Are you ready to proceed buying a Short Sale?
What is a Short Sale? By definition a Short Sale simply means that the proceeds from the sale of the property will not cover the balance that is currently owed on the mortgage(s).
In the practice of buying and selling real estate a Short Sale means and requires a whole lot more! There are a lot of difference between buying a short sale and a Bank owned or Foreclosure, check out that process here.
Before you decide that a short sale is what you want to pursue there are some requirements that a buyer must meet.
- You must have patience - Short sales take much longer than most any other type of real estate transaction. Shorts sales can take as little as a week and as long as 2 years just to receive a response to your offer. Once a response is received negotiations and escrow will add to the time it will take to close.
- You must anticipate that there is a possibility that you may not be able to purchase the property, regardless of what your offer is - If a property will not cover the balance on the mortgage first are foremost the seller must qualify to proceed with the short sale. The seller must prove a hardship that will satisfy the bank. If the seller is not is a "hardship" type situation the bank will not approve a short sale and the property will only be able to be sold if the proceeds from the sale will cover the entire balance of the mortgage(s).
- You have to keep your options open - I also encourage my buyers to continue looking even while they are under contract and have an offer submitted to a lender for approval. There is always a fair chance that they bank will not approve the short sale and while waiting another property that may fit the needs of the buyer may be listed and sold.
- Sometimes you will see a response that just doesn't make sense. Keeping an open mind and understanding that the banks response may not make logical sense can ultimately save frustration and dissappointment. I have seen buyers submit offers on a property that were rejected by the lender, only to see the lender foreclose and list the property for 60% of what the short sale offer was for. While situations like this make little business sense it is an unfortunate reality of short sales. This can turn a buyer off completely if it is not something to potentially anticipate.
- You must be pre-qualified prior to submitting any offers - While this (or should be) a requirement of making any offer is an absolute requirement that a pre-qualification or pre-approval letter is sent with every short sale offer.
Once a buyer understands the process of a short sale and what they may encounter there are some addition things that a buyer should make a high priority.
- Using an agent that is well experienced with short sales is critical. Before and offer is submitted there are questions that the buyers agent should ask.
- Is the Short Sale Package complete? Has there been contact with the Lender/Lenders? Has a Loss Mitigator been assigned?
- How many loans are on the property? Are there any other liens on the property – HOA, taxes, assessments, etc?
- Are there multiple offers on the property? Has the seller accepted & signed another offer that has been submitted to the Lender? Are all other offers considered back-up offers? How many other offers are there?
- Has the lender agreed to a Short Sale on a previous offer which did not close escrow? If so, how long ago was that and are they still in communication with the Loss Mitigator?
- Are the loans on the property purchase-money mortgages (non-recourse loans) or recourse loans (i.e. home equity loan, etc,)? Home equity loans (recourse loans) will often require the seller to sign a promissory note for the balance. If the seller will not, the short sale will not proceed.
- Has the date been set for the “Trustee Sale” (Foreclosure)? If the "sale date" is not far off, the agreement may not be received in time to delay the foreclosure.
- Is the property on 2.5 acres or more, or are there more than 2 units on the property? If so, the property does not fall within the anti-deficiency statute. This means that after the short sale closes the lender can file a deficiency judgement which will hold the seller responsible for the balance unpaid on the mortgage. Often times sellers will not agree to a short sale if they are worried about a deficiency judgement making the purchase fall through.
- The offer that is submitted will not be accepted if it is not close to market value. When a lender considers an offer the lender will high a combination of Brokers Price Opinions (opinions of value submitted by other Real Estate Agents) and Appraisals (opinions of value submitted by appraisers)
- The property will likely be sold in as-is condition. Sellers typically would not be in a short sale situation if they could afford to make repairs on the property, so you are likely taking the property as-is with no repairs in a short sale. You will still have the opportunity to do inspections and if there is something that is a "deal-breaker" you have the opportunity to cancel the sale, but the seller will likely not fix the problems the inspectors find.
- You may have to pay some additional costs at close. Sometimes some of the fees involved with escrow the lender will not agree to cover. These are generally only a few hundred dollars, but they are not necessarily typical buyer fees
- You must be ready to close within 30 days after the acceptance letter from the bank is delivered - Once the bank has agree with you on a price and terms, they will generally provide somewhere around 30 days to close. If you are purchasing with an FHA or VA loan many lenders require more than 30 days to close your loan. You need to do what is necessary to chose a lender that can close your loan within 30 days otherwise you may miss out on the sale and potentially lose your earnest deposit, sunk cost in inspections, etc.
If you can handle everything I spelled out, lets start looking for a short sale. I can help you every step of the way. Click here for a list of current short sales.
If your ready to get started in your search for a short sale email me.