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Answers (11)
- Jim Starwalt, "jimstarwalt"
- Contributions:2512
Ok, listen up! A short sale is still an agreement to sell between buyer and seller! If you remember this it is all pretty simple. Buyer makes an offer, seller has the right to accept, reject or counter the offer. The seller and their agent need to get the best offer they can, one that they feel will be an acceptable offer to their ( sellers ) lender. The seller will accept the with a contingency, that their lender will accept this amount and consider the debt paid in full, minus all expenses. The buyer as well has some contingencies, such as a mortgage contingency. The part that get confusing for people is that sellers lender may come back with a different price that they are willing to accept from the seller to release the debt. At this point the seller may contribute their own funds or ask the buyer to pay a higher price. This does not change the fact that the contract is between buyer and seller. The lender does not negotiate with the buyer, they renegotiate with the seller, the seller renegotiates with the buyer! Back to the original question, the seller accepted a contract from the buyer, the home needs to be marked as contingent. In most short sale riders is a clause that allows the home to continue to be marketed for sale, but MLS rules dictate that it still needs to be marked as having a contract. All of the same rules apply as any other sale. Usually any other offers that come in will be held as back up offers. Yes, from the information given, your contract can not be thrown out because a better offer came in. This is just from what I see in your question, not knowing full details. But remember the concepts are the same. You had a binding co tract with the seller! You have no dealings with the sellers lender. Jim
If you are doing short sale offers in the future, always have someone check the title to see of there is a second mortgage on the house. Often the second mortgage will cause the offer to fall through, and it could have or should have been known up front. Usually the second lien holder gets nothing, but sometimes the primarily lien holder can negotiate something with the secondary lien holder to get the sale through.
There are two different ways that lenders think about short sales:
1) If they foreclose, they could just collect the mortgage insurance and minimize their losses, so why go through the trouble with the short sale, as the buyer is still making payments which is money that wouldn't be collected if the house is sold.
2) The foreclosure process is time consuming and expensive, so if it can be liquidated ahead of time, it might not cost as much.
Obviously, it depends on how much under water it is, and whether there is mortgage insurance, and how much loss the mortgage insurance would cover, and what it does to the bank's bottom line on their books as they don't write down the loss until actually liquidated. In some cases, banks choose to delay any distressed sale as they don't have sufficient reserves on hand, and the change in book value could make them insolvent.
I don't think there are any "shortcuts" to the short-sale process, but it helps to have representation that is experienced with the process, and a listing agent that is both experienced with the process and diligent at keeping up with the details.
There are two different ways that lenders think about short sales:
1) If they foreclose, they could just collect the mortgage insurance and minimize their losses, so why go through the trouble with the short sale, as the buyer is still making payments which is money that wouldn't be collected if the house is sold.
2) The foreclosure process is time consuming and expensive, so if it can be liquidated ahead of time, it might not cost as much.
Obviously, it depends on how much under water it is, and whether there is mortgage insurance, and how much loss the mortgage insurance would cover, and what it does to the bank's bottom line on their books as they don't write down the loss until actually liquidated. In some cases, banks choose to delay any distressed sale as they don't have sufficient reserves on hand, and the change in book value could make them insolvent.
I don't think there are any "shortcuts" to the short-sale process, but it helps to have representation that is experienced with the process, and a listing agent that is both experienced with the process and diligent at keeping up with the details.
- ConnieK_Oklahoma
- Contributions:2899
somethign that can be done in future is to verify that the listing agent and the seller have ALREADY started working with the bank and the bank is aware of the current listing price.
you didn't indicate that this is a problem (or I missed it if you did)
but it is a problem that does occur, seller just "thinks" they can get the bank to agree and agent says OK and lists it.
always check on that. If they haven't then you're likely wasting time with an offer.
you didn't indicate that this is a problem (or I missed it if you did)
but it is a problem that does occur, seller just "thinks" they can get the bank to agree and agent says OK and lists it.
always check on that. If they haven't then you're likely wasting time with an offer.
- ConnieK_Oklahoma
- Contributions:2899
well my short answer is...
don't do short sales. but that's not an objective statement because it has more to do with my feelings about short sales and the market than it does the personal pain of the experience.
however...
the key is that you have to have agreement from the seller AND the bank. you can't just buy from the bank (unless it's a foreclosure already). The seller still occupies the home and holds title - they have options to try to keep the house and not sell it, or try to find a non short sell buyer or bring money to closing to make up the difference or negotiate a short sale with their bank which may mean they walk away with only credit damage or they walk away with judgement against them. so this is how it goes.
which also means...that once you get to the point that the bank agrees to the deal, the seller might have a different view point- if the bank's agreement sets a condition for the seller to end up with a judgement.
the seller might be a lot less cooperative then.
