A Short Sale occurs when lenders or banks agree to allow a homeowner to sell their home for less than the home owner owes on their home loan. This kind of a sale has to be approved by the lender any time the sale price of the home will not be enough to pay off the associated home loan. Someone has to take a loss, and it is usually the lender/bank in the form of the approved short sale. This is one of the options a borrower may have to avoid foreclosure of their home.
NOT ALL SHORT SALES ARE CREATED EQUAL
Simply stated, all lenders have their own set of rules to
approve short sales. The number of lien
holders on a home, the type of liens on a home, the level of seller cooperation
and who is negotiating the short sale on behalf of the seller all can impact
whether a short sale becomes lender approved or not. For example, many of the major banks have
streamlined their procedures to efficiently approve short sales. Wells Fargo, Chase and Bank of America take
less time to process a short sale than GMAC or a smaller bank or credit
union. A home could even have three liens with three
different banks; you can imagine how the stars have to align to get all three
lenders to agree to take losses.A seller has more to lose if he goes into foreclosure but completing a short sale is a personal decision. For Buyers, however, Short Sales must also be carefully evaluated:
In Today’s market, purchasing a short sale does
not necessary translate to purchasing below market value. Banks understand that values are going up
and the inventories are low with homes coming to the market with multiple
offers. With that, banks expect to sell
the home at the current market value, at minimum;
- If you are willing to put an offer on a short sale, you MUST exercise patience. A response may take from a week to 6 months, depending upon who the lenders are and how many lenders have a claim on the property;
- Keep in mind that a short sale home is a distress home and it may need some deferred maintenance issues resolved. However, the repair issues in an occupied home many times are less severe than the repair issues with a bank owned home or a vacant home being sold a short sale;
- The Seller will generally provide seller’s disclosures outlining the history of the home, for buyer’s review during contingency periods;
- Buyer will be able to get a marketable title instead of insurable title which is usually granted when buying a bank-owned home.
PATH TO A SUCCESSFUL SHORT SALE
- A complete short sale package will include a
listing agreement, the seller’s financial information, a hardship letter,
the buyer’s offer, proof of funds from the buyer - among other documents;
- A complete short sale package must be submitted to the lender or
lenders in a timely manner;
- An offer at the current fair market value will be
an incentive to get the lender to approve the short sale. Lenders will review the best exit
strategy for your loan - including but not limited to foreclosure - if they
feel the listing price and offer are too far below the fair market value;
- An experienced listing agent that knows how to
push through the short sale is essential;
- A patient buyer who will ride out the wait for
their offer to be approved is important too.
- When a home becomes vacant, lenders are required to pay higher insurance premium fees, there is more deferred maintenance and there is an increased possibility of vandalism;
- Remember, vacant homes = vandalism = lower values for the community;
- It is costly to complete foreclosures. With a cooperating seller, lenders avoid more fees on possible eviction or damage to the property securing their loan.
Yes, they do work, but you must work with an agent that understands the intricacies of short sale transactions and the current market trends. There are many things that need to be taken into consideration when assessing if you, as a buyer, want to put an offer on a short sale home. For instance, your agent must find out how many lien holders there are, who the lien holders are and if there are any offers in the works. Is the property going to be taken off of the market while the bank decides if the sellers accept you offer? Is the listing agent well versed in Short Sales? Is the seller really looking to complete the short sale or just stalling the inevitable: Foreclosure?
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