Rather than settle for the anecdotal and second hand information, I decided to take a closer look at the activity over the past 6 months of short sale activity.

The results are interesting, especially for a buyer considering a short sale.

There were 35 total short sales that actually closed for the areas I selected over the past 6 month period.  One often hears the horror stores about how long they take to close – if they ever close.  I wanted to know how long they actually took to close.

(Click to enlarge)

As you can see, it’s true that many short sales take relatively longer than the typical organic pending period of 30-45 days… some an awful lot longer.  As a buyer the question of “is it going to take 30-40 days or 110+ days to close?… and am I OK with not knowing which?” is important to be answered before entering into a short sale.  Of course investor buyers have a lot less concern here as compared to an owner occupied type buyer.

Next I wanted to determine if it’s possible to glean any insight as to which short sale transactions will actually close so I decided to take a look at how many times a short sale property went pending before it actually closed.  Keep in mind the following graph includes only those properties that actually closed in the end, and doesn’t include properties that haven’t closed or those that slipped into foreclosure.

(click to enlarge)

As you can see, more than 50% of short sales that closed went pending more than once.  To me this implies that a buyer has a better chance of closing if they enter into a transaction for a property that has failed to close previously.  One explanation may be that the lender(s) need to be softened up by the market before accepting a price.

Another thing to note is the number of pending sales and the ratio of pending sales to closings will be really distored when short sales are included.

The last parameter I looked at was the number of price changes made before a property closed.  Here zero price changes mean the listed price wasn’t reduced before entering into a sale that closed (although it could have had transactions that failed to close multiple times).

(click to enlarge)

Note there is no information here regarding the size of the price change.   And there were a couple of examples where the price actually increased.  I was surprised to see this number of price changes.  I don’t know whether this has to do with sellers being unwilling to come to grips with the market or whether agents are attempting to provide documented evidence to lenders regarding the veracity of their sales price versus the market.

Never the less, it remains that successful short sales experience a high number of price changes.

This morning I read a post (Reading Redux) at Credit Slips regarding a familiar lament about not reading all documents at closing. It’s a subject I’ve visited before.

Lenders are notorious for getting document to escrow late or, at the very least, at the very last possible moment. Obviously it helps to select a trustworthy lender (and a service oriented escrow officer) who you’ve forewarned you’ll need three days to review all documents prior to closing. This combined with a provision in your purchase and sale agreement (to the effect of: buyer shall have 3 days to review closing documents prior to closing… in the event documents are not avail… closing shall be extended…. but in no event later…) should provide you ample time for review.

Even though I always recommend it, it’s been my experience few buyers read all the paperwork at closing (I attend client closings). Unless prepped, they don’t know the important things to look for hidden in the blizzard of paperwork. And why should they? They don’t deal with it every day.

Get an agent who knows what they’re doing and take the time to do it right. There’s always time…. there are no emergencies in real estate.

As I’ve mentioned before, this is even more of a requirement in todays market for the reasons posted here.

I made the follow comment to a post made by Jason Mook: Switching Boats Mid Stream.

This issue concerns the typical financing contingency found in most real estate contracts. In essence, the financing contingency says the purchase and sale of a property is subject to the buyer obtaining financing. If the buyer can’t obtain financing, they can’t buy the property (they won’t have the money). The purchase and sale agreement is terminated and the buyer’s earnest money is returned. But, just because a buyer is unable to obtain financing under the strict terms of the contingency, doesn’t always mean they can terminate the agreement and get their earnest money back. They have to have made a good faith effort.

Jason – A stimulating post. I agree with your position as far as it goes.

To my mind, and from a seller’s perspective, as long as the buyer is making a good faith effort to obtain financing, you’d want to give the buyer the benefit of the doubt and let them pursue (within a reasonable time frame with the seller’s agent continuously monitoring, etc.) financing.

In your scenario, the buyer switches lenders after; 1) the seller receives a loan commitment letter per NWMLS 22a and 2) the underwriter subsequently fails the file.

However, consider the scenario where a buyer’s offer is accepted by the seller in part based upon a “tight” preapproval letter (where the loan commitment is subject only to satisfactory appraisal, clear title and title insurance, etc.)

After mutual acceptance and prior to receiving a loan commitment letter per NWMLS 22a, the buyer switches lenders.

Subsequently, the buyer is unable to obtain financing from the second lender and claims the financing contingency specified by NWMLS 22a has failed.

The original preapproval letter was material to the seller accepting the buyer’s offer.

And the winner is… the lawyers?

I was just reading a comment(#43) to a post on deceptive radio advertising for mortgage lending on Seattle’s Rain City Guide regarding selecting an agent when I received a call from the selling agent on one of my recently closed transactions.

He said he was missing a copy of an Agency Disclosure Form signed by his buyers. I thought he had misplaced his copy of the form. I had one and offered to send him a copy. That wasn’t it. He simply didn’t understand the form. There’s more, but no reason to repeat it herein.