It might take a LONG time and it might be quickly. some short sales are going very smoothly now, some are not. It's not my intention to talk you out of it- simply to point what might be next. All that goes to the bank is whatever the seller first agrees to.
then there are possible issues if your loan is FHA and has appraisal requirements. the seller probably doesn't ahve the money to make them, the bank often won't make them and your loan will not allow you to make them for the seller nor will they make the loan without the repairs being done. this doesn't mean it can't be negotiated.
every short sale is different. Some are painless.
they key is to have adequate expectations and educate yourself as much as possible. which it sounds like happened the hard way.
don't do short sales. but that's not an objective statement because it has more to do with my feelings about short sales and the market than it does the personal pain of the experience.
however...
the key is that you have to have agreement from the seller AND the bank. you can't just buy from the bank (unless it's a foreclosure already). The seller still occupies the home and holds title - they have options to try to keep the house and not sell it, or try to find a non short sell buyer or bring money to closing to make up the difference or negotiate a short sale with their bank which may mean they walk away with only credit damage or they walk away with judgement against them. so this is how it goes.
which also means...that once you get to the point that the bank agrees to the deal, the seller might have a different view point- if the bank's agreement sets a condition for the seller to end up with a judgement.
the seller might be a lot less cooperative then.
It might take a LONG time and it might be quickly. some short sales are going very smoothly now, some are not. It's not my intention to talk you out of it- simply to point what might be next. All that goes to the bank is whatever the seller first agrees to.
then there are possible issues if your loan is FHA and has appraisal requirements. the seller probably doesn't ahve the money to make them, the bank often won't make them and your loan will not allow you to make them for the seller nor will they make the loan without the repairs being done. this doesn't mean it can't be negotiated.
every short sale is different. Some are painless.
they key is to have adequate expectations and educate yourself as much as possible. which it sounds like happened the hard way.
- Michael Emery, "MikeEmery"
- Contributions:7298
What can and does happen in the short sale process is the owner agrees to sell the home for (example) $100.00 but the outstanding mortgage is $200.00, which means the bank takes a loss of $100.00 plus agent fees, etc.
Sometimes if the bank decides (in their own infinite wisdom) that while the contract price of $100.00 is acceptable, the homeowner should be liable for some part of the $100.00 loss they're incurring in the sale. If the seller refuses to pony up the cash, then the bank won't approve the short sale and the deal is kaput.
This scenario benefits the seller in that it allows them to exit a transaction which would cost them money - and still be within the legal parameters of the contract they hold with the buyers.
Personally I know of many agents who refuse to negotiate on a short sale for their client - even at the risk of losing the client - because the buyer has so little control over the process and their is never ever a guarantee that the buyer will be treated fairly nor is there ever a guarantee that the banks decision will come quick. If you hear that from a listing agent it is not a fallacy, that is a lie.
Sometimes if the bank decides (in their own infinite wisdom) that while the contract price of $100.00 is acceptable, the homeowner should be liable for some part of the $100.00 loss they're incurring in the sale. If the seller refuses to pony up the cash, then the bank won't approve the short sale and the deal is kaput.
This scenario benefits the seller in that it allows them to exit a transaction which would cost them money - and still be within the legal parameters of the contract they hold with the buyers.
Personally I know of many agents who refuse to negotiate on a short sale for their client - even at the risk of losing the client - because the buyer has so little control over the process and their is never ever a guarantee that the buyer will be treated fairly nor is there ever a guarantee that the banks decision will come quick. If you hear that from a listing agent it is not a fallacy, that is a lie.
- HillCountryMomma
- Contributions:2
Thanks Y'all for the input.
So, here's another question. If the owner is irrelevant in the process why did we initially sign a full contract with the owner? Why weren't offers gathered, sent to the bank, when one was selected by the bank then the home's seller could sign the contact and away we go? That seems to be where we are at now. We have a second offer hanging in limbo and a bunch of unsigned paper work waiting on the seller who is waiting on the bank. I have no idea if the seller has the right to reject/counter an offer he knows is lower, or if all offers have to be submitted as is and the bank will pick one. IE - are we waiting around for nothing or are we waiting around because our offer is better and the seller is waiting for the bank to accept it. I'm worried about countering any higher after thig because I'm not sure the house will appraise high enough to get our loan (it needs some work). We're already offering more than two comparable recent sales I found.
