Pre-approved Short Sales - Is Your Lender one of them?
Definition: A Short Sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and the lender(s) accepts a discounted payoff to fully satisfy the loan.
By now the term "short sale" has made its way into the lexicon of the average home owner. However, for those who are not familiar with this terminology, let us briefly define short sales. In this context, "short" is not defined as "quick". In fact the typical short sale is far from it, taking anywhere from 30-120 days for the bank to approve any offer received. Rather a short sale is defined as a sale that involves the lender discounting or "shorting" the amount of the loan(s) against the home in order to facilitate a sale. Why would a lender agree to take less than what is owed? There are a few reasons:
Legal Concerns - Mortgage lenders have come under legal pressure to work with borrowers to resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution. Wall Street is Watching - Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved. Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes - spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.
What has been the primary stumbling block to getting a short sale to closing? Time. As mentioned earlier, depending on the lender the typical short sale takes anywhere from 30 days (Wells Fargo, the very best) to 120 days or more (Bank of America, the very worst) to get a bank approval. In fact, the time is often so extensive that buyers typically withdraw prior to the bank response. This leads us to the title of this article about an emerging new short sale trend. This trend is the "pre-approved" short sale. A limited group of lenders have begun to allow some borrowers to get pre-approved for a short sale. In this scenario the lender qualifies the seller (borrower) for a short sale and establishes the pricing for that short sale in advance of the real estate agent offering the home for sale. The primary advantage of this is threefold: first, the price is established prior to soliciting offers (on the traditional short sale the price the lender will accept is not established until after the receipt of an offer); second the speed of response to any offer is measured in days rather than months; third the credit of the borrower is better preserved as these accounts typically show "paid as agreed". Thus the pre-approved short sale removes the primary barriers to a successful short sale.
As of the writing of this article, there are only a few lenders currently offering this option. Although we handle short sales with all lenders - if you are considering a short sale and your loan is with Wells Fargo, Wachovia, National City or HSBC - call us immediately for details. Our hope is that this is an emerging trend and that more banks will get on the bandwagon to pre-approve short sales. But either way, we are always here to help guide struggling homeowners through this short sale process, pre-approved or otherwise.
About The Russell Shaw Group:
I've been with the same company for over 30 years. My team and I help more homesellers sell than any other agent, team or group in Arizona. If you have a question, call us.
These reports reflect the views and opinions of their authors and are not necessarily the views and opinions of Realty Times.
