Almost every morning when I access my email, inevitably there is a message from some real estate agent somewhere in the United States who has some sort of short sale drama. The drama usually has to do with a communication breakdown of some sort. You know the kind… it’s generally the kind you read about on the Internet, people complaining about the banks.
But, the more I listen, the more I have noticed that there is a direct correlation between the inexperience of the agent doing the negotiating and the magnitude of the unfolding short sale nightmare. The other day, I got a call from an agent who told me that he had a short sale transaction with two loans: the first with IndyMac, and the second with Bank of America. The agent was frustrated because he already had approval from the first lien holder, and the second lien holder seemed to be holding up the deal because they still needed to order a Broker Price Opinion (BPO). To make matters worse, the buyer had already conducted his appraisals and inspections, and the buyer’s interest rate lock was set to expire.
“Why would the second even order a BPO?” He asked me. “I mean they are only going to get what the first is going to give them.”
Well, this agent does have a great point. If the second lien holder were only going to receive what the first is going to give, why would the second lien holder hold up the deal and require a BPO or an appraisal prior to generating an approval letter?
Here’s the answer to that question. First and foremost, anyone participating in a short sale is at the mercy of the mortgage lender or mortgage lenders. Previously, there was certainly no obligation on the part of the lender to approve the short sale. Now, with HAFA, participants do have an obligation to approve certain qualifying short sales but on their terms and at their pace, not at the pace of the parties involved in the transaction. So, if (in this case) Bank of America is going slowly, there’s really not much you can do to force your hand.
Secondly, if the lender is a servicer, the lender may have some obligations to the servicer to follow specific guidelines—one of which may be to provide an appraisal as part of the package for approval of the short sale. Also, it’s probably good business practice to double check that you aren’t getting an even worse hand than you are being dealt.
But, that’s not what I heard from the real estate agent that concerned me. What I heard was that the buyer had already conducted appraisals, inspections, and locked in a mortgage rate. All this had been done without a complete set of short sale approval letters. There is absolutely no deal on these short sales until you receive approval letters from all lien holders that are going short. So, in this case the buyer spent money on his inspection and appraisal with no assurances that the deal is actually going to close. And, what happens when it does not? Heads area going to roll! I hope that mine is not one of them. Is yours?