Help With Short Sales in CA

**mhsiao45** · 10-29-2007, 04:02 PM

Hi,

I'm new to this forum. Hoping to get some light on short sales in California. I've never worked with a short sale, so I'd like some help. I'm representing a buyer who is interested in a short sale (my father in law). I get the general idea of what a short sale is, and the long waiting process for lender approval. My client is looking to get a good deal in this market. From the tax records, it looks like the seller owes $1.65 Million. They are trying to sell the house for $1.6 Million. In my opionion and from comps, the property is probably only worth $1.25 at the most. We'l

Can someone give me some good tips on things I should be looking out for in order to protect my client with a short sale? What are some important details that I should not overlook, or research, or put in the contract to protect my client?

Any good links you know of to read up on?

Thanks!

**netrambler** · 10-30-2007, 05:59 PM

If a short sale has already been negotiated with the bank, it doesn't sound like much of a deal to me. Only 50k below what is owed? The bank isn't giving much of a discount. And the property is already upside down on the mortgage. If they are listing it that high above market as a short sale then I would stay away.

On the other hand, if they are asking $1.6 million because that is what it will take to pay off the bank (and maybe a commission on top of that) then it is not a short sale yet. The tax records only show what was originally borrowed, not the current balance of the mortgage. In this case you have to get the seller to work with you to negotiate the short sale with the bank. This is tricky to say the least.

In California the timeline goes like this: The Notice of Default is posted and then the bank has to wait 90 days before it can post a Notice of Trustee sale. The trustee sale can take place any time after the 20th day after the notice of trustee sale is posted. So there is approximately 111 days to get the bank to accept the short sale.

With a short sale you have to be careful because the property is sold AS IS. You don't have the disclosure requirement that protects the buyer in a regular transaction. Make sure you have a thorough inspection and a contingency to cancel if the inspection doesn't meet your approval.

**mhsiao45** · 10-31-2007, 08:50 AM

Wow, great info. Thanks so much.
Looking at the tax records, I'm trying to guess that they borrowed about $1.6 mil. altogether. An like you said, I have no idea what they actually owe. To me, it looks like they took out an original mortgage of $1,000,000. A second mortgage of $350K, and another private loan of $300K. Making a total of $1.65 Mil.

In your experience, is a bank willing to go 10-20% what they are owed to avoid foreclosure? I would think a bank wants to avoid foreclosure themselves since I'm sure they lose quite a bit of money that way also. Anyhow, thanks for the help.

**someoneguy** · 10-31-2007, 07:31 PM

Originally Posted by netrambler

If a short sale has already been negotiated with the bank, it doesn't sound like much of a deal to me. Only 50k below what is owed? The bank isn't giving much of a discount. And the property is already upside down on the mortgage. If they are listing it that high above market as a short sale then I would stay away.

On the other hand, if they are asking $1.6 million because that is what it will take to pay off the bank (and maybe a commission on top of that) then it is not a short sale yet. The tax records only show what was originally borrowed, not the current balance of the mortgage. In this case you have to get the seller to work with you to negotiate the short sale with the bank. This is tricky to say the least.

In California the timeline goes like this: The Notice of Default is posted and then the bank has to wait 90 days before it can post a Notice of Trustee sale. The trustee sale can take place any time after the 20th day after the notice of trustee sale is posted. So there is approximately 111 days to get the bank to accept the short sale.

With a short sale you have to be careful because the property is sold AS IS. You don't have the disclosure requirement that protects the buyer in a regular transaction. Make sure you have a thorough inspection and a contingency to cancel if the inspection doesn't meet your approval.

Just to make clear, I believe the only circumstance in California where the Transfer Disclosure Statement is not required when it is a Bank owned... or a property that has been siezed due to foreclosure. In a short Sale, the seller is still required to provide this. However, You are right in most times they will not do repairs. My most recent short sale the pool equipment was stolen during the excrow period and they paid for that at COE

What I have seen in short sales is when they recently pulled out money they want to see where it went.. etc. etc. It seems much more unlikely that they will allow the short sale.

Talk to the lisitng agent. Ask them with they have a short sale package from the lender. Each lender is different. Ask them if they have any idea where the bank is at. Typpically, once the package is submitted and they feel the circumstances make sense (ex, no cash out.. lost Job... Husband/Wife Death..etc.) they will order a BPO and apprasial. From there, you will see where they are at. I've noticed most times they will not order the apprasial until an offer is recieved. Hope this helps.