If a defaulting borrower feels that they have exhausted their options for keeping the home (loan counseling, loan modification, etc.) and are looking for a way to divest themselves of the property without the major blow to their credit that a foreclosure brings, short-sale may be a less damaging method. Borrowers often find the red-tape of dealing with a financial institution a daunting and frustrating process. A real estate agent can help by knowing and speaking the ‘language’ of the lender, and can often successfully mediate a satisfactory compromise between the lender(s), the borrower and a new buyer that will allow the home to be sold prior to foreclosure.
As part of the process the lender will likely want to know that the property has been actively listed for sale on a Multiple Listing Service, and that there was an opportunity for showings. At some point they will require a Brokers Price Opinion (BPO) from a real estate agent who works in the area where the home is listed (though likely not the agent that has the home listed or who has submitted an offer on the home). The lender will also require a third party authorization, to allow the listing real estate agent to speak on behalf of the borrower in representing an offer. Some real estate agents prefer to hire a professional negotiator to assist them in presenting their case for the short-sale price to the lender.
If there is a second mortgage, like the City of Chico example in my last post, the real estate agent works with both lenders, and the lenders with each other to see if a compromise is possible. Typically when a short-sale is successful the holder of the first mortgage gets the majority of the available money from the sale to offset their loss, the second mortgage lender gets only a very nominal portion of what they’re owed and the real estate agent collects a commission for the work they’ve done in putting the sale together. If the holder of the first is receiving an amount within their parameters for loss they will normally give the deal their blessing, if the amount is insufficient they may let the real estate agent know what the minimum amount they will take is, or they may reject the offer outright and foreclose. If the lender ‘counters’ the price the agent must go back to the buyer (or buyers agent) and attempt to negotiate a higher offer amount. In the case of a second mortgage the mortgage holder is in a weak negotiating position and may have to agree to a very minimal return. If they reject the amount offered they can ‘kill’ the sale and allow it to be foreclosed, in which case they can try to purchase the home and resell it themselves or they can allow it to be foreclosed upon and lose all of the money they’ve invested. When possible, the real estate agent attempts to mediate a settlement that has buy-in from the second mortgage lender.
In some cases lenders may be able to go after the borrower personally in an attempt to recoup some of their loss after the foreclosure.
As part of the process the lender will likely want to know that the property has been actively listed for sale on a Multiple Listing Service, and that there was an opportunity for showings. At some point they will require a Brokers Price Opinion (BPO) from a real estate agent who works in the area where the home is listed (though likely not the agent that has the home listed or who has submitted an offer on the home). The lender will also require a third party authorization, to allow the listing real estate agent to speak on behalf of the borrower in representing an offer. Some real estate agents prefer to hire a professional negotiator to assist them in presenting their case for the short-sale price to the lender.
If there is a second mortgage, like the City of Chico example in my last post, the real estate agent works with both lenders, and the lenders with each other to see if a compromise is possible. Typically when a short-sale is successful the holder of the first mortgage gets the majority of the available money from the sale to offset their loss, the second mortgage lender gets only a very nominal portion of what they’re owed and the real estate agent collects a commission for the work they’ve done in putting the sale together. If the holder of the first is receiving an amount within their parameters for loss they will normally give the deal their blessing, if the amount is insufficient they may let the real estate agent know what the minimum amount they will take is, or they may reject the offer outright and foreclose. If the lender ‘counters’ the price the agent must go back to the buyer (or buyers agent) and attempt to negotiate a higher offer amount. In the case of a second mortgage the mortgage holder is in a weak negotiating position and may have to agree to a very minimal return. If they reject the amount offered they can ‘kill’ the sale and allow it to be foreclosed, in which case they can try to purchase the home and resell it themselves or they can allow it to be foreclosed upon and lose all of the money they’ve invested. When possible, the real estate agent attempts to mediate a settlement that has buy-in from the second mortgage lender.
In some cases lenders may be able to go after the borrower personally in an attempt to recoup some of their loss after the foreclosure.
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