What if the lender wants way too much money for your Short Sale?
You owe more on the mortgage than your home is worth and you will get from the sale, so it is a Short Sale. You submit the short sale offer to your lender and the lender says they will not approve the Short Sale because you did not sell it close enough to the homes market value (i.e. what the bank beleives your home is worth). How does this happen?
One of the biggest problems with short sales today is bad BPOs. Why?
In a short sale transaction, a sales contract is submitted to the loan with a closing statement showing the amount of money the lender can expect to net from the sale. The lender then seeks to determine if offer submitted is in line with the home’s market value. The lender’s opinion of the market value is set by the BPO or Broker Market Analysis. If the BPO comes in is too high, this will lead the lender to reject what may be a good offer and if steps are not taken this will typically lead to foreclose. There are countless stories of good short sale offers being rejected only to have the lender sell the home for much less through auction / sheriff sale or after taking the property back through foreclosure. The good news is there are ways to reduce the risk of an inflated BPO valuation, there are also ways to dispute a bad short sale BPO valuation if it does come in high.
Reducing the risk of a bad BPO valuation
While we aren’t going to offer advise on how to reduce the risk of an inflated valuation and aid our competition, ie other agents. Our clients and prospective clients can rest assured our short sale success rate of over 98% is largely the result of the strategies and procedures we employ to reduce this risk of an inflated valuation, and ensure the success of their transaction.
How to dispute a bad BPO valuation
If an erroneous valuation is received what can be done to correct this? Most lenders have a procedure to dispute the appraisal or BPO. Here is the way that Fannie Mae does it.
“Valuation Desk <firstname.lastname@example.org> wrote:
Complete BPO dispute packages include a completed Submission form in Excel format and agent documents which may prove a lowered FNMA value. The qualifying criteria for a value dispute is as follows:
When disputing Minimum Net Reserve, at least one of the following documents must be included in the submission for review and sent to email@example.com:
-Appraisal or Buyer’s BPO (BPO that the Servicer did not order)
-CMA Report (w/ comp photos and descriptions), Listing History & Realtor Comments
-MLS Sheets of 3 to 6 Comps, Listing History & Realtor Comments
-Inspection Report with photos of repairs needed
-Detailed Contractor’s Estimate with photos of repairs needed.”
So, the short sale listing agent who has the property for sale submits any one of these items. The most effective of these is to submit an appraisal. The issue here is the short sale seller is broke, so that source of funding for the appraisal does not exist. The listing agent is taking a gamble already with all the time and money invested in the short sale on a transaction that may not actually be approved and close. It is unreasonable for that agent to be the source of funding. The buyer is going to get an appraisal as a part of the financing for the buyer’s loan. However, most buyers will not invest the cost of the appraisal until the short sale is approved i.e. they do not want to pay for it until they know that they get to buy the house. There are some occasions where the buyer may be willing to take that risk.
If the property has repair issues, the easiest thing is to get a licensed contractor to prepare a written bid for the repairs. Appraisals are expensive, so most agents will submit a Comparative Market Analysis (CMA) along with the history of the listing and comments by the Realtor however, if the buyer is willing to move forward with their appraisal this can also be submitted to the lender to reinforce the value.
If the lender responds back and states they require more money because their BPO shows a higher value, do not accept that as the final answer. Dispute that value by furnishing the sort of facts and figures that you see in the Fannie Mae procedure. Remember the banks, servicers as well as their investors are already taking a loss on the sale of your home and their goal is to limit these losses and ensure they are getting as close to full market value for your property as possible. One of your real estate agent’s jobs is to present evidence to your bank to demonstrate that the short sale offer you have accepted is a good one that is close to market value that will net the bank more money than it would receive if it were to foreclose on the property.
If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley Columbus Delaware Downtown Dublin Gahanna Grandview Heights Granville Grove City Groveport Hilliard Lewis Center New Albany Pickerington Polaris Powell Upper Arlington Westerville Worthington