INTERESTED IN BUYING SHORT SALES ?

READ THIS FIRST - THEY MAY NOT BE THE BARGAIN YOU THINK!

 

I'm asked more and more about buying a short sale, it seems almost daily recently. I've tried to explain it here. It's a bit complicated so this got a little long, but hopefully you'll know more about what to expect when you are done reading!

First of all, banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to market value and has asked an agent for a comparative analysis of recent sales in the area. The listing price of a short sale actually has little bearing on market value and may actually end being greater than the true value of the home!

In addition, you may have to avoid buying a home that is a short sale. If you need to be in a home and can't afford to wait or your loan won't allow you to wait, this isn't the process for you. Short sales take a long time to do and very few actually close. In reality, short sales have to sell 3 or 4 times before a buyer actually sticks with the transaction. Buyers get angry and annoyed because the short sale process can be so lengthy that they sometimes cancel without telling anybody, even their own agents. I have seen a very few short sales get approval in 6 to 8 weeks (mostly when a bank has pre-approved a sales price). Most take 90 to 120 days, on average to get approval and another 45 days to close.

After negotiating with the seller and they accept the offer, the listing agent will send it and the short sale package to the bank:. If the package is incomplete or missing even a single item, the short sale process will be delayed. In many cases, the bank will shred the package and notify the seller it was denied and not even provide a reason. At a minimum you can expect a couple of weeks in delay.

Here are a couple of examples of what the banks are faced with and they have thousands of these to deal with each and every day!

Example #1 - a home was purchased for $200,000 in 2007. It was purchased using a conventional 1st mortgage of 80% ($160,000) and a second of 20% ($40,000). Today, the home is worth roughly $180,000 but the owners can't make the payments and are now late (it doesn't matter how long really...). They contact the lender on the 1st mortgage who tells them that they should contact and agent and do a short sale. They list the house for the current value of $180,000. A buyer writes and offer for $180,000 and submits it to the seller who then sends it to the bank. Since the loan is late it follows the track of obtaining bank approval but in order to do so, the bank determines the net to the bank by subtracting all costs to close it, sellers closing costs, legal fees, buyers closing costs requested, real estate commissions, etc. They determine that the net to the bank is sufficient to cover their loan and approve the sale. The package is then sent to the second mortgage holder who see's that there is nothing left for their loan and they refuse. The 2 banks now work to see if they can negotiate the loss between them.

Example #2 - (and this is roughly 75% of all loans in this condition and your price range) the same home was purchased for $200,000 in 2007. It was purchased using a VA or FHA 1st mortgage of 97% ($194,000). Today, the home is worth roughly $180,000 but the owners can't make the payments and are now late. They contact the lender who tells them that they should contact and agent and do a short sale. They list the house for the current value of $180,000. A buyer writes and offer for $180,000 and submits it to the seller who then sends it to the bank. Since the loan is late it follows the track of obtaining bank approval but in order to do so, the bank determines the net to the bank by subtracting all costs to close it, sellers closing costs, legal fees, buyers closing costs requested, real estate commissions, etc. They determine that the net to the bank is $32,000 to cover their loan and they weigh the loss against the fact that in VA loans, the Government guarantees the bank against any loss and in an FHA deal the loan is insured against loss. In either case, in order for the bank to get reimbursed, they can't agree to accept less from the borrower, the borrower must default and the bank must foreclose.

Once foreclosed, the property is redeemed by the bank or sold at a Public Trustee's auction sale to an investor. The property is taken away from the borrower and sold by the bank at whatever they can get. The bank then applies any deficiency they have to the VA or the FHA insurance and the bank is then made whole. They see no loss at all, but during the entire time they will accept and "review" any offers that are received, but the bottom line on these is that they have no motivation what so ever to cooperate with a short sale.

To sum it up, there are tons of homes on the market that are in good condition and can be sold at a good price and can close in a reasonable amount of time on the market. We can inspect them and have sellers fix or repair deficiencies. Why risk price increases, interest rate increases, your time and effort in searching through homes not to mention the frustration you will feel? Your loan approval has specific conditions too and is limited in the amount of time you can take to close the loan before it expires. Talk to the me or the lender BEFORE we start the search, these conditions may not allow you to purchase a home that takes this long to complete.

I hope this helps and answers some of the questions... call me if you have more.