Short sale, the sale of a property in which the proceeds of the sale fall short of the amount of money owed to the mortgage company. It often happens when an owner can no longer continue to make the payments on the home.
We talk to buyers each day that see properties being offered for short sale. Many want to jump right in because they look like great deals. But, we have found that there is a lot of misinformation in the marketplace about short sales.
>Typically, there is nothing short about the length of time that it takes to do a short sale. They can take 2 months or they can take longer, often up to a year. A buyer for a short sale property typically must be very patient and have some flexibility.
>The advertised price on a short sale, is not necessarily the price that the lender is going to take for the property. Often short sales are priced 10% to 15% below market value. This is to encourage a flurry of activity and often a bidding war when the house goes on the market.
>You, as a buyer may not be the only one that has an offer in on the property. You may be competing with multiple buyers for the same property.
>Typically, a short sale lender is not agreeable to doing or paying for any repairs on the property. They are normally sold in AS IS condition. Depending on the types of repairs needed on a house, this may rule out a VA or an FHA buyer. Typically, buyers that are using government insured loans are not allowed to do their own repairs on a property they are buying.
>The lender's BPO (brokers price opinion of value) must be in line with the appraisal that your lender has to order for your loan. If the property doesn't appraise or fall within the percentages of what the short sale lender determines they must get for the property, the buyer may have to come to closing with money above and beyond the purchase price or the buyer's lender may refuse to finance the purchase.
>If the short sale takes too long, and the lender's BPO is over 90 days old, the short sale lender may have to order a new one. Or, they may have to go back and ask that it be adjusted for value or recertified because of it's age, especially in a declining market.
>If your Realtor or the title company that is doing your short sale negotations for you, is assigned to a difficult loan mitigator, with the seller's lending institution, that person can make the short sale incredibly tedious.
>Short sale mitigators can be slow to respond to requests. Remember, you're not special. You're just another file number to them.
>Just because a short sale listing in your MLS is advertised as APPROVED by the bank, that doesn't guarantee the short sale is approved for you. It can mean that there was a previous buyer for the property, and the lender approved the terms of that previous buyer's contract. One approval isn't a guarantee of an approved price/contract with you.
>Just because the property is advertised for sale, doesn't always guarantee that the seller's lender will agree to a short sale on the property. Typically a short sale is approved because of financial hardship, illness, death, military transfer, job loss, etc. Not all short sales make it to closing.
Short sale rules are ever changing.
Is there a first mortgage on the property?
Is there a second mortgage on the property?
Every situation is different. Every lender is different and every short sale mitigator is different. The banks, the mitigators, the negotiators for buyers, Realtors and anyone else involved in the short sale process are learning everyday.
Buyers are purchasing short sale properties everyday. Some are purchasing lovely homes at attractive prices.
Remember, the agent/negotiators representing you in the purchase of your short sale or in the sale of your short sale property are working incredibly hard for you. So, hang in there and try to be patient.
For sellers considering a short sale, it is always advisable to contact a real estate attorney BEFORE entering into a short sale agreement. Currently, in states like Florida, courts allow mortgage lenders up to 5 years after a short sale is closed to file a deficiency judgment. Read the article at Bloomberg.
Sandy Shores REALTOR®, Melbourne/Palm Bay FL Real Estate
Brevard County, Florida's Space Coast Real Estate & Investing
I specialize in Residential, Investment & Relocations. We can help with your Short Sale.
I buy, sell, rent, own and manage Investment Property
that for you
Sandy-I agree with you on doing your homework first. the Arizona Department of Real Estate has a Short Sale Advisory that we are now using as a resource for consumers. I've attached a link to it. Thanks for such a great informative blog. http://www.aaronline.com/documents/ssseller_advisory.pdf
Sandy, You are so right, it's a very difficult process. And there are many things that can change during the Short Sale process but I've also see homeowners wait it out and get some beautiful deals.
Hi Sandy, Great information here and I like that you noted up front " there is nothing short about the length of time that it takes to do a short sale." I hope that it will become more streamlined and less cumbersome for all this year.
I think some agents are telling stories to scare off the competition. The last short sale I had was bad but I've had worse conventional sales!
Your friend in Washington State,
Paul
We are having more short sales now with the economy still hurting. My broker has done a couple I haven"t I think i would use his help if I get the oppurtunity.
Josee, Good information to know. Any published info out there to educate the public is great.
Carole, A short sale buyer must be patient. I agree, we have seen some buyers get some really attractive priced homes in purchasing short sale properties. So true,
Mary, I also hope that in time short sales will become a bit less cumbersome and more streamlined in the future.
Paul, I hear you. I have done some conventional transactions that have been real doosies.
John, Our market is quite busy with short sales and foreclosures. They're here to stay for awhile.
I've seen short sale 'negotiators' change the buyer $3,995!! Amazing!!
There are so many moving parts to short sales, it seems no two are even remotely alike. Much depends on the banks involved, the agent that has the property listed. . .Just so many variables! From a buyer prospective, a foreclosure is usually much more desireable that dealing with a short-sale. At least then you have a better idea of who you are dealing with. In a short-sale, agreement comes between a buyer and seller, and then gets submitted to the bank, who is often in the cat-bird seat, and holds a great deal of power. They can be that illusive third-party.
Carla, We've seen adjustments from short sale negotiators that have kicked the buyer or seller right out of the transaction.
Myrl, You explained it well. Sometimes a short sale is a cat and bird game with the bank. Every transaction is different from the one prior and every negotiator is different from the others. There is a bit of uncertainty in these transactions.
I also worry there will be a lot of litigation emanating from these sales once the dust settles. Consider for a moment that you represent a seller who doesn't realize the implication of those deficiency judgements, and feels he was represented well in the sale of the property. It is imperitive to have a set of disclosures that point out the things you mention in your blog.
Hi Myrl, Interesting that you brought that up, After reading the Bloomberg report, I wondered the same thing. I think it's a real gray area.
Short sales do/may have long term implications. I would definitely recommend an attorney be consulted up front. If they have up to five years to file a deficiency judgment then there may be cases where bankruptcy and surrender of the property may be a better option.
Great information Sandy, and something that should be stressed, especially to potential buyers of short sales.
Hi Gary, We always recommend any seller considering doing a short sale, consult with an attorney FIRST. And for buyers, we always make sure they understand that they can surely take some time.
Hi Gabe, We try to let buyers know what is involved in dealing wiht a short sale, so they don't have a set of unrealistic expectations. It helps the transaction go much more smoothly.