Some months ago, I had a long conversation with a real estate investor about short sale properties vs. REO properties.  He said he didn't think there was much in the way of savings derived from buying homes through short sales anymore.  Instead, he said it probably made more sense for him to buy foreclosed homes and wait patiently to buy them through lenders' REO Agents.

I thought that was it.  I thought he had made up his mind on the subject and was just trying to politely tell me that he would no longer be needing my services, but then he added, "So what do you think about this?  Do you think I should start buying my investment properties as REO's?"

With me being a Short Sales Specialist, I'm probably a bit biased on the advantages of buying short sale properties vs. REO's, but, in any event, here's what I basically told him.

There are both advantages and disadvantages to buying short sale properties.  The major disadvantage of buying a short sale property is that there may be undisclosed liens or problems with the title.  When you buy a preforeclosed property; you're buying it as is.  There is always a risk that the distressed seller may have acquired liens (e.g. unpaid hospital bills or unpaid contractors' bills for home repairs) while they owned the property.

Another downside to buying short sales is that they frequently take a long time to get approved and to close.  Most short sales take on average 3 to 6 months to close, and if you don't have the patience of a saint, you're probably going to lose interest in buying the property before too long.

However, just like there are risks involved in buying short sale properties there are also benefits.  One of the biggest and most important benefits is the fact that short sale properties are usually cheaper to acquire than REOs.  If you wait for the property to be foreclosed on and placed on the lender's REO list, then you're going to usually pay more to own the property. 

The reason for this is the fact that by time the lender legally takes the property back he has already incurred an excessive string of additional fees, e.g. property taxes, HOA dues, hazard insurance premiums, mortgage insurance premiums, lost interest, attorney fees, property maintenance costs, real estate commission, etc. 

Naturally, the mortgage company plans to recoup these fees, and to help accomplish this goal, the lender subsequently raises the sale price of the REO property.  Depending on whether you're buying foreclosed property in a state that practices non-judicial foreclosures or judicial foreclosures, you could unknowingly end up paying an extra $10,000 on up to help reimburse the lender for these expenses.

Well, that's my take on the subject.  If you disagree, please post your comments.  I'm really curious to hear your thoughts on this subject.

 AUTHOR CREDITS:

"Short Sales:  Reason Why They Take So Long," from Tracy Miller's Blog:  Short Sales & More!  (Material Copyrighted 2008. Tracy Miller; All Rights Reserved.)   Tracy's blog published at Active Rain Real Estate Network (www.activerain.com/blogs/tracyshortsales).  It is permissible to reprint, repost, reblog this material. 

When talking to individuals who are just getting started in short sales, I often hear the following question, "Why does it take so long to hear back from lenders about my offers?"   To help answer this common question, I pulled together a short list of possible reasons causing the long holdups. 

Naturally, this is not a conclusive list, so I would appreciate your comments and feedback on what you think are other possible reasons causing these long short sale delays.

POSSIBLE REASONS FOR DELAYS:

1.  Because of the epidemic number of U.S. foreclosures, there are just too many cases for loss mitigators to review.

In a conversation I had with a mitigator several months ago, she told me that she had over 400 short sale files she had to review.  Naturally, with this type of unprecedented case load before her and many other loan specialists, it makes it extremely difficult for mitigators to quickly review offers, order BPOs, and follow up in a timely fashion with individuals that submitted short sale offers.

2.  There are not enough experienced loss mitigators to keep up with the growing case demands.  There are a large number of unskilled mitigators still learning the ropes and ill-prepared to keep up with the excessive demands pushed on them by the growing number of homeowners defaulting on their mortgages.

3.  Short sales can take longer when there are multiple lien holders involved.  If the second lien holder wants more than the first is willing to give up, then this stalemate could add addditional weeks to the timeline before a decision on your offer is rendered. 

4.  If you haven't heard back from the mitigator since you submitted your offer months ago, it could be because your seller/homeowner is still making his mortgage payments.  Typically, lenders won't consider a short sale unless the homeowner is delinquent by three months.  So, naturally, if the seller is still making his mortgage payments on time, then the lender will be a lot less motivated to consider your short sale offer and may even just plain throw out your request.

5.  Another key reason for the long wait time in hearing back from mitigators is usually because of the investor involved in the short sale.  Yes, in case, you weren't aware of it, there is usually an investor lurking behind the scenes.  He owns the seller's note and may have imposed strict short sale guidelines.  In this situation, all offers would need to be approved by the investor(s) before the mitigator could relay/convey news back to you whether your offer is approved or not. 

6.  Another reason for the holdup is that there is frequently too many parties involved in the short sale process.  In case you weren't aware, there are usually three parties involved in the short sale review process, which can unfortunately help to lengthen the time it takes to receive word back from the loss mitigator. 

There is the Lender (or investor), the Servicer, and the MI Company.  The lender loans the borrower/seller the money to purchase the property.  The Servicer sends the seller his monthly loan statements and collects mortgage payments, and the MI Company provides insurance to protect the lender's interest in the property in the event the seller or borrower defaults on the loan. 

