more reluctant to give that up.

Your agent should counsel the buyers agent, or the buyer themselves, on how long short sales typically take to close. Keeping the lines of communication open on a weekly basis between your listing agent and the buyers agent can help keep the deal together. Buyers tend to stick around longer, at least in my experience, if they know what’s going on at all times.

Inaccurate Market Analysis/Appraisal/BPO – If  the BPO (Broker Price Opinion) was inaccurate, it could delay the closing. Lenders request BPO’s on short sales that are completed by third parties, whether it’s another real estate agent or an appraiser. Inaccuracies could give the lender a distorted view of what fair market value of the property is, this could influence the lender’s approval.

It’s important for your short sale agent to to ask the negotiator how the BPO compares to their market analysis. If your agent believes there are discrepancies with the BPO, it’s important for them to prove their point of view. Adding photos, better comparable properties, and any other information to support their claims.

Incompetent Short Sale Agent – To avoid having your short sale denied, it’s extremely important to hire a Realtor that knows what they’re doing. Inexperienced and incompetent short sale agents should be avoided with one of the most important financial decisions you will ever make.

Some sellers end up facing foreclosure due to the lack of effort from their agent, and it’s a terrible situation for all parties involved.  Research real estate agents thoroughly before hiring them. Do not use a friend because they are your friend. You could end up going into foreclosure do to the lack of experience of a new short sale agent.

Don’t Let Your Short Sale Fail! Educate Yourself And Choose An Experienced Short Sale Agent!

When short sales fail, it’s the homeowner left holding the bag. Most likely, the homeowner will go into foreclosure, which is the last thing anybody wants.

Foreclosures devalue neighboring properties, cost banks tens of thousands of dollars, but most of all; a failed short sale will ruin your credit for 7-10 years, will cause you to lose your home, and will severely limit your access to credit for many years to come.

Please research short sale agents, put together a full and accurate short sale package, and follow all lender protocols when trying to short sale your home. If you do everything you can to avoid these common mistakes, you have a great chance for a short sale approval!

Related Articles:

Short Sale Investors Committing Fraud?

Common Short Sale Questions Answered

The Short Sale Process – Approval Time Frame – Withdrawal Period – Writing A Short Sale Offer

I was asked by one of my clients who is thinking about doing a short sale if they should just stop making their payments. This is a very difficult question to answer for anyone, and I can’t answer this question as a real estate agent.

This question should be asked when talking to your accountant, a financial advisor, or your attorney. What I can do is, give you some scenarios that can happen if you stop making payments during a short sale. (These are some hypothetical scenarios! Please consult an accountant or attorney.)

Should You Stop Making Payments During A Short Sale?

This question should be answered with another question. Are you willing to go through a foreclosure? A short sale is not a guaranteed sale. Your home selling in a short sale is based upon many factors and you never know what the bank will do.

If you receive an offer on your short sale it doesn’t mean the bank will approve it. If the bank denies your buyers offer and the short sale is denied, this will leave you with backed up payments if you stopped making them.

If you can’t come up with the money to pay these payments, you will go into foreclosure. So, this is a personal decision. Are you willing to face foreclosure if your short sale doesn’t work out? Which could be very likely considering that only 20-25% of all short sales around the country close.

Short sales are difficult, emotionally draining, and time consuming. When you decide a short sale is the only way out, you need to be prepared for a foreclosure at anytime. It’s the nature of the beast.

Why You Should Keep Making Payments During Your Short Sale

If at all possible, making your payments during the short sale could be advantageous for a few reasons:

If your short sale doesn’t work out, you can cancel without any penalties. If the bank doesn’t accept an offer you submit, you don’t get an offer, or the bank denies your short sale for any other reason. You will be in a much better situation then if you had stopped making payments.

Making payments will protect your credit. Although your credit may not be the most important thing for you to worry about during financial hardship, your score will not reflect late payments. However, the bank may report your short sale and the short sale itself could have an affect on your credit.

It is possible to purchase a new home directly following a short sale if you stay current. Both FHA and Fannie Mae have guidelines allowing a short sale seller who is current on payments to purchase a home directly following a short sale. Why would anyone do this?

If your home is worth dramatically less than what you paid for it, selling it short may be your only option. You may have to move for any number of reasons such as divorce, employment, or many other reasons. If your payments are up to date, you could purchase a new home when you move if you stay current.

Reasons To Stop Making Payments During A Short Sale

You may not have a choice in the matter. If you don’t have the money to make payments than you can’t make payments. Plain and simple. Other’s decide to not make payments by choice, and here are their explanations:

To save money for a move. It’s no secret that many homeowners are under water and feel they need to get out from under their current situation. They will stop making payments during the short sale process to save up money to move when the short sale goes through.

Lenders may not force you to make up the payments. Many times during a short sale, all missed payments are forgiven, but not all the time. If your situation allows you to not make payments and you don’t have to pay them back, you may consider not making payments. Banks still may file a deficiency notice however.

The short sale could be moved to a more critical time frame for approval. If you aren’t making payments, it would be in the banks best interest to close on your short sale as soon as possible to start recouping their losses. You don’t have to be in default in order to short sale, but someone who is making payments compared to someone who isn’t making payments may take priority.

If You Miss Payments You May Face Default

Many short sales do not get approved, never find a buyer, or are screwed up by inexperienced real estate agents. There is a very good chance that you may end up facing foreclosure if you stop making payments. Here are some of the drawbacks if you go into foreclosure:

Although both short sales and foreclosure affect your credit, a foreclosure is much worse. After short selling a home, even if you miss payments, you can purchase a home again within 2-3+ years.

