BluefoxToday blog : Short sale can be a headache this big

Short sale can be a headache this big

Mortgage foreclosure is something that isn't advantageous to have glaring at you from a credit report. It has a large negative impact on FICO's computations and can make future credit very costly to obtain, if it's available at all. Before a distressed homeowner resorts to that route, another option has increasingly made its way into the realm of possible solutions.

A short sale. Under this arrangement the homeowner sells the house for less than the mortgage balance, with the lender's full blessing. At first sight it seems to be the ideal way to go. The borrower, or homeowner, is clear of his unmanageable obligation, the lender avoids a costly foreclosure and the property's buyer is likely to get a nice deal on the home.

But the reality can be much different. Many participants, real estate agents, sellers, buyers, lenders and others, can testify to that. The conditions that allow a short sale to proceed are varied and need to be met.

The borrower must prove that he honestly cannot make the required mortgage payments. The house's value is critical to the lender's assessment whether the sale is approved. The loan servicer, or lender, wants to assure the deal is "arm's length" and not something done between friends or relatives at discounted pricing and soft terms. Does the new buyer qualify for a mortgage to make the purchase stick? Another condition there. If a second mortgage or a home equity line of credit is involved, will its holder go along? There is more. The investor who has the home loan in its portfolio has to be convinced that a short sale is in its best interest.

These are some of the more obvious reasons complicating and slowing down the process. And then there is the one that makes you scratch behind your left ear. Many lenders are just plain short-staffed to handle the current work load.

According to the assessment of Molly Kay Hamrick at Coldwell Banker Premier Realty in Las Vegas merely about 20% of short-sale bids in town will end up closing and funded. And to get all the way to the end takes a long time.




Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 14 commentsEsko Kiuru • April 21 2008 09:33PM


Great values come with great cost in the case of short sales its time spent "working" the deal .. As an agent who is on the phone for 2 -3 hours a day "working short sales" I can tell you they are work and take a high level of skill.. Buyers / buyer's agents can shorten the time by making the highest and best offer the first time.. Trying to get 60-70% of the market value is not going to make the bank rush to approval Buyer agents need to slow down and educate buyers about a far market value offer on a short sale if they expect to move the market along at a reasonable pace..

Posted by Eric Reid (Renaissance Realty Group of Keller Williams Atlanta Partners) over 12 years ago

Esko, Short Sales are a real pain in the donkey and seem to take forever.  I understand that they might be short staffed, but the time it takes them to respond is ridicules. 

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 12 years ago
The lenders are getting tougher to reach every day it seems.  I have heard stats on how many folks in foreclosure that never contacted their lenders.  I think the true situation is that most of the lenders are not answering the phone.
Posted by Randy L. Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) over 12 years ago


Knowledgeable real estate agent can be a huge help in these short sales.

Posted by Esko Kiuru over 12 years ago


Instead of short sales they could be called long sales.

Posted by Esko Kiuru over 12 years ago


Mortgage lenders not responding to calls is one reason to the frustration.

Posted by Esko Kiuru over 12 years ago
They are difficult, but worth it when you help someone out of a bad situation. 
Posted by Sandra Carlisle (Ayers), Real Estate Marketing & Sales (Berkshire Hathaway California Properties) over 12 years ago

I'm preparing to take a listing that will be a VA short sale.  From my understanding so far, the VA guarantees the top 20% of the loan, and the VA covers the amount that the seller is short (up to that 20%).  Being as that I'm not the borrower, I haven't had the opportunity to actually talk to a loan servicer at my client's bank to discuss how the VA changes the short sale game.  If my understanding of this situation is correct, the bank does not stand to lose anything, so why would they inhibit a sale?  If the VA is going to fund the difference, there shouldn't be much discussion.  The bank's needs are met.  Second, (and this is the real wild card for my clients) will there be a negative impact to my client's credit?  According to a VA representative I've spoken to throughout this process, the VA does not report the short sale to the credit bureaus.  It does make the client lose his entitlement from the VA, but the obligation to pay it back is not high-pressure.  So, if the bank is getting paid, why would they report the short sale to the credit bureau?  Expect a big blog article from me about this when I get answers.

Thanks for the informative blog!

Posted by Donna Shefcheck (Century 21 Liberty Homes) over 12 years ago


It's great when a short sale closes and hopefully everybody wins.

Posted by Esko Kiuru over 12 years ago


Keep us posted on the outcome and good luck with the short sale.

Posted by Esko Kiuru over 12 years ago
Esko, The more I read about short sales it shows they are not for the faint of heart!  But I bet both the buyers and everyone involved who stick them out do well in the end.
Posted by Laura Cerrano, Certified Feng Shui Expert, Speaker & Researcher (Feng Shui Manhattan Long Island) over 12 years ago

Well said.  What a mess these short sale listings are doing to our MLS.  Buyers searching the MLS see the artifically low prices and are using them to justify making lower than lowball offers - We need a special short sale section in the MLS since these prices are killing the really good agressively priced homes & confusing the consumer. 

Posted by June Stark, Las Vegas Condos & Luxury Homes Expert (Elite Realty-Luxury Homes & Condos On & Off the Strip) over 12 years ago


Usually they work out well for everyone, once the drawn-out process closes.

Posted by Esko Kiuru over 12 years ago


Thanks for the inside info on what happens at the MLS and how buyers structure their offers.

Posted by Esko Kiuru over 12 years ago