Florida Buyer Broker
SHORT SALE IN REAL ESTATE
Some sellers are unaware the real estate licensee can only list a property as regular sale, short sale, foreclosure, rental or auction.
It is illegal in Florida for a real estate agent to help a homeowner stay in their home via assisting in a loan modification, refinance or grant program.
Some Sellers work with the bank to keep their homes while while the listing agent has a short sale contract on their property from a buyer.
The seller must be behind in payments for the lender to consider a short sale. In 2010 real estate licensees told sellers who were not behind in their mortgage payments to stop making them and to stop calling their lender. Foreclosure filings on the short sale property begin once the seller has missed 3 payments.
WHAT IS A REAL ESTATE SHORT SALE?
The definition of a short sale as defined by the National Association of REALTORS® is as follows: short sales are defined as a transaction where the title transfers and the sale price is insufficient to pay the total of all liens and cost of the sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies.
January, 2010 the Federal Government passed the MARS Short Sale Law.
The law requires Mortgage Assistance companies to give written disclosure to a short seller. The listing agents were not disclosing the credit consequences of the short sale or a failed short sale to the seller.
The law requires disclosure to the potential short seller that the agent has no special relationship with the government or lender. The short seller is advised that; their credit will be damaged if they stop making their mortgage payments and the property could go into foreclosure.
The short seller can cancel a pending short sale transaction at any time prior to closing. And the short seller has the right to continue to try to obtain help on their own to get a loan modification, refinance or grant to keep their property. Even while the agent is involved in short sale on the property with a potential buyer.
An ethical real estate licensee will advise a short sale seller to consult an attorney and tax accountant, BEFORE LISTING THE PROPERTY FOR SALE.
The short sale property will often be undervalued to get offers quickly. These agents are not taking into consideration the lack of inventory, prices and sales in the surrounding area. Those sellers could possibly sell their property via a regular sale and save their credit.
Communities lose market value, condominium associations maybe in jeopardy if short sellers stop paying their dues once a foreclosure seems eminent.
Unsuspecting short sale buyers maybe asked to pay additional money.
The lender may counter the buyers offer after 9 or 10 months at a higher price. The buyer need to pay for past dues, high attorney or loss mitigation fees at the last minute in a short sale.
The angry buyer often walks away. A short sale offer is not a binding legal contract unit the lender signs it, and often that does not happen until almost closing day. The term approved short sale is highly misused to mislead buyers into short sale transactions.
These are a few reasons why a failed short sale lead to foreclosure.
Some short sellers are lead to believe they can buy another property right away. It will be many years before most lenders will consider lending to them again.
Short sale fraud is rampant (See the Short Sale Fraud link on my homepage). From the beginning investors and real estate agents have played the waiting game on short sales.
Sellers beware, some agents take many short sale listings and put them under contract with one investor, who will wait to see which ones he can buy and flip!
Lenders are beginning to go after the agents, seller’s and buyer’s involved in transactions which are cheating them out of money via flipping of short sales.
Florida Buyer Broker does not participates in short sales because of the potential for fraud, non-disclosure. The lender will usually counter back at a price closer to market value which a the buyer does not want to pay.
A short sale is listed AS IS and the seller is not making disclosures leaving the buyer open to more undisclosed defects.
Lenders do try to collect deficiencies from former homeowners who walked away from their properties or who sold them in short sales. The State of Florida gives mortgage holders as long as 5 years to seek a deficiency judgment. If granted the bank gets up to 20 years to collect and the option to renew for another 20 years if the debt isn’t paid. Even though asset managers are providing approval letters for short sales that say they will not send the seller a 1099. The IRS requires the 1099 reporting and they are being sent out by the lenders on the shortages. So, the investor or second homeowner maybe obligated to pay taxes on the difference of the shortage regardless of any statements made by the asset managers or real estate agents.
Legislation was passed which gives the primary homeowner an IRS exemption regarding their mortgage shortages via the short sale process, this exemption expired at the end of 2012/beginning of 2013.
All short sales require approval from at least one lender, a seller hardship qualification and the sellers’ lender property price evaluation. Short Sales are complex transactions with many stringent requirements which often lead to disappointment for all parties involved. The following list is intended to educate both buyers and sellers prior to pursuing a short sale transaction.
Agents often mislead the seller regarding the disastrous credit consequences of the short sale transaction when the odds are high the seller will end up in foreclosure.
