Working With Lenders
Apr 20, 2012 Real Estate Profit Tricks
Dealing with lenders in a short sale situation does require a special touch. Even though many lenders are motivated to agree to short sales at this time, it doesn’t mean they are happy about it. There are a few things you need to know about to be able to properly negotiate with a lender.
Short sales are generally only agreed to by lenders when a homeowner has no equity in a home either because the loan wasn’t paid down enough for this or the value of the property has dropped. Also, the homeowner must demonstrate that ability to pay the mortgage is no longer there for whatever reason. The homeowner must also prove that he or she is unable to pay the difference between your offered price and the full amount of the loan.
If you initiate the short sale process and lenders and homeowners agree to it, the homeowner will have to prove financial hardship. This is usually handled in the form of a hardship letter, which is sort of like a loan application in reverse. The difference is the seller will be trying to prove inability to pay rather than creditworthiness.
Tips For Handling Offers
Once you start the negotiation process on a property, you’ll want to keep these things in mind when dealing with the homeowner and the selling lender:
- Never offer the seller money directly unless it’s in the form of an offer to the bank or lender
While the seller will have to approve of your offer, no money can go into his or her hands. Sellers will sometimes ask for kickbacks. This is illegal. Remember, the lender is selling the property for less than is owed. The seller is expected to walk away with nothing.
- Submit offer documentation to the lender
Even if the seller agrees to your offer, you will have to get the lender’s approval, too. You won’t have a sale until the lender agrees. Make sure the lender sees your offer and receives all documentation it requests.
- Consider offering a deposit
This can motivate a lender to accept and offer and move faster with the process. If the lending bank knows the offer is genuine, it can work in your favor.
- Make certain your offer is contingent on a deadline
Even if they a motivated to sell and accept your offer, lenders can drag their feet on finalizing the closing process with short sales. This is simply because of the bureaucracy involved in many banking institutions. To protect yourself and your time, make sure you place a deadline on your offer. Do make sure your offer goes to the correct person at the lending institution and set a deadline for at least a few weeks out to be fair.
- Do retain the right to inspect the property
Before you close a deal, you will want to have the property appraised and fully inspected. In many cases, short sales will require some work to bring them up to a marketable condition. You need to know exactly what you are getting into if you want to make the most out of your investment.
- Be prepared for the potential of having to pay real estate commissions
While the lender will likely pay some, if you hire an agent directly, you might have to kick in a bit. Lenders will try to negotiate commission fees down as much as they can to recover as much of their loan as possible. The fees they pay will then be split between the lender’s agent and yours, if you have one.
Working with lenders isn’t as difficult as it might sound. It just requires a firm touch and some patience.