SHORT SALE FACT SHEET: FOR BUYERS
What is a Short Sale?
- A short sale transaction is a sale of a property in which the outstanding debt (in the form of mortgages - such as purchase loans, refinance loans, home-equity loans, or one of the various other types of loans secured by your property) was more than the price for which the property was sold. Example: 1st and 2nd mortgages totaled $470,000.00 and the property was sold for $325,000.00. The sale price was $145,000.00 "short" of the amount that the seller had originally borrowed - thus the term "short sale." Since the banks/lenders were essentially paid back less than what you borrowed, you could be deemed to have received a debt "forgiveness" of $145,000.00. A sale of this type requires bank/lender approval.
What is the Lender's Consideration in a Short Sale?
Before a lender will consider a short sale, they need some evidence that the borrower/the seller cannot meet the financial obligation previously agreed to. This usually means that there must be some indication of a "hardship". Some people mistakenly see a short sale as a panacea to get them out from a financial burden. A lender may be less likely to consider a short sale if you own multiple properties, have sizable assets or indicated that you were going to occupy the property you now want to sell when you never lived there. A hardship may be due to a divorce, job loss, death or disability of a spouse or some other loss of income. At this point the lender is going to decide if they will accept the offer, not the homeowner. The prospective offer has been submitted to the lender. The ball is in their court. The lender has sent out the appraiser who has submitted the report. A decision is anxiously awaited. The lender has the required information to either approve or disapprove the offer.
Is there a standard time length for a Short Sale?
There is no standard as far as time is concerned in a short sale, especially if 2 lenders are involved. Some banks are quicker than others; keep in mind short sales are by no means fast sales and patience is needed; think of all the red tape--was your offer on target with today's market conditions? Keep in mind the bank decides to accept, reject or counter offer--oftentimes, there could be multiple offers, and the winner usually is the person with the best package--purchase price, down payment, credit, etc.
Why would a lender want to cooperate in a Short Sale?
A common saying is that banks are in the business of lending money and do not want to own real estate. While this is a little misleading, it is essentially true. When banks foreclose on a property it is a long and expensive process and generally means holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold. Once this limit is exceeded, they have strong incentives to get rid of the properties at discount prices.
For a lender, agreeing to a short sale avoids many of the costs associated with the foreclosure process. Attorney's fees, delays from borrower bankruptcies, damage to the property, costs associated with resale, property tax, insurance, etc., must all be paid by the bank during a foreclosure. In a short sale scenario, the lender is able to cut its losses by getting rid of the property faster and at a lower cost.
How does a Bank determine what amount they will accept on a Short Sale?
Every bank has a specific method of deciding how much they'll accept on a short sale.
Are there great deals on Short Sales?
Yes, there are. However, not every short sale is a deal. You still have to do your research and estimate the current market value of the home. This is one of the areas where a knowledgeable real estate agent's level of experience really pays off.
Are Short Sales approval guaranteed in all transactions?
No. All of the criteria must be met before a bank will even consider a short sale. Even then it isn't easy to convince a bank that the market value of the home is lower than what they are owed. Even if all the paperwork has been correctly completed it can take several weeks, or even months, only to be denied. If the lender does not approve the short sale, no transaction occurs. The Purchase Agreement becomes void and the listing continues. There are, however, ways to put a time limit on the lender's time to issue approval.
How long can a Short Sale take to complete?
From a few weeks to several months or longer. Short sale buyers across the country are singing the blues because of the time factor. Every short sale is different and as much depends on the lender as it does on the listing agent. Some listing agents outsource their short sale negotiations to a third party, which can often delay a response
How long does it normally take for a Bank to approve a Short Sale?
Again, the answer to this question can sometimes depend on the expertise of the listing agent, which banks are involved, and how many loans are on the property. Once approval is obtained, the property can go into escrow, which takes no longer than a standard sale.
Can a Bank negotiate on the price?
Yes. But according to California Department of Real Estate; Short Sale Negotiators must be licensed real estate brokers (or a licensed real estate salesperson where that person is working under the supervision of his or her broker).
What if there are multiple liens on the property?
Liens can complicate matters because the owner will not have the financial capability of removing them. Depending on a number of factors, including the real estate market and the purchase price, the lender might be persuaded to clear the liens. Or, sometimes the lien holders themselves might be convinced to reduce their liens. A short sale in this circumstance will take substantially longer. Clearly, more than one lender might mean the file will take longer to close. Some junior lenders are demanding unsecured promissory notes from the seller or more money than usual from the first lender. Also, some lenders will consider only the first offer. If the buyer is not the first offer, their offer could possibly fall by the wayside.
What does the Short Sale process look like?
The short sale process, from submission to short sale approval, may generally look as follows:
1. Submission of offer and complete short sale package from the seller.
2. Bank acknowledges receipt -- 10 to 30 days.
3. Bank orders a BPO or appraisal -- 30 to 60 days.
4. File is reviewed -- 30 to 60 days.
5. Negotiator is assigned -- 30 to 60 days.
6. Level II negotiator may be assigned -- 30 to 90 days.
7. File is approved or rejected -- 60 to 120 days.
What if Short Sale runs past 120 days?
1. If Short Sale is running past 120 days, it's possible that the listing agent or a third-party negotiator is not on the ball and is not aggressive in contacting the bank. Contacting the bank could mean waiting on hold anywhere from 10 minutes to an hour or longer.
2. Or, a lengthy Short Sale period could also mean the bank has internal problems, not enough staff or has lost the file a few times, prompting the listing agent to resend the package over and over.
3. It could mean the Bank is short of staff that handles Short Sales. Also, the number of Short Sale files could possibly overwhelm them.
4. Also, it could mean that the appraisal is substantially higher than the offer, and the listing agent is building a case for a new appraiser. Unfortunately, you can't always avoid problems on a short sale.
What can a Buyer do?
- Wait. While you're waiting, remember patience is key.
- Know that the Short Sale property can usually mean the Buyer is getting a pretty good deal.
- In most cases, the Buyer most likely will get the short sale approval.
- Threatening to walk away means nothing to the bank. Your best bet is to stick it out and wait, providing if you truly want the home
Let me hear from you. Did I leave anything out? Would like to hear from you guys!
www.hollywoodhomesbymcampbell.com
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