Don’t blame the banks or lenders for not approving a potential short sale for every property! You just might blame the seller and the real estate agent. Buyers need to be aware of the facts before they waste their efforts and time on a transaction which is doomed even before the offer is made on the potential short sale property.
There are many property owners using potential short sales to find relief either from their financial distress situation, a loan with unfavorable terms or because they don’t want to pay on mortgage for a property which is worth far less than when they purchased it.
In many cases the potential short sale does not obtain an approval from the lender(s) or bank(s). Below is a great example of an active listings for a single home for sale in an above average development.
The home is listed for $259000. If a full price offer was accepted by the seller, the contract would be submitted to the lender or bank. There is only mortgage on the property in the amount of $496800 and another lien from the homeowners association for $3742 (not including legal fees, court costs and interest) as of the fourth quarter of 2008. The estimated additional sum for the first half of 2009 is $930. Based upon the aforementioned facts, if the lender approved the contract, the lender would receive the net proceeds (purchase price less closing costs) of about $236000, after paying for the closing costs and for the release of the homeowners association lien.
The estimated market value of the home is $384000, based upon comparable homes sold within the past three months.
If the lender or bank forecloses on the property, the foreclosure will wipe out the entire homeowners association lien against the property.
After the foreclosure, the lender or bank could put the home on the market (if still in good condition) for about $345000. An offer could be put in and accepted on the home for about $311000 – could be higher. The bank or lender would realize net proceeds from the sale of about $289000.
The difference between the potential short sale net proceeds ($236000) and the foreclosure sale net proceeds ($289000) is $53000.
Why would a lender or bank approve the short sale when foreclosing on the home would increase the bottom line by $53000?
Could this situation cause the lender or bank to accelerate their efforts to foreclosed on the property?
Most buyers are not aware of the complications of the potential short sale property and will waste their time and effort on such a property as discussed in the above example.
Sellers and their real estate agents need to work the numbers to ensure the lender or bank makes a decision to approve the short sale.
Great information about short sales. As a realtor and certified Short sale Specialist I do my homework before I take a short sale listing or introduce Short Sale deals to my buyers. The example you gave really makes the point very clear but I have to say that nearly all Short Sales I see and work on a different.
The listing agent puts a pricetag on the short sale property, the buyer makes an offer (sometimes higher than asking price) bank does BPO and that is when the “real” number is finally on the table. If buyer does not want to pay BPO price, the Short Sale listing agent has to put it back on the market and find a new buyer that is willing to pay . It is a total waste of time to make a low low ball offer on a short sale.