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South Lake Tahoe Short Sales: A Primer for Investors (Pt Seven)

February 26th, 2010 categories: For Buyers, For Sellers, Foreclosures, Lake Tahoe Real Estate, South Lake Tahoe Statistics, South Lake Tahoe, CA, short sales

South Lake Tahoe Short Sales: The Lender's DecisionNegotiating with the Short Sale Lender… the heart and soul of much real estate business today.

This is the seventh in an eight-part series on short sales. Think of it as coming from the point of view of the home buyer / investor, although the short sale process is the same for the South Lake Tahoe seller as well.

The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.

It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.

(current South Lake Tahoe, CA short sale summary and statistics here)

Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Eight: The Closing (here)

 Part Seven : The Negotiation

Negotiating a short sale with the lender sets up an interesting scenario as it relates to our professional standard of care. When representing a seller we owe a duty of always representing their best interests, which normally means sell at the highest price possible.

The best interests of a short sale owner may, however, be somewhat different. The short sale owner often has an interest in getting away from their loan as soon as possible. Unlike a foreclosure, where the interest of most lenders is to convert the property back into a cash asset as quickly as possible, the lender in a short sale, rather than necessarily quick, wants to get as much as possible. We however have no contractual duty to them, though the short sale lender has to approve the short sale price, and as such their best interest is our de facto obligation.

A short sale negotiation is a balancing act.Our standard of care in a short sale therefore becomes twofold: we have a duty to get the seller out of their house, and therefore their loan as quickly as possible, and to do that we must demonstrate to the short sale lender that we are getting them the highest price possible. The trick is of course selling quickly is almost always at the expense of getting the most.

Like walking a tightrope between two seemingly mutually exclusive realities, handling and negotiating a short sale is a balancing act that requires focus and concentration, and as we have discussed throughout this series, it all comes down to a compelling, persuasive short sale package.

By the time it gets to the actual negotiation with a  lender, the buyer investor, homeowner and usually two professional real estate agents have spent considerable time in preparing and presenting it for consideration.

The negotiation will likely be with someone in the short sale lender's the "loss mitigation" department. The name of the department explains its goal – mitigating how much money they will lose on the loan. It's not about how much money the homeowner is going to lose, its about how much the lender is going to "not lose."

Contact with the lender need be courteous, but professional. The homeowner will have provided written authorization for us to work with the lender on their behalf. We like to have the homeowner present on our first phone contact with the lender, though that is rarely possible. In any event we certainly like to have the owner speak to the lender to set up our first contact.

Sometimes it takes time to get a short sale going after the offer is made.We have a short sale at present, one we may get an offer on tomorrow. We mention this because it is a good example of how some short sales are administered today. We have not spoken to the lender yet, as they are not interested in talking yet… until there is an offer. This could also well mean the lender has not yet assigned an asset manager to handle the property in question, which means there is nobody to talk to yet… even if we had an offer in hand.

Some lenders do not assign someone to handle a short sale negotiation until an offer is made, and this assignment can take some time. We've seen that time range from rather quickly… to months.

In other words, it is the offer that starts the short sale approval process with some lenders, and the buyer who made the offer must be patient as the lender gets up to speed.

Again, not every lender operates the same, but we counsel our buyers to be prepared for the process to take some time. Unfortunately, those lenders whose process seems to move at turtle speed, there is rarely anything any of us can do to make them run like a hare.

That first phone call that we have with an asset manager in charge usually sets the tone for the transaction. We want to make a good first impression, and to do that we we want to make sure of a few things: (1) that the lender understands we see things from his point of view too, and that we are always available to answer questions and provide additional information going forward, and (2) that we know our stuff.

Most discussion at this point will have to do with the assumptions and conclusions in the short sale package, and how we got to them. It is not unusual for a lender to have a difference of opinion as to price, and anticipating just that,  we are always prepared to defend our position. One of the things that best helps us fortify such is this blog. Our continually updated statistics herein make a solid foundation for a lender to become comfortable that we know what we are talking about.

Rarely have we ever had a lender think that a BPO from an agent who has never been inside the house, or an appraisal from an out-of-area appraiser who does not know the unique considerations of our market are paramount to our market evaluations. Truth be known we get calls from appraisers all the time. Many of them actually use our statistical data to help them with their appraisals.

Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Eight: The Closing (here)

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This entry was posted on Friday, February 26th, 2010 at 1:53 pm and is filed under For Buyers, For Sellers, Foreclosures, Lake Tahoe Real Estate, South Lake Tahoe Statistics, South Lake Tahoe, CA, short sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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