I thought to myself… “Wow. Here someone has placed responsibility for a purchase involving hundreds of thousands of dollars into the hands of someone with limited knowledge of the forms being used. What else doesn’t he know and what if something had gone south with this transaction (it didn’t)? Did the buyer have a clue when they chose their agent?”

It got me thinking (again) about the risks to which buyers and sellers are exposed… and the fact that they have no idea of the extent of their exposure. They simply don’t know what they don’t know.

The vast majority of the time nothing significantly untoward happens and the extent of their risk exposure is never uncovered. Oh, maybe they spent or received several thousand off of what they could have otherwise realized (enough to cover the cost of more knowledgeable professional?). But unless particularly egregious, there’s generally never any way it will come to light.

But then again why would anyone expect anything different? Isn’t this the same problem you confront when selecting a doctor, attorney, or auto mechanic?

The first axiom of selecting a real estate agent (or any other professional for that matter) ought to be an understanding that they (and the service they provide) are not fungible (interchangeable). In other words, not all are alike.

One would have to be rather cavalier (or naive or dumb) not to read all loan documents before signing.

Sympathy for those who don’t? Please… If you’re going to give someone a signed blank check, don’t complain later when they cash it.

Sure there’s a lot of paper involved. But most of it is boiler plate. If you need more than an hour or so (typical time) to thoroughly understand what you’re signing, take the documents home to study and bring them back another day. (It’s unreasonable to ask the signer to spend 3-4 hours to sign.)

Or ask your agent to attend signing with you. If your agent won’t attend closing, or doesn’t know what’s important to check, you can find a buyer’s closing table checklist here to use as a guide to get you started.

One of the documents you’ll normally sign is a statement saying you have had the opportunity to read all documents and that you do understand them. If escrow urges you to sign before knowing/reading what you’re signing, I suggest changing escrow companies.

Buyers should bring the following to escrow (the closing agent) when signing closing documents:

1. Good Faith Estimate – This should have been provided by your lender.
2. Truth-in-Lending (and here) form – Provided by your lender.
3. Rate Lock Confirmation – You should have received a written rate lock confirmation from you lender at the time you locked.
4. Lender Guarantee Letter if any – Your lender may have provided you with a letter guaranteeing their fees will not vary from their estimates by a certain percentage.
5. Your lender’s cell phone number – In case you have questions or need a document redrafted.
6. Drivers License (or passport) – The notary will need it.
7. Cashiers Check – The dollar amount should have been provided by escrow after preparing the HUD-1 settlement statement. You can also wire funds. Don’t bring a personal check.
8. A pocket calculator – Bring one you already know how to use.
9. Driving directions to escrow (google maps or mapquest)

Signing closing documents, especially for the buyer (with a loan), can be intimidating. There’s a lot of paperwork. Most of it is boilerplate. If there is anything you don’t understand, don’t sign until you thoroughly understand it. The pressure at the closing table can be enormous, but don’t be intimidated. Again, don’t sign until you really understand what you’re signing.

OK, here’s the key elements you’ll want to review. I’m not providing legal advice -you’ll want to check with your own attorney:

1. Your real estate agent has (should have?) reviewed your settlement statement (HUD-1) at this point, but you’ll want to verify the numbers.
   1. Check the price is correct.
   2. You’ll check the itemized settlement charges later. They will be detailed on the second page.
   3. Check the proration of taxes is correct. Taxes are paid twice a year (Washington) and are due the end of April and the end of October. As the buyer you will pay taxes from the day after closing until the end of the half year (June 30 or Dec 31). If the seller has already paid the half year taxes, you will owe the seller an amount prorated on a daily basis from the day after closing to the end of the half year. If the seller has not paid the taxes for the half year, you will be paying the taxes for the period and the seller will owe you for the period from the start of the half year period until the day of closing. The escrow company may have used 360 days or 365 days as one year.
   4. Check you have been credited the proper amount of your earnest money.
   5. Check the loan amount is correct.
   6. If the seller is paying any of your closing costs and/or prepaids, check they are correct.
   7. Check the items payable in connection with your loan (section numbered 800s). They should be pretty close the what’s listed on your good faith estimate. If there’s a wide variance, find out why. Get them corrected.
   8. Interim interest will be computed as the daily interest times the number of days to the 1st of next month. Your lender may be providing funds to escrow a day (or two) earlier than the scheduled closing date, so the proration start date may not be the same as the closing date.
   9. Insurance and taxes are usually pretty straightforward but check the insurance premium is what you expect.
   10. Title charges are regulated in Washington.
   11. Check the escrow fee is reasonable. Watch out for wire fees and courier service you don’t need. Expect sales tax on some items.
   12. Recording fees are standard.
   13. POC and YSP. They stand for Paid Out of Closing, and Yield Spread Premium. If you find either term listed, it is a fee paid your lender as a back end commission (for selling you a loan with an interest rate above market). It should be listed on your good faith estimate and should not be a surprise to you. If you expected it, fine – good for your lender explaining it. If it is a surprise (and not listed on your good faith estimate), stop. Call your lender and get it removed.
2. Check the transfer deed
   1. Make sure you’re taking title as you planned (married, separate estate, etc..)
   2. Check your name(s) is spelled correctly.
   3. Verify the legal description matches the title report.
   4. If there are any easements benefiting the property are they included in the legal description?
   5. Check that the address to which the deed will be returned is what you want.
3. Check the title report – sometimes the title company will issue a supplemental report just prior to closing so pay attention.
   1. All items that should be cleared are cleared?
   2. Any easements you don’t expect?
   3. Taxes paid?
4. Check the loan note (It will start with something like …I promise to pay….) and any addendum.
   1. Check the interest rate against your Rate Lock Confirmation. They should be the same.
   2. Check you have no prepayment penalty if you don’t expect one. Check against your Truth in Lending form.
   3. If you have an ARM (again all will be in the Truth in Lending form)
      1. check the index
      2. check the margin
      3. check the first adjustment cap
      4. check the lifetime cap

