It is true that the Active Listings in the MLS are dominated by Short Sales listings these days and on the surface they appear to be some really great deals. However, just like your Highs School Prom Queen, looks can be deceiving (my apologies to all the H.S. Prom Queens who read this...and their Kings...and the rest of the Court, as well).
Short Sale homes are typically are a better buying decision for an investor looking for investment property than for a first time homebuyer. It still continues to amaze me when a first time homebuyer that is in a rush to move will ask me if I know "How to Buy a Short Sale House for Sale in San Jacinto?"
Short Sale homes typically will be occupied by the owner - but not always. Today, more investors are trying to liquidate their investment properties through the Short Sale process.
WHAT DOES SHORT SALE MEAN?
Before I can educate a first time homebuyer I must first make sure that they truly understand the meaning of the term that is tossed about so casually these days so that they understand what is a short sale.
I offer a short sale definition that simply lets the prospective buyer know that the seller owes more on their mortgage than the home is worth and in order to sell it, the current owner needs to obtain permission from the lender - often a bank.
I'll elaborate, when questioned further that there is an entire short sale check list that each lender has that is unique to them. So what Countrywide, Bank of America, Wells Fargo, One West Bank or USAA expect from short sale REALTORS® is completely different from one another. There is no magic bullet that can speed up the short sale time line or give anyone a special passage to buy a short sale home.
SHORT SALE REQUIREMENTS
As previously stated, each bank will have it's own unique requirements for working with them to liquidate a short sale mortgage.
One of the universal tasks that a specialist in short sale realestate must address is the hardship letter that must be prepared documenting why the sellers unique circumstances should be considered for leniency in the forgiveness of what may be a huge amount of debt. To complete the short sale package, the hardship letter must not only tell the story of woe, but must document the circumstances with pay-stubs, bank statements, tax returns, medical records and anything else that can document the homeowners situation. It is necessary to ‘un-qualify' for the loan and PROVE that the homebuyer CANNOT afford the current mortgage. Loss of equity doesn't cut it.
Many lenders will provide the short sale realty company with a complete sample short sale package to improve the chances of getting the short sale package approved.
HOW LONG WILL IT TAKE?
This is perhaps the biggest reason I try my hardest to discourage first time homebuyers, who have or want to move soon, from getting involved in buying a short sale and why I'll do almost anything if it means avoiding a short sale.
The timeline can be very long - typically in excess of two months. When an offer is made by the buyer and their real estate agent, the listing real estate agent must now complete their "short sale package" with their hardship letter and all of the supporting documentation, which should include some preliminary title work to show any other liens that may be on the property as well as the contract that needs to be in line with market value of the short sale house.
On the receiving side the negotiator for the bank receives the package - but typically won't even take a look at the contract until close to the date when the bank is scheduled to take the home back, through the foreclosure process. You see, these bank negotiators are over-worked. They have a very heavy caseload and cannot spend a lot of time on any one file. The other consideration is they pretty much all work on some sort of bonus program - so the only files they are really going to get deeply involved in are the ones where they believe they will be able to close the deal and earn that bonus before the bank takes the home back in foreclosure and moves it to the REO department for liquidation...or worse sold as part of a bulk sale to short sale bank investors with a pool of other short sales that the bank chose not to negotiate.
The Short Sale process time line can move quickly once in the hands of a competent bank negotiator. So quickly that it is not uncommon for the bank to accept an offer and give the buyer 10 days to close escrow. So the buyer has to have their financing in place, which is why short sales are great investment vehicles for bank short sale investors but for the first time homebuyer who typically does not have a stash of cash and must rely on traditional financing methods which will require a decent credit score, a down payment and closing costs...not to mention some funds in reserve for any rehab work that may need to be done.
WHAT ARE THE CHANCES OF GETTING MY SHORT SALE PROPERTY?
There are those clients who just won't take no for an answer and God Bless them. After I painstakingly go through the details of the process, I am still asked about their odds of getting into a short sale property.
I'll make one last effort to enlighten them and ask the first time homebuyer if they understand what the short sale requirements are and if they are ready to go down the emotional roller coaster ride that will take two to three months...knowing that the statistics are against us. More often I'll get a fairly complete recap along with a, "but we just love this house, and it's in the neighborhood that we both love. Can't we just try?"
At this point, I say of course we can...as I dial the phone and ask one of my buyer agents to meet us back in the office...