If you go into foreclosure you won’t be able to purchase a home for 7-10+ years. Seven years if you don’t have any other credit issues, pay off all your delinquencies, and stay up to date on all future payments. Ten years or more if you face delinquencies or other credit issues related to your foreclosure.

If you’re facing financial hardships, please do not avoid the situation. It will not go away, and a short sale may be the best option. If you can’t make your payments, you can still sell your home in a short sale and avoid foreclosure. Be sure to talk to a lawyer, an accountant, and seek out an experienced short sale agent to give you advice on your personal situation.

Related Posts:

How To Avoid Foreclosure

What Is A Lease Option And What Are The Pro’s And Con’s

Choosing A Realtor To Sell Your Home

Common Short Sale Questions Answered

Common Short Sale Myths

The Full Short Sale Process

Original Source: Struggling Home Sellers Should Consider Lease Options

Before I get into why you might want to consider a lease option, let me give you a little background on market statistics.

The other day, the National Association of Realtors (NAR) released a troubling statistic. In July, home sales across the nation dipped 27% year over year from July 2009. This was due to many buyers purchasing before the home buyer tax credit expired, but it's still an ugly statistic for home sellers.

Obviously, the tax credit had a major impact on home sales. Everyone who would have bought a home in July or August this year, that qualified for the credit, moved up their purchasing dates to get the credit.

The credit didn't increase sales, rather it made buyers move up their purchase to qualify for it. Waste of tax payers money? Most likely, but that's a story for another day. Back to my post:

What Is A Lease Option?

As home sales slow moving into the fall selling season, a lease option might be something that could work for you, especially if your home is vacant. What is a lease option you say?

A lease option allows someone to lease your home with the option to purchase it. It's like a glorified rental, in that the renter of your home has the option to purchase the home at the end of their lease agreement; usually 12 months. Here are some basic principles to a lease option:

The lease option binds the seller to sell and not the buyer to buy. The option gives the buyer discretion to buy or not. This is why lease options usually come with a larger deposit than a months rent. This deposit usually ranges from 2-5% of the home price. Of course this is negotiable between buyer and seller.

How do you determine price? Price can be dealt with in two ways. The buyer and seller can agree to a price when the contract is signed, or they can agree to price by when the date the option is exercised. Either way, it's usually still based on an appraisal. The monthly payment is determined by buyer and seller, and it can be applied to the cost of the home or not.

It all depends on the terms of the agreement. If the payments are applied to the purchase price of the home, if the buyer decides not to purchase the home, the seller will not have to pay that back. Basically, a lease option is the same as a lease, with the option at a determined time period for the buyer to purchase the property.

Advantages Of A Lease Option For Home Sellers

A lease option opens you up to more buyers. A lease option allows you to sell your home where you otherwise wouldn't have been able to sell it.

For example, there are many people right now that don't qualify for financing with the increased regulations in the lending industry.

Many of these potential buyers have been taken out of the market, and a lot of times all they need is more time to qualify. They may need to pay off some debt, raise their credit scores, or save up a larger down payment. Many of these buyers are very close to purchasing, but can't quite get over the hump.

For you the seller, this gives you an advantage in an otherwise strong buyers market. When I deal with sellers looking for lease options, I like to tell the buyers they get price or terms, pick one. Meaning, they can either get a better price with terms that are more strict, or they can pay more and get more lenient terms. As a seller, both will work in your favor. You either get a better price on your home, or you will get some great terms with a nice non-refundable down payment.

If the buyer doesn't exercise the option to buy your home at the end of the agreement, they forfeit all rent paid, and usually forfeit their down payment. And once this happens, you go into landlord-tenant relations, giving you the right to evict and retain your home. You may also work out another agreement, either way the ball is in your court.

Another advantage is; if you have to move fast or your home is sitting vacant, you get someone to pay your mortgage payment for you. They may also do some upgrades that could add value to the home, and you get people living in your home to maintain it.

Disadvantages Of Lease Options For Home Sellers

A lease option has it's disadvantages. One of them being having someone in your home that may not take care of it. They may trash it and leave you holding the bill, just like any renter.

Also, the buyer may not exercise the option to purchase your home and you're left with another mortgage payment when the lease runs out.

If you are unable to make payments on two homes, if that is your situation, you might not be able to find another renter. And if you try to sell the home again, you may not be able to sell it either.

The real estate market is still declining here in Logan. If you sign a lease option  today, in 12 months from now when it's time for the buyer to purchase, your home may be worth less. If you take if off the market today, you won't have the chance to sell it for today's prices. You're locked into the agreement unless the buyer defaults.

Interest rates may go up. If interest rates go up, the buyer who could afford your home today may not be able to afford it tomorrow. Even if interest rates go up only a point, it could disqualify many buyers from purchasing your home.

Why Should Struggling Home Sellers Do A Lease Option?

If you're home is sitting vacant, there are many renters right now in the Logan UT real estate market. These people are calling my brokerage everyday asking for lease options or rentals. I can't speak for other markets around the country, so I would talk to a local Realtor about markets where you live.

If you're tired of showing your home, a lease option could help you get out of the market, out of your home, and get someone who will pay part of your mortgage for you.

If your not getting any showings and you can't reduce your price, a lease option is a great way to wait out the market. Even if the buyer doesn't buy your home at the end of the option period, you still have someone paying you rent, and you can negotiate keeping a nice down payment. Plus, you could always try to sell when there is less inventory and get a better price.

All in all, if your a home seller, I truly understand how difficult it is right now. A lease option may be something you could try if your home isn't selling and you're struggling to make ends meet. If you do a lease option, be sure to consult with an attorney about terms of a contract, or talk to a Realtor about the options we can provide.