In some instances listing agents are taking short sale listings from sellers who are their friends so they can stay in their property to draw out the foreclosure process. Now, most mortgage companies do the simultaneous foreclosure process at the same time a seller submits a short sale contact. Agents are also under listing a property to sell to an investor or fictitious buyer to flip at a profit. (See Short Sale Fraud.)
If the Seller is current on their mortgage payment, the agent may tell the seller to stop making their mortgage payments. The lender will believe the sellers hardship situation with missed payments. The seller’s credit is trashed, late fees accrue and it becomes impossible for the seller to catch up. Whether the seller is attempting a short sale or not, the lender may start the foreclosure process after the seller is 90 days late on their mortgage payments.
Often the listing agent will not tell a seller at the time of listing that the seller will have to make full financial disclosure to their lender. Sellers are literally disappearing or stop cooperating with the listing agents if they have assets they do not want to disclose. They may choose to live in the property during the year or 2 year foreclosure process. They may consult an attorney and find out some form of bankruptcy is a better financial option for them to recover their credit, in which case, the property goes into foreclosure.
Short sales typically take 6 to 9 months to get an approval from the lender. The odds of getting a short sale approved are very slim in most cases. The lenders asset managers have hundreds of files to tackle. The timing of the short sale process is not up to the listing agent, “special mitigation firm” or attorney. An agent may boast being a “short sale specialist,” however; the timing is completely in the sellers’ lenders “asset managers” control. Occasionally, the foreclosure process will take precedence terminating the short sale process.
The listing agent may not disclose to a buyer, prior to entering into a transaction whether the seller has or is planning on hiring a professional mitigation firm or attorney, how much the cost is going to be and who is going to be responsible to pay the mitigation firm or attorney. It is not uncommon for the buyer to be asked to pay this fee, after the buyers offer is accepted, during the short sale process or at the time the lender approves the short sale. Short Sale fees may be as high as $4,500 or more in flat fees.
Often the sellers’ agent will say they do not know or will not tell whether the seller has one or two mortgages to negotiate with the short sale. Buyers have waited for many months only to find out after the first lender gives their loan approval that the seller has to get approval from two lenders! The second lender may not want to participate in the short sale transaction and/or sometimes will ask the seller to contribute a percentage of the loan amount or several thousands of dollars to payoff the second loan. The seller may not have the funds or may not want to pay and unexpected about to complete the short sale transaction. Sometimes the first approval time runs out while the seller is trying to get the second lender approval and then the seller has to go back and get another approval letter from the first lender, which creates more time delays!
Once a short sale offer is accepted by the seller, the seller may decided to vacate the property. Many sellers get scared when the lender files the foreclosure papers after the seller does not make 3 mortgage payments. They move out or abandon the property. The sellers may disconnect the utilities and stop paying condominium or HOA fees or insurance. The buyer may end up with a mold ridden property, and more cost and repairs than they anticipated at the beginning of the short sale process.
It is not always evident when a buyer is looking at properties on the internet that a property is a short sale. Sometimes, short sales are listed at very low unrealistic prices to encourage multiple bids for the seller to take offers to the lender for approval. The lender will do a property price evaluation prior to accepting any short sale offer from a buyer and often counters back at a higher price. The buyer may not be able to pay more, may feel mislead by the unexpected price increase or may not want to pay the additional amount and walks way after many months of waiting for the lenders’ response to their offer.
The words Approved Short Sale, is frequently abused by listing agents.
when describing a property as a short sale on the internet. In Florida MLS there are no rules to clarify the difference between short sale and approved short sale, so the listing agent can describe their short sale any way they want to the consumer public, and they do! An approved short sale means the contract was approved for a buyer. The buyer then has a limited amount of time, 30 days, to meet the time constraints. This may not allow the buyer sufficient time to get financing once the short sale is approved. Or the buyer does not want to take a the counteroffer of the approved price made by the lender. The approved short sale is often specific to the first contract buyer. If the sellers’ lender allows a new contract with a different buyer, the process starts again with the new buyer. Each asset management company has their own rules. When the seller is unable to obtain another buyer in a timely manner to complete the approved short sale requirements, and there is not another buyer, the lender completes the foreclosure process. Backup contracts are not uncommon in short sales.
There are no requirements for the listing agent to list the price the lender has actually approved in the MLS. Sometimes the listing agent will list the property in the MLS with a lesser amount than the lender approved. They may list the amount in the public property comments or they wait to tell the buyer when they call about the property that the approved price was higher but they will submit a lower priced offer. The sellers’ lender does not have to renegotiate an approved price or to accept it from a different buyer as foreclosure may be eminent. Listing a property for less than the lender approved price jeopardizes the sellers’ changes of completing the sale in the required time limit.
