Why don't these realtors do bank approvals first?

Question

This is my first short sale. I put in my offer and it was accepted by the seller. Now, I have to wait until the bank approves the offer. So, here I thought my all cash offer with a 30 day close would be a quick turnaround but now it appears we are just getting started. I'm wondering why the seller and their realtor don't get bank approval first. And further, I'm told that the bank can reject my offer, although the seller accepted it. I put a 60 day answer on the contract as I'm not going to deal with this forever but I still don't know why the seller and bank don't get it together first before putting it on the market. Any insight would be appreciated.

Laura Marshall · Answer

I have personally negotiated and closed more than 100 of my own short sale listings. They can be done, but it is a lengthy process. I am not a fan of any of the banks, and I'm sure if they wanted to, they could speed up the process. Having said that, I can understand why they do not approve a short sale up front. They have to order an appraisal, pre-lim etc and the borrower must submit a complete package. (This is the edited version...trust me...there is so much more to it than that). Assuming everything meets  the investor guidelines and there are no jr liens, IRS liens, judgments etc that need to be negotiated, they could then determine a price that they would be willing to accept. What if, after all of that work, the property received no offers and the bank had to foreclose? That would be a lot of wasted time, when they could have been working with properties that already had offers from willing and ready buyers.  Also, if a buyer does show up later at some point, everything would need to be done again, as most likely the appraisal would have expired and of course, they will want a completely updated short sale package from the borrower...which in their language means "do EVERYTHING all over again". I have often wondered why it is possible for me to walk into one of their branches with my checkstubs, bank statements, tax returns, purchase contract etc...and they can approve and fund a loan in less than 30 days, but with the same documentation they can take 2 months to more that a year to make a decision about a short sale or loan modification.

Joel Owens · Answer

A lot of it has to do with poorly trained employees and hourly workers working on the short sales for the banks/servicers.

If the short sale if for a small bank and holds the note in house the process can be easier. I used to keep tabs on who held the loan and also who was servicing it.

This was about 7 to 8 years ago when I first did them. Haven't touched residential in a long time. Back then it was just one person at the mitigation department. Many in the office didn't know what they were.

The seller could list the property for 1 dollar if they wanted to but that doesn't mean the senior bank will accept it. Also the junior lienholders can say no way to their portion of a payoff. Everyone wants to fight for their slice of the loss to get as much as possible before releasing the lien interest.

There are called "loan servicing guidelines" that a servicer has to follow. They have to demonstrate that every loss step was completed from best outcome to worst outcome before a claim is filed for loss on the insurance for the loan. If they do not do this the investor taking the loss will come after the servicing company as the insurance might deny the claim. Every short sale is different and has a different loan type on a property. Sometimes you would see "pre-approved" on a short sale. This is where one buyer was under contract but by the time the bank came back with an approval the buyer was gone. Knowing the bank would take a certain offer the listing broker/agent would put out the approved price information.

Now if the market was declining then the new buyer wanted to submit  a lower offer which started the process again. If the market was improving sometimes the buyer would try to buy at the approved lower price. Other times the bank wanted to start over again to get a new value in an upward market to accept less of a loss.

The one thing about short sales is they are not all the same. The Forrest Gump saying " life (short sales) is like a box of chocolates you never know what you might get" rings true! If I am offering on a short sale I do not tie up earnest money until the end of creation. I put a short acceptance window and explain I will not be tied to a property. I will put down EM once the bank approves and all junior lienholders in writing and that is only if the market hasn't changed in a negative way. The listing broker tries to keep the buyer trapped waiting for an answer. A property is just a property and if they do not agree to my terms I just walk away.

Whitney D. · Answer

Thanks for giving some feedback on how many short sales you have gotten to go through. For curiosity, how many have you seen that failed? I mean an aspect ratio of like for every 10 that fail 1 goes through etc. I am still fairly young and the time I started looking into real estate was right around the bubble burst and crash, just worked out that way for me time wise. I was young and excited and did a lot of research and following of properties for years, even after I had my own house. I kept my eye on lots of short sales, all of which were foreclosed on, I am wondering if thats because it was during the crash. I know most short sales I see its because the owners cant afford or need to get out fast, which is why they usually seem to fail, foreclosure hits long before the paperwork ever comes together.  I put in offers on some short sales, some with up to 90 days, but never heard back at all even with full price offers, those all were foreclosed on.

Elizabeth Colegrove · Answer

Welcome to Short Sale fun! They are anything but short ;)

Here is a detailed article I wrote about the process

http://www.biggerpockets.com/renewsblog/2014/11/17...

The short answer to your question is the bank won't get started till they have an offer. The bank also doesn't want to "show there hand" till they have too!

Whitney D. · Answer

Because a short sale is usually an emergency situation where they are probably going to lose the house or have to leave right now and cant afford to keep paying it along with another residence. A lot of people do try and get approval for the short sale but it takes months with some banks, and thats months the seller does not have. So they put the house up and send off paperwork for approval at the same time in the hopes of things all coming together in the end, which, it rarely does. I have never personally seen a short sale work out. Even the 'approved' short sales most often have to have the bank approve any bids, even full price, which can also take months, most offers on short sales have long expired by the time the bank gets around to looking at it. All the short sales I saw went to foreclosure. I decided a long time ago that I would never deal with a short sale unless it was the best deal on earth, I had a lot of time and a LOT of luck, even then I wouldnt have high hopes of it working out. I am interested in Wayne Brooks input on how often he has seen short sales work out, because, as I said, my personal experience in following a lot of short sales out of curiosity, none ever sold, all foreclosed. But as a realtor I am curious to see how many short sales Wayne has seen get through to the end.

Wayne Brooks · Answer

Trust me, as an agent we would Love to have a preapproved price to deal with.  But, they generally won't do it that way.  Most won't even look at the mortgagor's package, to qualify the seller, before they get a contract, prelim HUD, etc.  and once they do a BPO, once it becomes 60-90 days old, they'll order a new one, which can change their price and just adds to the fun.  The short sale addendum in your contract tells you the deal is subject to bank approval.  The listing price, and contract price, have no influence on what price the bank will accept.

Why don't these realtors do bank approvals first?

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