How do I approach seller/client's bank about short sale?

Question

I have a listing that has been on the market for about 45 days now.  13 showings, no offers.  We're overpriced.  I know this. We're at the very bottom of what we can accept to make sure the bank loan gets paid off and there's still room left for 6% commissions & closing costs.

The seller has stopped making payments, and the seller is about to go into bankruptcy.  His bankruptcy attorney has advised him to just sign the house over if we can't sell it for where we are right now.

I want to go to the bank and tell them we have no offers at the current price, and ask if they'll allow a short sale for whatever we can get.  I think they'll end up better financially this way than if he signs the deed over in lieu of foreclosure.

What do y'all think?  Obviously I want to keep the listing so it's not time wasted...but I also would like to see the seller not have to sign it over.

What is the best way to approach his bank as his agent?  He's not good at those types of conversations.  He'd have to call them then put me on the phone on his behalf.

Thanks!

Jon Holdman · Answer

Just get on the phone with him and the lender and start the conversation.  The lender may want a signed (sometimes notarized) "authorization to release information" to talk to you.  But if its the two of you together you can start the ball rolling.

Owner occupied or investment?  What's the hardship?  An investment property being sold by a seller that has cash in the bank and steady income can be tough.  A residence being sold by an unemployed, broke person with a big stack of bills is easier.

Few banks will accept a deed in lieu.  You can ask, but that's not too commonly done.  They seem to prefer to go through the foreclosure process, which does a better job of cleaning up the title.

Lateef Palmer · Answer

Hello Shane,

The short sale process is not a difficult process. Here in Northern California a Short sale is a typical transaction, a bit more complicated and involved than a equity sale. Below is a brief summary of how to proceed.

1. Contact the bank and find out if they require a Bank specific "3rd party authorization form"; if not then send in your generic authorization form.

2. Complete the 3rd party authorization form with the seller and fax to the lender / bank (write the loan number on the top of any / all documents faxed to lender)

3. Do a CMA and reduce the MLS price to the realistic market value. (if your CMA value is correct you shouldn't have much of a fight getting the offer accepted). Be sure to identify the property in the MLS as a short sale and Price / commission will be subject to lenders approval.

3. Contact the lender and initiate the short sale process. The lender will require very specific forms be completed by the seller. The process is quite intrusive and they will require all sorts of budget / financial information.

4. Prepare all the documentation the bank has requested and submit it. Once all documentation is submitted it will take a while to get approval. contact the lender twice a week for updates.

Should you receive an offer anywhere throughout the process, prior or post approval, your seller can accept it. Once an offer is accepted by the seller you will need to provide to the lender for approval. You will need to open an escrow and submit an estimated HUD along with the ratified offer.

Should you need additional information feel free to reach out to me.

Jamie DeRossett · Answer

The lender cannot talk you about the short sale without a signed and completed authorization from the borrower which you email to the lender.  That is always the first step of the short sale process and will get the ball rolling, but that is only the beginning and depending on the lender it can be a long process.  You will also need the last 2 bank statements, last 2 paycheck stubs, hardship letter.  I think that is all we were doing alot of short sales 2007-2012, but the market has changed and we are trying to find properties we can close faster.  The number 1 concern is the bpo or appraisal that ever lender orders of the short sale property.  There is no way to get around this and no matter what you offer the lender will always send a real estate professional out to access the property and now it is most likely an appraiser.  You want the value to come in as low as possible and if there is deferred maintenance and items in need of modernization that will need to be pointed out and a home inspection is always best.  I just purchased a property yesterday for $123,000.  We agreed on $130,000 which was great because the property was in good shape and will sell for $190,000 with about $10,000 in expenses.  Even though I was getting a good deal I still got a home inspection and there was minor foundation damage and I ended up negotiating $7,000 for the repair and I think I can get it done for half, but anyway $350 made me $6,650 at closing. Always get a home inspection unless you are a very good contractor.   As far as the answer to your question you need authorization letter to get started.  Thanks for the post and have a great day!

Shane Woods · Answer

Thanks @Jon Holdman.  I've been on the phone with his lender before.  They just have to have the seller ok it for the one time.  Seller has also signed the TAR form authorizing me to talk to them about his loan if I want to communicate with them when he's not present.

Owner Occupied.  He is retired, can't pay his bills. Filed for bankruptcy and is moving in with someone in a room mate situation in the next month or two.

Jorge Vega · Answer

@Shane Woods If you are over priced and you know it why haven't you lowered the list price?

Requesting a short sale isn't the hard part, but getting it approved can be. No matter what your list price is the bank will obtain a value on the property. Either a BPO or an Appraisal, sometimes both depending on the investor of the Loan. Freddie Mac orders a BPO and Appraisal.

If you want to keep the listing the drop the list price and begin working on a Short Sale or you could risk the seller walking away from you because they get the wrong idea that you can sell their home when its just over priced probably by the sellers request too.

Jamie DeRossett · Answer

It is always better if they stay in the property.  There are all kinds of programs out there, hafa being the most used where the borrower is automatically disqualified for relocation assisstance one they most out of the property.  There are no paying the mortgage and it will be a long drawn out process so there is no reason to move.  You also run the risk of the property being vandalized and it is just common knowledge occupied is better than vacant.  The lender is more filling to negotiate on occupied properties because the hardest part of the process is getting the borrower out and at that time there expenses go up because they will change the locks and start maintaining the property.  If at all possible it is best for the property to remain occupied.  Hope this helps thanks and have a great day!

How do I approach seller/client's bank about short sale?

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