I have no issue with the bank accepting multiple offers. That makes sense on their part. What bugs me is that we weren't informed that multiple bids/offers were being accepted either by our realtor or any of the contract paper work we signed. We were told initially that we had placed the only offer, things should go smoothly and we should hear back from the bank quickly since a previous offer had just fallen apart because the buyer couldn't get financing. We were told list price was close to the previous bank pre approved price.
So, in the future, if we choose to place an offer on a short sale, is there anything we can do to protect ourselves from this same situation (aside from getting a good realtor and not buying a word the listing realtor says)? The local market seems very glutted with short sales. It's annoying. We are pre approved, have already been through under writing as far as possible without a specific property, have all our down payment money sitting ready to go and I feel like we can't find just a normal, straight forward honest home sale or a realtor that can help us find a home. Grrr! I don't like getting into situations with hidden surprises and I just don't have the knowledge to coach a realtor through a sale. Seems to me things should be the other way around!
So, here's another question. If the owner is irrelevant in the process why did we initially sign a full contract with the owner? Why weren't offers gathered, sent to the bank, when one was selected by the bank then the home's seller could sign the contact and away we go? That seems to be where we are at now. We have a second offer hanging in limbo and a bunch of unsigned paper work waiting on the seller who is waiting on the bank. I have no idea if the seller has the right to reject/counter an offer he knows is lower, or if all offers have to be submitted as is and the bank will pick one. IE - are we waiting around for nothing or are we waiting around because our offer is better and the seller is waiting for the bank to accept it. I'm worried about countering any higher after thig because I'm not sure the house will appraise high enough to get our loan (it needs some work). We're already offering more than two comparable recent sales I found.
I have no issue with the bank accepting multiple offers. That makes sense on their part. What bugs me is that we weren't informed that multiple bids/offers were being accepted either by our realtor or any of the contract paper work we signed. We were told initially that we had placed the only offer, things should go smoothly and we should hear back from the bank quickly since a previous offer had just fallen apart because the buyer couldn't get financing. We were told list price was close to the previous bank pre approved price.
So, in the future, if we choose to place an offer on a short sale, is there anything we can do to protect ourselves from this same situation (aside from getting a good realtor and not buying a word the listing realtor says)? The local market seems very glutted with short sales. It's annoying. We are pre approved, have already been through under writing as far as possible without a specific property, have all our down payment money sitting ready to go and I feel like we can't find just a normal, straight forward honest home sale or a realtor that can help us find a home. Grrr! I don't like getting into situations with hidden surprises and I just don't have the knowledge to coach a realtor through a sale. Seems to me things should be the other way around!
- ConnieK_Oklahoma
- Contributions:2899
Orange and Mike gave better responses than mine and they are right.
except..the one thing I disagree with is
that it IS an ethic issue for the listing agent (and your agent if they are not a single party broker or whatever is the proper term in your state) that you know that the other offer is HIGHER and didn't ask for closing costs. - not so much something you want to complain about as knowing this gives you an advantage should you decide to try a higher version of your offer. but still.
wrong is wrong whether it potentially benefits you or not.
As already mentioned, on a "short sale", the owner doesn't have authority on the price accepted, as the lending institution is being asked to take a loss. Only the lender can make the contract binding, and thus it remains pending with other offers accepted until the lending institution makes their decision.
Yes, from everything I've read, your experience is fairly typical. Short-Sales are in no way streamlined. Even with an agent that knows what they are doing, it takes months, and the lending institution takes months to make up their mind. And they typically don't communicate with either agent while they are making up their mind. A good listing agent will keep on them though to keep the process moving as the seller is often risking a potential foreclosure or decrease in savings if they can't liquidate for present market value with the lender taking the loss.
Although some agents and lenders do play games, and some try to do "flips", it doesn't appear that this is an ethics issue nor a legal issue.
Yes, from everything I've read, your experience is fairly typical. Short-Sales are in no way streamlined. Even with an agent that knows what they are doing, it takes months, and the lending institution takes months to make up their mind. And they typically don't communicate with either agent while they are making up their mind. A good listing agent will keep on them though to keep the process moving as the seller is often risking a potential foreclosure or decrease in savings if they can't liquidate for present market value with the lender taking the loss.
Although some agents and lenders do play games, and some try to do "flips", it doesn't appear that this is an ethics issue nor a legal issue.
- Michael Emery, "MikeEmery"
- Contributions:7298
MLS was never changed to pending-contingent.
