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Smooth Short Sales: Tips from a Lender
WASHINGTON — Real estate practitioners who've worked with clients on a short sale often complain about constant transaction delays, particularly in getting the deal approved from lenders.
On Wednesday at NAR's Midyear Legislative Meetings in Washington, D.C., a representative from lender JPMorgan Chase & Co. shared some advice on how you can help move a short sale along as smoothly as possible.
"We’ve found a brave lender to stand in front of a room full of agents,” short-sales expert Robert Kutschbach, broker-owner of Carleton Realty in Westerville, Ohio, said in his introduction of Jim Satterwhite, vice president of prime default management at Chase.
A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, and the seller is unable or unwilling to bring sufficient liquid assets to closing to cover the deficiencies.
Patience Is a Virtue
Satterwhite said that just as practitioners are being hit with a wave of short sales, they must recognize that lenders are too.
“Be patient. The decision process may take several weeks,” Satterwhite said, adding that a big lender may be dealing with a quarter-million delinquent loans at any given time. It can be a challenge to obtain approvals from everyone involved in the short sale, including investors and insurers, he said. He encouraged practitioners to stay in contact with the servicer of the mortgage to keep everything moving.
Another common problem he sees: When short sale offers are submitted days from an impending foreclosure sale, which is not an adequate amount of time for a lender to reach a decision.
Research, Follow-Up Can Avoid Delays
Satterwhite shared these recommendations for practitioners:
- Find out if there are any liens on the property, which can become big problems for lenders and real estate professionals. Secondary lien holders may require money to minimize their losses and can balk at approving the short sale. Frequent objectors include tax lien holders and mechanic’s lien holders.
- Engage both primary and secondary lien holders at the same time because all parties will need to approve the contract.
- When working with the seller, ensure that all paperwork is completed and submitted on time. Also, make clients aware that they may be asked to reduce the lender’s loss by making a payment or by signing a promissory note.
- When working with a buyer, make a reasonable offer on the property. A ridiculously low offer is a waste of everyone's time, he said. “The servicer’s primary goal is to minimize the investor’s loss on a property with a distressed borrower,” Satterwhite said. Therefore, the lender will try to obtain fair market value for the property, so offers way below fair market value just cloud the process, he said.
What Price Should I Offer?
One audience member asked Satterwhite why lenders can’t provide some type of guidance on what price they'll accept so practitioners can avoid having multiple offers rejected. But Satterwhite said that would be too good to be true: Just as you wouldn’t try to sell your car by advertising the lowest price you’ll accept, lenders won’t do that in a short sale.
“We want to do what is reasonable, but we also want to do our best to recover our indebtedness,” he said.
— By Melissa Dittmann Tracey for REALTOR® magazine online
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