Buying a property that requires short sale approval can be a frustrating experience, especially when the listing agent doesn’t have a track record of success in Short Sales. You are putting your trust in your agent to educate you as much as possible about how short sales work and what to expect, but if your agent has no experience listing and negotiating short sales, then it’s likely that they won’t know the important questions to ask the listing agent representing the seller of the house you’ve chosen to purchase.
Every listing agent who claims to be a short sale “expert” or “specialist” (a hazardous claim for many) should be able to carry on a dialog about the following questions. If they aren’t able to do so, then you might want to move on to another property.
Top Questions Your Agent Should be Asking the Listing Agent
1. How Many Liens Are There?
When you take out a mortgage, the mortgage company files a lien against your house. In order to transfer title to a new owner, the lien needs to be removed. In order for a mortgage lien to be removed, the loan must be satisfied, whether through total payoff, or settlement (as is in the case of a short sale.) The number of liens that your property has against it, be it 1st mortgage, 2nd mortgage, HOA dues, mechanics liens, IRS or any other type of lien is a very important detail. Without full lien release from ALL lien-holders, the property cannot transfer title to a new owner. The more liens there are, the more difficult it is to obtain short sale approval because all of settlements by all lien holders need to provide enough time for a new buyer to close escrow.
2. What Type of Liens Are They?
Liens come in all shapes and sizes, and the type of lien will help determine the likelihood that the listing agent will be able to close the deal, or at least offer a clue as to the time it may take. A short sale approval on a home with a single purchase money loan (a loan that was used solely to purchase the home) is much easier to negotiate than one that has a 1st, and a 2nd. If the 1st and 2nd were both purchase money loans, as is the case with products like the good old 80/10/10's and 80/15/5's then it will be a bit more difficult, but not too much. If the 2nd was a Home Equity Line of Credit (HELOC) you're going to run into friction with them, but it can still be done. IRS liens can also be negotiated off of the property, but those are much more difficult. It's critical to know that the listing agent is on top of the details regarding the liens.
3. Do You Have any Industry Short Sale Certifications?
BZZZZT! If they say yes, do some more homework. Getting certified as a short sale specialist carries no weight in this business. It may look good on paper, but it takes a matter of a few hours to become certified in something you've never done before. Certification is a process that marketers have come up with to make money from other agents. Just because someone is certified does not mean they know how to do short sales. In fact, some of them have never closed a short sale.
4. How Long Have You Been Doing Short Sales?
The answer to this question, unbeknownst to many real estate agents, is very easy to research. A simple search in the MLS will reveal not only how long it has been since the listing agent first took on Short Sales, but how many they've actually closed.
5. Has a BPO Been Performed?
Every lender considering approving a short payoff is going to perform a BPO. It's the only way they're going to be able to compare the offer to the potential value of the home prior to the buyer's appraisal. While it's uncommon for a bank to perform a BPO (Broker Price Opinion) prior to receiving an offer on the property, it does happen. If the agent doesn't know the answer to this question, beware.
6. Who are the Lenders and Have You Ever Dealt With Them??
This is great information. If the listing agent doesn't know who holds the liens, then they're behind. Knowing who the lenders are on the property tells you a lot about how long it may take to get approvals, as each lender has their own unique, yet similar process. If the listing agent has never dealt with XYZ bank, then they may not know what's up with that bank's process.
7. Is There Mortgage Insurance Involved, and Who?
Mortgage Insurance companies can make or break a short sale. Knowing whether or not there is mortgage insurance on the seller's loan is a piece of information that can slow down or completely stall the approval process. Even if the mortgage servicing company and the investor agree upon the price, if the MI company refuses to pay the claim, they'll either ask the seller for a contribution at closing, a note over time, or they'll simply not allow the deal to go through.
There are two types of mortgage insurance. There's the type that the seller knows about for which they pay a monthly premium as a part of the mortgage payment, and there's investor placed or "pool" insurance, which is a policy written after the fact by the investor that the home owner doesn't know about.
8. How Far Behind is the Home Owner?
Anyone can look up public records to determine if the home owner is behind on their payments long enough to have initiated a Trustee Sale notice, but what you won't know is how long it has been since the home owner stopped paying their payments. This is especially true in the case of a property for sale that does not have a Trustee Sale notice yet. An experienced short sale agent should know that while this information is important, it may not be divulged by the listing agent, and isn't as important as some of the other information.
9. Who is the Investor?
Knowing who backs the note on the liens on the property is also a critical piece of information. Certain terms and conditions that lenders write into the agreements between them and their client (the seller) are based upon who the investor is. Most loans in this country are owned by Fannie Mae, or Freddie Mac, but there are plenty of homes whose investors are actually the bank that services the loan. If the listing agent can't tell you this, then watch out!