The listing would be pended once all contingencies were release. Until then it shows as 'Active contingent on offer'
We did not sign anything agreeing to the house remaining on the market after our contract was signed by the owner.
If it's not specifically written into the contract, you would've need language in the contract which would've specifically stated they couldn't continue to offer the property pending the contingency approval.
I thought the seller of the house was still bound by the same code of ethics
The seller is not bound by a code of ethics. It would be their agent that follows a code of ethics. Whether the agent breached ethics, I won't speculate. The sellers would be bound by the terms of the contract.
And unless your offer was sufficiently high, it's unlikely that requesting closing costs would've worked as the closing costs would've come from the proceeds paid to the bank as closing costs are deducted from the sellers proceeds (and the seller is already underwater and has no proceeds).
The listing would be pended once all contingencies were release. Until then it shows as 'Active contingent on offer'
We did not sign anything agreeing to the house remaining on the market after our contract was signed by the owner.
If it's not specifically written into the contract, you would've need language in the contract which would've specifically stated they couldn't continue to offer the property pending the contingency approval.
I thought the seller of the house was still bound by the same code of ethics
The seller is not bound by a code of ethics. It would be their agent that follows a code of ethics. Whether the agent breached ethics, I won't speculate. The sellers would be bound by the terms of the contract.
And unless your offer was sufficiently high, it's unlikely that requesting closing costs would've worked as the closing costs would've come from the proceeds paid to the bank as closing costs are deducted from the sellers proceeds (and the seller is already underwater and has no proceeds).
- ConnieK_Oklahoma
- Contributions:2899
for me it's a fuzzy line if it's ok to accept other contracts and here's why.
there have been so many fraud cases where a low offer was presented on a short sale and other, good offers were hidden in the name of it already being "under contract" so the one low one got presented to the bank and used as leverage to show them that it was the only one on the table. with that in mind...it seems wrong to allow a short sale offer to be considered a contract UNTIL bank approval. - seems unfair to the buyer since you got your offer in and had a response first but really what is wrong is treating you like it is a contract when it's not.
just my opinion, lot a legal opinion.
- ConnieK_Oklahoma
- Contributions:2899
what should happen is that a notice that there are multiple offers on the table and to make your highest and best (before the seller having accepted your offer). However, the problem is you don't really have a contract until the bank approves it because the seller can't provide you with clear title without bank approval (a condition mentioned in your contract). I'm not a fan of short sales for many other reason's that I'll not bother you with today- but since you don't really have a contract....they can still take other offers and should have been more clear about that. I also would suggest not letting the listing agent have the EM check until offer acceptance had occured by the bank. (however banks tend to want to see that the EM check has been deposited and push for that to happen.).
in either case- I would seriously doubt that it is OK with the other customer that any suggestion of teh details of their offer has been disclosed- an offer is confidential and all that should be shared is that there is another one, not that it is higher and didn't ask for closing costs. I wonder if that was disclosed about yours- that you asked for them, that would help someone else know NOT to ask for them and give them an unfair advantage. That would concern me more than the fact that there is another one.
Short Sale counter offer question
- We put in an offer on a house that is for sale as a short sale
- Seller countered, we accepted the counter and all documents were signed including a short sale addendum
-We settle in to wait on the banks answer
- A few days later I get a text from my realtor saying we've been out bid on the house and we need to put a counter offer in asap if we have any chance of getting it
- She tells me the other offer is for more money and they aren't asking any closing costs (we'd asked for closing, figured it wouldn't hurt to ask)
Is this legal? The MLS was never changed to pending-contingent. We did not sign anything agreeing to the house remaining on the market after our contract was signed by the owner. I realize the short sale contingency changes things, but I thought the seller of the house was still bound by the same code of ethics and legality as any other seller which means one contract and one buyer and everyone else goes to backup status. When I pointed this out to our realtor she sited paragraph E of the SS addendum, which as I read it simply says the contract is invalid if the bank rejects our offer. That's fine. It doesn't say the listing agent can invalidate our offer by sending the bank another offer and getting them to break our contract.
We did put in a second offer but it's totally in limbo. I have no idea what its status is. I assume it's been sent to the bank to see if it can bump the offer that bumped us.
Our realtor is clueless. We realized to late that she is very new, has never handled a short sale and she is just rolling over to what ever the listing agent says should be done. Crappy situation for us.
I'd appreciate feedback on this situation. If this is how TX short sales go down then fine, at least I'll know before I decide if I want to get into another one!
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