These should be called "SHORT LISTINGS" ... not "Short Sales" ... and won't actually be homes for sale or "short sales" until after all lenders notify in writing for approval of seller side debt forgiveness and deal.
A SHORT LISTING is where a property seller needs to sell and sale proceeds are not sufficient to pay off the existing mortgage or lienholders. This is an alternative to foreclosure.
SHORT LISTING and SALE requires the mortgage company and lienholders to agree for a reduced payoff. If not, the sale won't take place.
All sale costs must be included in SHORT SALE price. The Seller receives nothing, except debt relief and not having a foreclosure on his record.
Challenges for Buyers in SHORT LISTINGS and SALES are many.
- Sellers don't have equity and will lose motivation to cooperate with the process.
The owner seller without equity must first submit an application or applications to lenders and request agreement for forgiveness of debt. Sellers often drag their feet on this, and many won't have necessary docs, including the past two years of tax returns, and won't be able to satisfy lenders.
- Some lenders and their representatives are new to the short sale process.
Lack of experience on the part of lenders and loss mitigators can make the buying process very slow and challenging. Some lenders simply don't have enough trained staff to take care of the demand.
- The industry doesn't have a uniform process and application for short listings and sales.
Short sales documents and processes are lender-specific, which means they each have their own procedures and forms, making it messy and time-consuming for listing REALTORS® and agents to become efficient in make these work.
- Multiple lenders make it complicated in many short situations.
When more than one lender or lienholder is involved, the negotiations are more difficult. Second lien holders often hold up the transaction and try to get the largest possible payment, in exchange for releasing their lien. This despite in foreclosure that 2nd or 3rd lienholder won't get anything.
- Private mortgage insurance lienholders can hold up the process of approval.
PMI is basically a lienholder and will have control over demand and payment.
- Lender or Bank approval on short listings takes a long time.
If you write an offer on a short sale listing, you must allow 4 to 6 months or more for lender approval of the short sale process.
- Even if a lender approved of seller side for short sale, you still won't be approved as buyer until so notified in writing.
Remember that this process can take 6 months just to find out about.
- It is now too late on short sales for Buyers to get The First Time Home Buyer Tax Credit, which expires on November 30, 2009.
So buyers won't qualify for the income tax credit and should be looking at regular equity listings anyway.
- Many if not most short listings won't be sold and will go away by loan modifications or foreclosure.
Short sales won't be approved by lender if they don't meet the net lender minimum threshold percentage of fair market value (which can be 88% of fair market value). This focues by lenders on fair market value of the property means that if you make an offer, you have absolutely no control. Decision will be made by lender as to FMV of the property, not on value of your offer.
- Lenders want to see multiple offers and competition for the short sale purchase.
So you as prospective buyer will see an asking price that will be low, so you will get excited. You will not be alone and have competition. Many people in these situations lose interest.
- There are lots of reasons that short sales won't close, and almost all of those are out of your control as a buyer.
Challenges for you as Buyers in messy SHORT LISTINGS and SALES are many and mostly out of your control.
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Contact us if you have questions about the Orange County Real Estate Market. Thanks. Harrison K. Long, Explore Group, Coldwell Banker Previews, Irvine, CA.
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