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Short sale and counter offers

We made an offer on the short sale that is about 6 to 10 percent below market value. The offer was accepted by seller and submitted to lenders. The primary lender is paid off and the negotiations are going on with secondary lender. The secondary lender is getting about 24 percent back and has to agree on a 180k loss. The secondary lender got the appraisal done and we are waiting for their response. Does this scenario appear favorable? Can we hope to get this closed soon? If the second lender rejects the short sale, would they not risk loosing 24 percent of their outstanding loan amount? I guess that should be a big motivation to get the short sale approved. I am also worried that if they come back with a high counter offer then the 6 to 10 percent discount I am getting on the property might be wiped out making the long wait and anxiety associated with short sale not worth it. Do the lender counter at market value or they pass on some discount to the buyer since this is a short sale?
  • November 07 2012 - San Diego
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Answers (3)

Lenders approve a short sale based on what they think the current "as is" value is and their current approval percentage. (Lenders assess the "as is" value of a property using a variety of sources. The first and most prevalent is the the Broker's Price Opinion (BPO) and the second type of valuation would be through an Appraisal.) 
It is possible that the second lender will counter offer in order to reach their approval percentage. The listing agent is hopefully communicating with the lenders to gain insight on what those percentage numbers are.  
A counter offer is not a bad sign, but a good sign that the lender is willing to work with you. If they counter, negotiations should be made with all involved: the first lender, the brokers commission as well as your offer.  In short: Lenders are considering the entire short sale package, the homes "value" and if the offer presented fits into their approval percentage. So, No. A lender will not counter because you didn't offer market value and they aren't considering a "discount" to you. They have a financial formula that is being considered. A short sale can be worth the patience if you can stomach through it. Good luck!
  • January 07 2013
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A bit off topic, but the information is relevant:

The DOJ's decision regarding 2nd mortgages has pretty much helped several of my clients save their homes and avoid a short sale--and of course I have lost over $40,000 in potential commissions in this year alone.

Just a warning that if the sellers get a letter from the DOJ saying their 2nd is wiped out, and a letter from their 1st offering an awesome loan mod...then yeah...you may of wasted a lot of time waiting.  

On Topic:
24% pay out on the 2nd?  Crazy...I usually negotiated 2nds with a low flat fee that is usually closer to 5-7% (I think once because my client really wanted the house we bumped that to 10%), but that was earlier in the year and without the DOJ news as a factor

The banks are motivated to short sale, but often, lack the internal infrastructure to get things done right--and on time.  I wish you the best of luck with your purchase--short sales can be nerve wracking for ALL parties involved.

Best wishes from So-Cal and good luck
  • November 08 2012
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If the primary lender is made whole 100 percent from the proceeds and the 2nd lender is taking the loss, it's possible they may want either more money to settle (either from you, the seller or lender #1).

Ironically if they refuse to settle for less, in a foreclosure proceeding the 2nd loan would probably be wiped out, which would leave them nothing. But that also depends on the nature of the 2nd mortgage as there maybe recourse from the seller at a future date. (Which of course is like squeezing blood from a rock).
  • November 07 2012
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