Since PMI is always required when the borrower's LTV ratio exceeds 80%, this would naturally explain why the MI Company would be involved in short sales where the seller has little or no equity in the property.  Also, this would help to explain why it can take mitigators considerably longer to get back to you on short sales falling within the parameters described.

Well, this sums up my list of reasons for the LONG WAIT TIMES in receiving news from mitigators on short sale offers.  Again, if you have other reasons you'd like to add here, please be sure to leave me your comments.

AUTHOR CREDITS:

 "Short Sales:  Reason Why They Take So Long," from Tracy Miller's Blog:  Short Sales & More!  (Material Copyrighted 2008. Tracy Miller; All Rights Reserved.)   Tracy's blog published at Active Rain Real Estate Network (www.activerain.com/blogs/tracyshortsales).  It is permissible to reprint, repost, reblog this material. 

I've worked with numerous homeowners that faced foreclosure.  Many wanted my help in negotiating repayment plans with their lenders and others wanted my help with representing them in short sales.  For those of you who are currently mulling over which route is best to solve your mortgage problems, let me tell you now that regardless of which route you choose --- both will require a hardship letter.

WHAT IS A HARDSHIP LETTER?  It's a letter that describes your personal challenges, usually finacial challenges caused by the loss of a job, a recent divorce, illness or death in the family.  The letter describes any unfortunate circumstance that caused you to fall behind in your mortgage payments.

Before you sit down to write this letter, let me offer you a bit of advice.  First, take your time and think about what you want to say.  It's best to start with a rough draft.  Get a blank sheet of paper and jot down your thoughts.  Don't worry about your grammar or spelling or if the events that led up to your problem are not in chronological order, you can revise all this later.  The key here is to just get your thoughts down on paper before your brain cells go cold.

Now, when it's time to go back and revise your letter, make sure that you've elaborated on your situation properly.  Be sure to provide plenty of details. You want the Loss Mitigator assigned to your case to get a very clear picture of what caused your problem.  Unfortunately, in my line of work, I've seen too many hardship letters that were either just 1 or 2 paragraphs long and that did a very poor job of describing the homeowner's challenges.

So, what's my next piece of advice?  Let me remind you that a human and not a heartless robot will read your letter.  The Loss Mitigator that will review your letter is a person too and they can be just as easily moved by a story describing severe challenges as you or I can.  So, make sure to open up.  Be honest about describing your situation. 

Okay, what's next on my list?  Keep in mind what you're trying to achieve by writing this letter.  What is your objective?  Are you trying to get your mortgage company to approve a short sale?  If so, then you'll need to mention that you can no longer afford to keep your home and that you would like for your lender to consider your potential buyer's short sale offer.

If selling your home isn't your intent and you want your lender to approve a temporary or permanent repayment plan, then your hardship letter will be different from the one used for a short sale.  In this letter, you should write about how you want to keep your home and describe what steps you've already taken to correct your mortgage problems.  These steps might include examples such as:  you found a higher paying job, or you've taken on a second job, or you've taken in a boarder or tenant in your spare bedroom, or that you sold your old gold jewelry that was worth $8,000, etc.  Okay, I think you get the picture.

NOW, LET'S RECAP.  When writing a hardship letter, make sure to:  

1)  Take your time and work from a scrap sheet of paper. 

2)  Be honest and detailed in describing your situation. 

3)  Keep your objective or the purpose of your letter at the forefront of your mind.   Remember --- are you trying to get a short sale approved or are you trying to work out a repayment plan?  It's important to keep in mind which one you are trying to achieve.

I'm a Short Sales Specialist and I've done hundreds of short sales for real estate investors.  When I first started doing short sales, I didn't have the luxury of attending a beginner's short sales workshop to help me get up to speed right away on the subject. So, naturally, the next thing I did was head for the Internet to see what I could find on the subject.  I came across a lot of stuff.  Some of the information was useful and some wasn't so useful.

Most of what I learned about short sales came from on the job experiences.  I spent a lot of my time gathering short sale documents from sellers, assembling short sale packages, faxing documents to lenders, refaxing documents, calling and recalling lenders to find out the status of short sale offers, and performing a long list of other duties just to unfortunately hear the words at the end of a phone call, "Your client's offer has been rejected."

As a result of these experiences, I decided to assemble a list of reasons I found to be responsible for getting short sales rejected.  At the top of my list is the seller's financials.  One of the fastest ways to get your short sale KILLED is by not including the seller's completed financial statement or by not including the seller's financials (e.g. recent W2s, recent tax returns, recent bank statements) in the short sale package. 

In case you weren't aware, MOST LENDERS WON'T EVEN LOOK AT A SHORT SALE OFFER WITHOUT THIS INFORMATION!!   Also, the lender will normally pull the seller's credit report to verify the information provided on the financial statement is correct.  They will then use this information to determine if they can pursue the seller for a deficiency judgment and will subsequently have the seller sign a note, but that's only if it's proven that the seller is able to meet the financial demands laid out in the note or agreement.

So, if a short sale is on your next list of things to do, please make doubly sure you don't forget to include the seller's financials in your short sale package.