Sending Short Sale Offers to the Bank

I recall way back when short sales first started in 2006 the confusion among real estate agents over sending short sale offers to the bank. Some real estate agents believed that every offer should go to the bank. That’s only because they did not think through the facts. First, the bank does not own the home. Some agents were used to dealing with REO banks and thought a short sale was handled the same way. In an REO, the bank owns the property because the home has already been foreclosed upon and title has been delivered to the bank.

Moreover, some people erroneously describe a foreclosure as the home “going back to the bank.” The home doesn’t “go back” because the bank never owned it. The bank has a security interest in the home but not a real property interest. The home is owned by the homeowner. It is still owned by the homeowner during a short sale.

Second, banks must approve a short sale and agree or counter the terms in the accepted offer. This does not make the bank a party to the real estate transaction, however. It makes bank approval of the short sale a contingency of the purchase contract.

The only offer that should go to the bank is the accepted offer. If the seller wants to accept a backup offer and send the backup offer to the bank, the seller is generally free to do so. In that event, the bank will ask the seller which offer the seller wants to accept. At that point, the seller can certainly point to the backup offer. It is not customary for the seller to send a backup offer to the bank. As long as the submitted offer is reasonable — an offer the bank is likely to accept because it is at or near the comparable sales — that’s the offer that is likely to win approval. That’s the offer a Sacramento short sale agent submits at the seller’s direction for approval.

Banks don’t want to be in the real estate business, too. They have a hard enough time determining fair market value without us Sacramento short sale agents giving the banks the right to weigh the merits of each individual offer. But that’s not stopping a few enterprising entrepreneurs from starting up high-tech platforms that allow banks to receive all offers ever submitted by nitwits. I won’t do them any favors by naming those companies because I just hope in all that is halfway sane in a short sale that it never happens. For everybody’s sake.