Lenders don’t look at short sales quite the same way as we do. As negotiators we look at a short sale as a job, or a way to produce income. Naturally we want to get a low purchase number from the lien holders, via a short sale, so we can then turn around and sell the home at a marked up price. For us, we want to know how much we can get the short sale approved for so we can give our potential buyers a solid purchase number. Thus, the interest generated would produce a purchase agreement.
The Lenders however look at a short sale as something they will accept only if there is already interest in purchasing the home. Should the lender foreclose and the property becomes and REO they will have it listed with a Realtor. The property will generally start off at a listing amount in the ball park of what they are owed and then drop every few weeks until sold. I say generally because some properties are obviously not worth what they bank is owed on them from the beginning.
When you approach the lender asking for a discount on a property they don’t want you to be giving them a ridiculous low ball offer. As much as you are attempting to create a profit spread in a short sale, the lenders are attempting to discount as little as possible. Because they have the final say in what price they are willing to accept for a short sale they require that you present to them an actual offer.
In the past negotiators would use John Doe, or another name of a fictitious buyer throughout the negotiation process. Some guru books, seminars, etc. teach this practice as well. They would say that Mr. Doe is interested in purchasing a property and all of the documentation required by the lender would be provided in Mr. Doe’s name. When a short sale was accepted or thought that it would be accepted the buyers information would change to an actual buyer.
Two problems with this. First, if there is no buyer ready to purchase then one must be found. Often the negotiator is unable to find a buyer within the necessary time frame, so the deal dies and all that work was for nothing, on both ends.
The second problem is that this is a simple case of fraud. A purchase agreement is a legal contract, regardless of what some may say. This is why some states are requiring a license of some sort to practice short sales, like an attorney or a Realtor. By submitting a purchase agreement to the lender with Mr. Doe’s information the negotiator is providing a legal document that has a fake persons name on it. You would be hard pressed to find a court that would not see this as an act of fraud. After all, this is misleading the lender by a fraudulent act.
My solution to this is to maintain a list of buyers for my short sale properties. If I do not have a buyer I let the bank know just that. I keep the bank in the loop with my advertising activities pertaining to the property. I show them that I am spending money (which I would spend anyway for advertising) and that I put forth every reasonable effort to find a qualified buyer, often more than what their REO Realtors produce. As offers come in, I present the ones to the bank that fit my intentions for the property. I simply control what offers the bank actually sees, whether it is all of them or not.