[Editor’s Note: Michael Edlen’s series on Accomplishing a Successful Short Pay Sale was originally supposed to be completed in this installment. However, after writing this week’s article, it was decided that the subject warranted one more installment, making it a four-part series, not three as previously billed. Enjoy!]
A short pay is when an owner pays off a loan by paying less than what is currently owed on it. A short sale is the sale of a property such that it results in a loan being short paid by the owner. Both occur when the property is sold and the sale price is less than the loan currently owed by the owner.
The key to successfully completing the process is to be both prepared and available to furnish whatever next documents or explanation letter the short sale negotiator or investor will require. This would be the time to put your property on the market. In order for you to accomplish your goal of short paying the loan balance, and especially if you are already in default on the loan, the property must be aggressively priced and marketed. It should be priced right around what the comparables would suggest the market value to be. When the first notice of default has been filed by the lender, it begins a clock ticking and you will have a limited time to accomplish the result you want.
When your agent shows your property, he or she will explain to buyers and their agents that it is a potential short sale. This means that the response time from the bank will be slow after submission of an offer and that it may be a while before they hear whether or not the short pay has been approved. It may take as long as three to six months for the approval process to be completed.
A short sale purchase, though it may feel like a good deal to some buyers, is not for those who are faint of heart. It takes both perseverance and patience on the part of the buyer and their agent. Therefore, it is crucial that your agent explain this complex process in detail to the buyer and their agent. Otherwise, you may find yourself accepting an offer from a buyer who within several months feels the need to withdraw that offer. Your lender is an intricate bureaucracy and it will take time for your agent to maneuver the maze to obtain the desired results.
Once you and your agent negotiate a reasonable offer, you will sign it and your agent will get an estimate of closing costs based on the recorded liens, and the offer you have accepted. Your package will then be promptly submitted to the lender. After your lender has assigned a person to your file they will locate a broker to do a broker price opinion. This agent will be in touch with your listing agent and will need access to view the property as they prepare their report. A good listing agent will prepare a record of comparable sales to give the agent completing the broker price opinion for the lender when they meet them at the property, and will skillfully select sales most appropriate for the purpose at hand.
[Editor’s Note: Check back next week for the conclusion of this 4-part series, which will cover the final phases of the process.]
Michael Edlen and his team are experienced distressed property owner specialists, certified by the National Association of Realtors as a short pay and foreclosure resource. They may be reached at 310.230.7373 or Michael@MichaelEdlen.com.