321 properties in Portland had their RMLS status changed to Short Sale Pending (SSP) yesterday. A short sale is a real estate transaction where the proceeds of the sale will not fully pay off the creditors that are owed money. Short sales are subject to the approval of at least one third party. Each creditor that will not receive all the money they are owed has to approve the sale. Under the new SSP status, “When the Seller accepts an offer, the status will change to SSP. When the Third Party accepts that offer, the status will change to PEN[ding].” You can read more about the short sale process here.
Example 1: Bank A (“the First”) has an $80,000 note on a property. Bank B (“the Second”) is owed $20,000. We’re going to ignore closing costs which will drive the cost of the sale up and the proceeds down. If the property’s market value is $90,000 the Second is going to be shorted at least $10,000 in the sale as the First is entitled to all of their debt to be cleared before the Second receives any proceeds. The Second has to approve the sale before it can close. The Bank A does not approve the sale as they are being paid in full. Under the new RMLS rules when the seller accepts an offer the status will be changed to SSP and when Bank B approves the sale the status will be updated to Pending. If the property forecloses Bank A will take ownership of the property and Bank B will get nothing which should provide motivation to approve the sale. Note that logic does not always apply!
Example 2: The property is going to sell for $75,000 so both banks are going to be shorted and therefore both banks have to approve the sale. The status will be changed to SSP when the seller accepts the offer and it is sent to the banks for approval. When the second bank approves, regardless of what order that occurs in, the property will be changed to pending.
The SSP status is similar to the Bumpable (BMP) status in that it will still show in searches as available property. Pending sales do not appear in searches. Our “What is Bumpable” post is one of the most viewed posts on this blog.