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A Perfect Storm Short Sale Denied
With the exception of an FHA short sale, I can’t recall the last time this Sacramento short sale agent lost a short sale. Every short sale I do in Sacramento pretty much closes as long as the seller doesn’t give up. It is extremely unusual and rare for a bank to deny a short sale these days. I’ve been selling and negotiating short sales since 2006, so that’s about 8 years, and back when short sales started, maybe half were accepted. Not so today.
Today, it’s about 100% that close, and I’ve closed hundreds of short sales. Because banks generally prefer a short sale vs foreclosure. Properties are most likely in better condition, which helps them sell for more money; and there is a pool of buyers who believe a short sale is a good deal even when it’s not.
To close a short sale, the transaction needs to be a round peg that fits into a round hole. Follow the rules and the short sale is approved.
To over simplify, the basic rules are this:
- Seller must qualify
- Sales price is market value
Sellers often ask me how I know their short sale will be approved, and it’s based on those two factors. But sometimes the investor guidelines stipulate that the bank cannot do a short sale. PSA agreements can make it more profitable for the bank to foreclose. We don’t have access to the PSA agreements as mere real estate agents, so we won’t know for certain whether the PSA will kick out the short sale until a package has been submitted and reviewed.
We can get around that problem by submitting for a HAFA short sale. Most of the banks participate in the HAFA short sale program, as long as the investor is not a government entity. Government-sponsored entities have revamped their own program versions. But when a bank does not participate in HAFA in 2013, that is probably a red flag.
You would think the bank could disclose upfront. You know, read the guidelines and say nope, don’t bother submitting. That would be too intelligent and logical. Two words that don’t describe the American banking system. Instead, they put everybody through the song and dance before slamming hopes.
How to Get a Short Sale Credit Report as Paid in Full
Up until now, it has been very tricky and almost impossible for a seller to immediately buy a home in her own name after closing a Sacramento short sale unless the short sale credit report shows paid in full. There were a few other ways to do it such as having a high FICO and big down payment, and working with a smaller bank that funds portfolio loans, but if a short sale seller has a high FICO and a big ol’ wad of cash, the short sale bank probably won’t grant the short sale. It has been like a Catch-22.
There is one way around it. Very few real estate agents seem to know about it because their bedime-reading material is not changes to government short sale programs. It’s how to get a short sale credit report as paid in full. I’ve read the recent HAFA Supplemental and know that this change exists, but I haven’t really tried it until now. This is the coolest thing ever. To qualify, the seller cannot have a Notice of Default filed. It is preferable to be current on the mortgage payments, but if a seller is behind a payment or two, it’s not the end of the world. Not every short sale bank investor will allow a seller to be current but many have loosened guidelines to allow for it.
Which makes sense when you think about it, even though banking rules don’t always make sense to us mere mortals. It makes sense that the investors would prefer to get some money than no money, but that would mean somebody was actually looking out for the investors and not just pocketing big ol’ wads of cash through the PSA agreement. When a seller comes to the bank to ask for a short sale and plans to continue making payments, you’d think a bank would not have to say: Sorry, we don’t want your stinkin’ money. Stop making your payments, go into arrears, and then we’ll short sale it. Because that’s ludicrous. But like I said, banking rules don’t always make sense until somebody yells out: Hey, what’s that man doing behind the curtain?
The new HAFA short sale guidelines allow for a different type of reporting of the satisfaction of mortgage for less than the full balance to the credit bureaus. If there is no Notice of Default filed, the short sale credit bureau reporting is PAID IN FULL. Not paid in full for less than agreed, no, no, no, none of that garbage. Paid in FULL. Do you know what Paid in Full means to a person’s credit report? It means the loan was paid off. Period. There is no derogatory credit. If there is no derogatory credit, there is no hit to the credit score.
Paid in full for a short sale credit report is huge. This is humongous. This is incredible. About time, too. If you’re thinking about doing a short sale in the Sacramento area, call your #1 Sacramento short sale agent, Elizabeth Weintraub, at 916 233 6759. I am a HAFA Certified Specialist.
