Archive for February 8th, 2011

Short Sales – Basics

What is a short sale? A short sale is when the homeowner owes more on the house than they could sell it for. Another reason for a short sale is if the homeowner has a hardship (unemployment, medical issue, bankruptcy, death)

The first thing the homeowner must do is prepare a short sale financial package and submit to the bank. There are some banks that will not even consider a short sale unless the owner (with the help of their realtor) can prove that the home will not sell for the amount of the mortgage. This proof is usually in the form of an offer. Most  banks are getting (finally) better at working with the owner on a short sale.

Buyers should make sure that when they make an offer they have recent comparables on properties that have sold to back up their price. The asking price on the short sale property is usually set by the realtor to try to gain an offer. The lenders do not give guidance up-front as to what they will accept, so the price is (or should be) based on recent solds. 

Once the buyer makes an offer the seller can accept or reject it (depending on how much of a hit they want to take). The offer, if accepted, is then submitted by the listing agent to the lender for approval. While the lender is not part of the purchase and sale contract they have the final say so as to whether they will accept the deal or not. On a side note, the buyers agent needs to stay very much involved in the transaction and the progress being made. Many listing agents take on short sales and do not follow through with the paper work that is requested from the lender throughout the process. This will kill a deal pretty quick. The lenders have pretty strict guidelines and timelines and are not very flexible with them. 

The response time from the lender can take anywhere from several days (rarely) to several months. Many buyers get tired of waiting and usually walk from the deal. The rule of thumb right now is it takes three deals before a short sale closes (that can be 6 months and more). There is also a foreclosure process that will have started. Because sellers usually have to miss at least one payment before the bank will talk about a short sale, the bank will start the foreclosure process. Unfortunately, many homes go to auction (foreclosure) before a short sale is completed.

 (I will discuss the foreclosure process in tomorrow post)

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