Sometimes the listing agent says they have an approved short sale but they do not have an approved price. When the lender will not disclose an acceptable price it is often a indication that the lender does not want or cannot work out the sale with the seller. Some of the large mortgage investment firms bundled up loans and sold them to overseas investors. Many asset managers have no choice except to follow thru with the foreclosure process because there is no way to contact the mortgage investors who bought the loans to get approval to change the terms of the mortgage contract.
The sellers’ agent may not have asked the seller to apply to the lender with their hardship letter or made application with their lender to start the short sale process at the time of listing. Some lenders will not take an application with the hardship letter from the seller until an offer is obtained from a short sale buyer on the property. This may also be a sign that the lender may not want to cooperate with the seller to do a short sale.
If the listing agent obtains enough information during the selling process to realize that foreclosure is eminent, they may terminate the listing with the seller. The property may be relisted in MLS by a desperate seller with another agent who does not realize that foreclosure is eminent.
The MLS does not require the listing agent to withdraw the property from the MLS once the seller becomes uncooperative or vanishes. Some listing agents think that their listing agreement gives them the right to negotiate the sale without the sellers’ approval or signature just because they have a signed listing agreement. These agents will encourage a buyer to make an offer often without the buyer even looking at the property, because the seller is no longer cooperating with the listing agent to let buyers in to view the property. Listing agents do not work for the lender and they do not have the authority to take an offer without the sellers’ agreement to the seller’s’ lender.
All short sale offers are contingent upon the lenders approval.
Frequently, the buyer will withdraw their offer when they find a regular sale or foreclosure to purchase. Sometimes when this happens the listing agent does not tell the sellers’ lender because they want to see if the lender will approve the sale anyway. If the listing agent obtains an approval they hope to slip another buyer into the transaction at the list minute. (Beware this could be fraud.)
Listing agents want to encourage multiple buyers to make offers on their short sale listings and often under price them. To get a backup offer, they may mislead a second buyer to think that a higher offer from them will take precedence over an existing buyer who has already been waiting a long time. They may tell the second buyer that the current buyer is getting impatient and getting ready to leave the transaction. Or, the listing agent and seller may “kick out” a buyer with a low offer and present a higher offer to the lender. Short sale offers are not legally binding on the seller until good faith money is provided by the buyer and until the lender approves the offer.
Agents may continue to take offers or may present 5 or 6 offers to the bank.
Multiple offers are obtained without the seller signing any of them, in order to get the bank to approve the highest one. Some REALTOR® MLS systems allow a short sale listing to continue to show “active” in the MLS as long as the seller does not sign the offer. Others show the property on the internet as “Active/Contingent” after the seller signs an offer; the seller can still obtain offers, while waiting for the lender to respond to a current short sale offer.
Some listing agents want to take good faith money at the time a buyer makes an offer on a short sale. Because of the long delays some title companies have over extended themselves with short sale transactions and consequently are not making enough money to stay in business, so the good faith money may have to be moved to another title company. I recommend that buyers never provide escrow money in a short sale transaction until they have a fully executed and agreed upon contract, which means a copy of the approval letter from the sellers’ bank signed by the seller agreeing to the terms set forth by their lender to complete the sale. The lender may give the seller some unattractive terms or the seller may need the buyer to pay some unexpected fees or cost to complete the transaction.
During the short sale process if the financially distressed seller begins to default on other financial commitments they may consult a bankruptcy attorney who could advise the seller to stop the sale process and include the property in the bankruptcy procedure, in which case the property goes thru foreclosure via the bankruptcy. Sometimes, the homeowner has a better chance of getting a loan modification when in the “at risk” category of bankruptcy.
All listing agents or short sale mitigation firms require getting approval from the seller to talk to their lender on the sellers’ behalf.
Sometimes a distressed seller will continue to work aggressively with the lender behind the listing agents back to get the lender to do a loan modification so they can keep their home. Some buyers who have been waiting on a short sale for months have been told that the seller has negotiated a loan modification to keep their home.
Florida Buyer Broker wants you to make informed decisions regarding your real estate purchase in Florida. Let’s be sure there are enough properties of interest for you to purchase that are not short sales, foreclosures or potentially built with Chinese drywall prior to your arrival.
“The most important thing a buyer can do is first of all work with a buyer broker.”
As stated by AARP and the Consumer Federation of America in REALTOR® NEWS
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