Short Sales: A Buyer's Guide

As the Housing Bubble continues to let out air and drags down the Economy, many Sellers find that the value of their home has decreased BELOW the amount they owe to their lender (the BANK). I actually have a client that owes $420,000 on a home that is now worth $200,000! How can a Seller avoid foreclosure and limit the damage to their credit? The answer is Short Sale!



For a Buyer, this can present a terrific opportunity to purchase a home at an outstanding value, while still retaining the ability to perform inspections and get a home that has not been "trashed" by a angry homeowner. There are some considerations for Buyers and what follows is a list of things every Buyer of Short Sales should know.



1. Short Sales are not Short! The term Short Sale refers to a Seller "shorting" the amount owed to the Lender. It is not uncommon for a short sale to take as long as 6 months or more.



2. Buyers need to be pre-qualified or pre-approved by a lender and present a letter to the seller with the offer. This is a terrific idea with any sale ( I always do it) but the seller's agent has to put together a packet to send to the Lender, and part of this packet is proof that the buyer can perform.



3. Buyers need to find out who the seller's lender is. This can be helpful because a savvy buyer's agent can know approximately how long a transaction could take.



4. As crazy as this may sound: Each lender deals with Short Sales differently. Countrywide originated many of the loans in the last 3 years, so understandably, they get the most requests of short sales. As a result, they probably take the longest to approve.



5. Only 20% of short sales close. Why? Buyer's get cold feet or find something else, Lenders reject offers and in rare cases, Sellers get loan modifications.



6. The Lender is actually not the owner of the loan, they are a company that services the debt. What does this mean? They collect and distribute the money paid on the mortgage. Many times the loan is bundled with many other loans and sold to investors. Each investor has their own criteria as to what steps need to be taken.



7. Buyers should keep looking for a house, even if they have an offer accepted by a seller. Why? Because the offer could be rejected; the house could be foreclosed on; or they could miss out on another sale that isn't Contingent on Lender approval. A buyer doesn't have a fully executed contract until they have Lender approval.



8. NEVER release the Earnest Money deposit to an escrow company or a seller. You want full control over that money and you never know what will happen. This does not apply to traditional sales, probate sales or REO sales, just Short Sales.



9. Make clear in the offer or with the Listing Agent that ,if accepted, your offer should be the ONLY OFFER submitted to the lender. Any other offers should be put in a back up position. Every additional offer that gets presented to the lender will only SLOW DOWN THE PROCESS. This benefits no one, not the buyer and not the seller.



10. Be ready to accept the property AS-IS. The big question here is whether to perform inspections upon acceptance by the seller. I say yes, but there is an inherent risk: if the transaction falls apart, you lose out on the money spent on inspections. On the other hand if you wait until approval by the Lender, you may find an adverse condition that will affect the desirablity or the amount you want to pay. If you do choose to wait and you request the lender to make more concessions, you run the risk of extending the approval process (which could result in foreclosure) or being told by the lender, "NO".



11. Be prepared to have long periods of time without an answer or an update. Why? Because the agent commonly has no contact with the Lender's Negotiator. To be precise, they have a don't call us, we'll call you mentality. This does not mean that the listing agent shouldn't call after all the squeaky wheel gets the grease.

It's best for a buyer of a Short Sale to be flexible in the sale as to the close date and the process. Pick a reliable agent to help you through the process and have faith that the deal will close...eventually.



For more information about distressed sales, short sales or foreclosures call Andy @ 707-616-3456 or email me: andy@azalearealty.com





Opinions expressed on this blog are those of Andy Parker and not those of any other person or entity.