That’s the meat of it. It’s not a substitute for reading everything you sign. Again, I’m not providing legal advice – check with your own attorney (maybe they have additional items you should check). If you find discrepancies in the numbers you expect, ask the closer and/or call your lender. If something is incorrect, get it fixed before you sign.

Figure on taking an hour or so to go through everything and sign. If you need more time, take the forms home with you and come back another day. Again, don’t allow yourself to be pressured into signing anything you’re not comfortable with.

Closing (at least here in Washington State using NWMLS forms) is defined to have occurred when the transfer documents are recorded (the deed) with the county, and, sale proceeds are available for pickup (from the closing agent) by the seller. The seller doesn’t need to pick up the sale proceeds, they may have chosen to have them mailed or wired somewhere. But they could pick them up if they had so chosen.

Both are requisite for closing to have occured.

Closing agents will normally not record transfer documents unless they also possess all the monies needed to conclude the transaction (not just from the buyer – it’s possible a seller may need to bring funds to the closing table). They need what’s called “good funds”. That means the money is actually deposited into their trust account.

Sometimes buyers get caught because they don’t know good funds are required. Just having a check, even if it is a certified or registered check, isn’t the same thing as actually having the required funds in their trust account.

Imagine the situation where a transaction is to be closed on a Friday. Escrow is running behind so signing ends up scheduled for the same day as closing (fairly typical late in the week, especially towards the end of the month which is when most buyers want to close because they’ll pay less interim interest. Don’t even think about closing the last days of the year.)

The buyers intend to use the weekend to move in. They bring in their certified check. Unfortunately they won’t be closing until the following Monday at the earliest because the closing agent needs good funds and the transfer documents must also be recorded. Since the county isn’t open for recording over the weekend or legal holidays, the earliest recording day is Monday.

The buyer could have wired funds to the closing agent trust account the same day and then escrow (the closing agent) would have had good funds. This is the procedure to use when the buyer is using the sale proceeds from the sale of their existing home to purchase a new home (and you’re not doing a simultaneous closing using the same closing agent).

The snag you can run into here is that the closing agent usually doesn’t send the transfer documents to the county for recording until mid-day or later. So recording numbers (confirming the docs have been recorded) aren’t available until later in the afternoon. There’s usually a cut-off time for wiring funds (typically 2:30pm). If the closing agent doesn’t have recording numbers prior to the cut-off time, funds will not be wired (and deposited) until the next day.

Same thing happens with lenders. Many/most lenders want to review the final documents before they’ll transfer funds to the closing agent. They typically need up to a couple of days for review, especially if the lender is located on the other side of the country (in another time zone).

Both the buyers and the sellers could have signed closing documents anytime before closing… days or even weeks before the closing date.

So why don’t buyers and sellers just always sign early to prevent closing delays? …Lenders.

If the closing agent doesn’t have docs from the lender they can’t prepare their documents (including the closing statement – HUD-1).

Your mortgage originator typically isn’t privy to the lenders back room. They won’t have the power to speed things up late in the game. To the back room/underwriter your loan is just another file, and they’ll get to it when they finish those before it.

That said, carefully choosing your mortgage originator will lessen the chances of closing delays because they’ll do what needs to be done to get loan docs to escrow before they become critical.

So the key points to a smooth, on-time closing are:

1. Let your closing agent know you’ll need a day or two to review the closing statement (HUD-1).
2. Choose your mortgage originator carefully (if you’re the buyer). Let them know up front a closing delay due to the lender being late with loan docs will not be tolerated. If you’re really on top of things, you as the buyer will want a day or two to review loan docs before you’re asked to sign anything.
3. Start early checking with the buyer’s lender if you’re the seller’s agent. Let them know the closing date specified in the contract is inviolate. You’ll need loan docs at escrow early because you’ll not only need to review the HUD-1 prior to closing, but you’ll need to sign early (did you mention you may be leaving town 3 days before closing?).
4. If you need to deliver funds to escrow (both buyer and sellers may need to deliver funds), don’t wait until the last minute.

Sometimes as an agent there’s nothing you can do to prevent a closing delay. It’s out of your control. Especially if you’re the listing agent with nothing but the lenders reputation to use as leverage. But starting early goes a long way.