UNDERSTANDING SHORT SALES

San Diego Short Sales

Even though short sales in San Diego have been a common practice for the past few years, they are still quite a mystery to many home buyers. Some buyers confuse short sales with foreclosures. A lot is left to the Realtors, short sale listing experts, and some of agents who take short sale listings are not experts. Some hardly understand short sales themselves, much less know how to successfully submit a short sale offer to a bank. To complicate things more, each lender has their own procedure in processing short sales, so even really good short sale agents sometimes have their hands full.

Here are the basics of short sales in San Diego:

A “Short Sale” is the sale of real estate at a price that will net less to the seller than is owed on the mortgage loan. In other words, the seller is “short” on funds to repay the loan.
When a home owner makes the decision to Short Sale a property, the seller stops making payments on the mortgage loan. The lender typically files a “Notice of Default”. The next step is foreclosure. It’s time for the seller to act quickly and efficiently to sell the home in a short sale to avoid foreclosure. This is where short sale experts in San Diego come in.

Short Sale Listings In San Diego

The list price is set by either the seller or the listing agent. This does not necessarily mean this is the purchase price a buyer will offer or the price the bank will accept. The bank/lender has not yet, and will not necessarily approve this purchase price.
Even when listings are advertised as “Approved Short Sales”, the lender must approve the short sale to each prospective buyer. Each buyer has unique qualifications. However, when you see “approved short sale”, chances are that the property had already been under contract and that first buyer walked away. In other words, the buyer got tired of waiting or found another property to buy. The new buyer will have to submit a new offer and the approval process starts again, even if the sale price is the same as the first buyer’s offer. The good news is, however, it usually does not take as long to get a new approval the second time around.

Below-Market Homes In San Diego

Experienced short sale agents in San Diego typically recommend initially listing homes for sale at prices at or above market value. The object of this is to “season” the marketing. Ultimately the lender will want to know that the best effort has been made to get the highest possible price. Large price reductions quickly follow at frequent intervals, depending largely upon the time pressure of the pending foreclosure.

Home sellers in San Diego are well advised to seek the highest possible price from the short sale. This is not merely an opportunity to walk away from the home loan. This is important because the lender may release the mortgage but not the underlying debt. In other words, depending on the type of loan the seller has (for example, whether it is the original loan when they purchased the home or if it was a refinance) the lender could pursue the seller for the deficiency at some future date.

Timing of Short Sales in San Diego

When the listing agent gets an offer on the property, the offer is submitted to the bank along with a lengthy package explaining the sellers case as to why the lender should approve the sale and take a loss on the property. This includes the sellers financials (tax records, paystubs, bank statements, etc) and hardship letter, a comparative market analysis, photos of the property, and an estimate of what the carrying costs of the property would be to the lender (utilities, taxes, maintenance, etc.).

After 30-45 days, and this timeline depends on the lender – some are quick, some take months – the lender will review the short sale package and see if they are missing any documents. If the file is complete, they will make a decision as to whether they will consider the short sale offer. Since the lenders are often backed up with many short sale files, it usually takes a month or two before they get to your file. If the file is missing anything, then it is set aside, or may go to the bottom of the stack. When this happens, the agent has to resubmit missing paperwork and the waiting begins again.

If the file is complete and the lender wants to consider the sale, the lender will then send someone out to do a BPO (Broker Price Opinion) or an appraisal so they are comfortable with what they think the value of the home is.

If the loan has mortgage insurance attached to it, the lender may decide to wait until they receive the insurance payment before moving forward. This could be a long time, and the lender almost never communicates their reasons for delay. If the lender thinks they will net more money by foreclosing, then they will ignore the short sale offer and proceed with the foreclosure process. A trustees sale will be scheduled and the property will be sold in accordance with the foreclosure statues.

If the lender thinks the costs associated with a foreclosure (attorney fees, eviction fees, care and maintenance of the property, etc.) are not in their favor, then they will consider the short sale offer. They usually come back with an approved purchase price amount. It may be the same price that the buyer submitted and the seller accepted, or it may be some higher price or at some different terms.

If there are delinquent taxes or other delinquent costs, then the lender may ask the buyer to pay these as additional charges. Sometimes if the seller has a second loan, then the holder of the first loan may ask the buyer to pitch in a few thousand dollars to the second lender, to appease the second lender and to encourage them to release their second mortgage lien. We see this often with short sale condos in San Diego – The lender often asks the buyer to pay past HOA dues, or contribute to the second loan.

The “approval” on a short sale takes the form of a letter to the seller outlining the terms of their approval. The seller decides at that time whether they want to continue with the sale of the property and is not obligated to take the lenders terms or continue with the sale to the buyer.

To summarize, processing short sales in San Diego can be a bit complicated, and the timeline is very uncertain. Because there are so many uncertainties, most buyers want a large discount on the price. Short sales at below-market prices actually compensate buyers for time spent waiting, and for risking the uncertainty of whether the short sale will ever get approved at all.