From the mailbag: Having a blog like Lake Martin Voice gives me lots of chances to get great questions from readers. One such reader recently emailed me about short sales on Lake Martin. Here’s how my answers went:
1.) Could you give me a short lesson on Lake Martin “short sales”? Are they fairly standard, or many variations?
Each deal is different, depending on seller, mortgage company, property, etc.
2.) If a mortgage is leveraged on a house or piece of property, and the owner sells “short” is the owner liable/responsible for the deficiency?
Yes. Short sales are when the seller is still the person (not the bank), but they are selling it for less than they owe to the bank. Usually, depending on the amount, the bank goes after the deficiency, either in form of a new personal note, or a suit, or a lien on other assets, whatever. Sometimes the bank forgives a portion of the mortgage debt.
3.) Does the mortgage holder have to approve the sale?
Yes, or they will not release the mortgage lien on the property. If they didn’t, the buyer would be buying a property on Lake Martin with a mortgage (that is higher than the property value) already on it. You do NOT want to buy a property unless all liens are released or at least disclosed. The buyer’s lawyer / closing attorney should discover and disclose all of this.
4.) How is it different from just walking away from a mortgage and allowing foreclosure?
A short sale is usually attempted before foreclosure. I say “usually.”
Each one of these is very different. In general, the bigger the bank that is owed, the harder it is to pull off the short sale. Like I had a buyer that put in an offer on a short sale on a waterfront home in the Ridge. After about 75 days, the bank finally responded – NO. No counter offer, no nothing. 75 days (of the bulk of the summer) – wasted. On the other hand, a small local bank is able to pull off short sales and foreclosures rather effectively because there are real people making decisions quickly instead of talking (when you can get them on the phone) to a person in a cubicle in California.
Recently I read a great article in USA today, saying only 23% of short sales go through. From my experience on Lake Martin, I would say that it a pretty accurate number, if you include all offers made to all short sellers (like above).
5.) Are Lake Martin short sales usually good deals?
Maybe. Just because it’s a short sale or foreclosure does not necessarily guarantee that it is a good deal. You still have to go through the same thought process to make sure the value is there as a buyer.
One recent successful short sale I did was under contract for just over three months. Usually on Lake Martin, once you get under contract, it takes anywhere from 30 to 45 days to close. Hanging on for 101 days was brutal, for both the seller and the buyer, and I was helping both sides in that particular deal. Patience was running thin, but in the end, both sides felt it was in their best interest to go through with it. When I deal with sellers on short sales, I strongly encourage them to consider short sales before foreclosure. You might as well run the numbers with your CPA and lawyer to see if it’s in your best interest.
6. What takes so long? Why do some banks “drag their feet” so much with a short sale on Lake Martin?
From talking with my friends in the real estate industry, this is a nationwide thing, not a Lake Martin thing. The short sales process is slow. In fact, a realtor I know in Tampa complimented me for getting it done under 120 days.
Again, the large banks are the ones that usually take a while to process a short sale. In that particular case, it went like this: on Day 1 the seller sends (fax only) the signed contract to the bank. It takes 10 or so days for the bank to “process” the receipt. Then they assign it to a representative. Then the representative takes 14 days or so to contact you after that. So really it was day 24 until the seller could talk to a person that told him “OK we’ve received your fax.” Then he might ask for additional forms, say, another tax return from the seller, or some other such paperwork, that the seller might have even received.
Once the seller faxes those in, you guessed it, it takes about 5 days for the rep to confirm receipt. Then he might ask for the contract again. But – we’ve already sent that – right? Well, I need the XYZ form… These types of conversations go on and on for 3 or 4 weeks. Then the rep (if you’re lucky) will call the listing agent to talk it over. Then maybe the bank will make some sort of counter offer or even accept the contract as is. But any decision, any correspondence takes 3 or 4 days to send in, receive, and confirm receipt. It can be maddening, especially to the buyer.
Therefore my big advice to Lake Martin short sale buyers is: Patience is part of the price you pay.
Again, I stress, this pain involved is usually directly related to the size of the bank. Emphasis on usually.
Please contact me at the number or email at the top of this page. I would be glad to walk you through what will likely happen, and help you consider your options.
Please let me know – I love to write blog posts on readers’ specific questions. If you have one, chances are many people are thinking the same thing. Help us all out, and ask away, either by commenting below or dropping me a line. Thanks!