With all the hype of the foreclosure freeze implemented by Bank of America, it is no wonder buyers are waiting in the sidelines in fear of what will happen to the market next.
Even though it is a temporary halt, short-sales continue to move forward. Many times I continue to be asked by my clients,”why is it called a short-sale if it takes so long to obtain an approval?"
As many are familiar, the process is anything but short. The only reason why it is known as a “short-sale” is because the bank/lender is shorted on the debt. Due to the lengthy approval process, there is a stigma on any listing bearing the word “short-sale.”
Realtors who represent buyers advise their clients to stay away from any listings associated with the infamous word. I have read on the web that there is a real estate company which will not submit offers for their clients if the property is a short-sale.
I must say it is really unfortunate it has come down to this but understandably so. I have had a short-sale listing in Pasadena for the past 2 years. The 1st loan and the 2nd loan are with BofA. I have had buyers back out 3 times, at no fault of the property. The buyers simply move on to other properties or their job/live circumstances change.
Each time the buyer backed out of the transaction, another 6 months went by because the process starts over again with the BPO(Brokers Price Opinion), basically an appraisal. Currently, I cannot even get anyone to look at this home since the listing has been “burned out”. The perception it gives buyers is that there must be something really wrong with the property if it has been on the market that long.
Since I have been completing short-sale transactions for the past 6 years, in the San Gabriel area, I can honestly say, no one transaction is ever the same, regardless if I have worked with the same bank on several properties. I have had approval periods within 1 - 6 months, if there is no change in buyers. In the majority of the cases, I have had the lender request for the seller to bring in some funds in order to obtain approval.
Within the past few months, I have noticed the approval letters (depending on the bank) state that they will release the lien as opposed to the previous letters which state “investors may pursue a deficiency judgment for the difference in the payment received and the total balance due.” Also, the approval periods have decreased to 2-4 months maximum as opposed to 6 months, depending on the lending institution.
BofA has established a program through the Internet called Equator that allows the sellers and Realtors to download bank statements, hardship letter, financial statements, and other necessary documents directly into the computer. The negotiator communicates via this system and keeps parties informed of the current steps and any missing documents. By using this system, it speeds up the process of the approval.
Due to the implementation of the Home Affordable Foreclosure Alternatives Program(HAFA), homeowners who are in distress may qualify for up to $3,000 in short-sale proceeds. This program was established to encourage homeowners to forgo a short-sale instead of a foreclosure. In Sierra Madre, within the past 2 years, there have been a 18 properties that have gone to auction, 12 banked owned, also knows as REO, and 14 pre-foreclosures, meaning notice of default has been filed.