Governor Brown signed into law Senate Bill 458 prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or a junior lien holder. Effective immediately transactions closing escrow from this day forward, both senior and junior lien holders cannot require a borrower to owe or pay for a deficiency in a short sale. This law prohibits any deficiency judgment to be requested for senior or junior liens after a short sale of one-to four residential units. Any waiver of this rule shall be void and against public policy.  This new law does not prohibit a borrower from voluntarily offering a monetary contribution to lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives etc. A lender may also seek damages for a borrower’s fraud or waste.

Before your agent determines an offer price, your agent has to do some homework. First and foremost it must be determined how many liens are on the subject property. Don’t rely on the listing agent for this information. But if you do, ask how many trust deeds are on the property and how many other liens there are. These other liens could be judgments, tax liens and a host of other types. The best place to go to be absolutely sure is the San Diego County Recorder. It is very easy to do. So now that your agent has made the trip to the Recorders office, these results will be able to give you a very early indication on whether or not a short sale will be successful. The best situation is where there is just 1 trust deed and no other liens. The next best situation is where there are 2 trust deeds by the same lender without any other lines. Now it starts to get a little dicey. There could be 2 trust deeds, but different lenders. Remember in most cases it is the 1^st trust deed holder that has started the foreclosure process. If they approve the short sale, it will be for their note only. But they will dictate what the 2^nd TD will receive as well as others behind the 2^nd. In all cases that amount approved for the 2^nd is a fraction of the total note amount. For example the 2^nd td could be for $45,000 and the 1^st td holder could tell them they can have $2,000. Remember in order for a short sale to be approved, all of the liens holders must approve. So in this case if the 2^nd does not approve of the $2,000, then the short sale fails. But why would the 2^nd td hold take the $2,000? Because if they don’t, the 1^st td hold will complete the foreclosure and the 2^nd td holder will be wiped out-they will get nothing. You think that was difficult? Now try having a situation where there are 3, 4 or more liens on the property. The more liens there are, the more difficult it gets for a short sale to be successful. But it has been mentioned before that lenders are getting better about approving short sales and they are receiving a lot of pressure to do so.

The only time a buyer should not make a full price offer on a short sale is if it can be shown, it is over priced. More than often, the short sale will be priced low. Why would the seller and listing agent do that, because they want to create multiple offers. Multiple offers help create a bidding war and that of course bids the price upwards. In today’s market, the lower the asking price, the more attention it will attract. In other words a $275,000 home will receive more offers than an $800,000 short sale home. The one person that should help you the most in determining value is your agent. They should provide you with a comparative market analysis for the subject property. Here is an almost guaranteed way to move to the top of the list when making an offer on a lowered priced short sale home. Let’s suppose that the asking price is $265,000. Your agent by providing you with a comparative market analysis is able to show that the home is really worth $275,000. Then you make an offer for $275,000. That’s right, $10,000 over asking price. But wait, there is more. Remember the seller is really not all that important. But the lender who owns the note on the property is the important one. All they care about is what is their net going to be. What else can a buyer do? They can pay for the title insurance, transfer tax, and be responsible for termites. They can also pay for the natural hazard disclosure statement etc. The bottom line is, if a buyer is to be successful buying a short sale, they have to bring more to the table than just meeting or exceeding the asking price.  If you really doubt this, try asking around and you will hear the stories about buyers making 4,6 and sometimes 12 offers on different properties without success. If you are looking at at $800,000 property, you probably don’t have to be as aggressive. 

So you have decided to buy a short sale property? Ok, now what? Well #1, be prepared for a wait-possibly a long wait. Being successful in a short sale is probably about 50/50. However more and more pressure is being put on lenders to be more attentive to short sale requests and to increase the odds for success. The lenders seem to be listening. Buyers that make an offer on a short sale property need to expect the unexpected. The usual way of conducting a real estate transaction will not be followed. If a buyer makes an offer for the asking price and with nothing added to the offer, they can expect zero chance of success. Remember the seller of the property really does not care what you offer. Their only goal is for the lender to approve the short sale. What does the lender care about? The maximum net amount they can obtain from the sale. They then compare what they will net if they just foreclose. In many cases foreclosing is a better option for the lender. The trend for successful short sales seems too headed in the right direction. Only time will tell if the lenders are serious about improving your odds of a successful short sale. There will be much more to come on short sales.