Recent, real-life case: Buyer makes offer on house being sold as a short sale. In the offer, buyer refuses to put down any earnest money and wants authorization to negotiate directly with the seller’s lender.
So the seller would be out-of-the-loop in negotiations with his lender to try to unwind the single biggest (failed) investment of seller’s life. And he is supposed to trust a complete stranger with negotiating a way out of the mess. This buyer also added, “Don’t worry, not many people know about this technique yet,” as if the buyer talking with the seller’s lender direct was an ancient secret passed down on a piece of paper to Moses right after the ten commandments.
My client said no to this proposal. I can’t think of a single reason why a seller in a short sale would let the buyer negotiate directly with the seller’s lender. It’s just a bad idea.
You are much better off having an experienced attorney or real estate agent, who is working for the seller, handle the details with the lender.
This buyer above was an investor with an out-of-state phone number. Investors are now jumping into the short sale game. They form an LLC and make multiple offers on short sale properties, often with no earnest money. They make very low offers. Most offers are way, way below the asking price; many times up to 40-50% below asking price. Some investors don’t even make a written offer, but want an option agreement.
This gives them an option to buy the property if they can beat down the price enough with the lender. They can also walk away from the option at any time.
If you are facing a short sale of your property, here’s some steps that you need to take to get things rolling:
1. Prepare a hardship letter explaining why the payments can’t be made.
2. Put together recent pay stubs and a list of assets.
3. Ask your agent to print out the listing history and pricing history of the property.
4. Give your attorney or realtor written authorization to deal with your lender and send it to the lender.
5. Make contact and find out who will be the “negotiator” with your lender.
6. Ask the lender to order a Broker Price Opinion (BPO) right away so that you will know how much the lender thinks the house is worth.
7. Be very courteous, gentle and kind to the negotiator. If you steamroll him or her and tell him war stories about your years of short sale experience and how “It’s always done like this…” you will go to the bottom of his or her very large pile of cases.
8. Prepare a closing statement showing the amount the lender will net and be careful not to underestimate anything because the figures are hard to change once they are approved.
Most of all don’t trust negotiations with your lender to the buyer.