Short sale offers are many times delivered along with a good portion of misunderstanding. There seems to be quite a bit of confusion regarding who is actually the seller. Confusion exists even among some Realtors.
I’ve listed a fair number of short sales. Every time I have had at least one offer presented where the real estate agent demands that the bank be notified at once of their client’s offer.
There is no law or requirement of any kind that makes it mandatory for the homeowner, or their real estate agent, to present any short sale offer to the bank.
The very fact that a home is listed as a short sale means that the homeowner is still the owner of the property. In all of these situations the current owner, the person on the deed, has total authority to accept or reject any offers.
If the bank owned the property, then all offers would have to be presented to the bank. In that case it would be a foreclosure sale, not a short sale.
I’m actually quite surprised that there is so much confusion about who owns the property involved in a short sale. Surprised enough that I felt like this really needed to be said.
The bank certainly must approve any offer. This makes sense because the amount of the offer is less than what is owed on the property. The bank must agree to lose money and mark the note as paid in full so that the title can transfer to the buyer.
But that doesn’t mean that the property owner, or their Realtor, must present all short sale offers to the bank. A smart homeowner, and their Realtor, will negotiate an offer with a buyer that they feel the bank will realistically accept.
Taking a property off the market for an offer that has little chance of being approved by the bank is not in the homeowner’s best interest. They are trying to avoid foreclosure. The best way to do this is to accept short sale offers that are a good deal for the buyer AND stand a good chance of being approved by the bank.
The general consensus is that banks will typically approve short sale offers that are within 15-20% of current market value. If you are making an offer on a short sale, take the time to have your Realtor make sure it is within these parameters. Short sale offers that do not ask for closing costs and that provide good evidence that the buyer is pre-approved also have the best chance of being approved by the bank.
If your offer is outside of these parameters, don’t be surprised if the seller (the current homeowner) rejects the offer. And don’t be too upset with them either. Accepting an offer that never had a chance could be the final nail in their foreclosure coffin.
Good post, Bob! When you have listed short sales, have you had the homeowner authorize you to talk to their bank as pat of the process?
I always get the homeowner to authorize me to speak to their bank about their mortgage. The authorization gets signed at the listing appointment or I will not take the listing. I cannot help the seller unless I can talk to the bank.