The Skinny on Buying a Short Sale Property

Everyone's heard of short sales, where the seller owes more money on the loan that what they can sell the property for. 

But what do you do if you're a buyer who wants to make an offer on a short sale property? Are you a good candidate for a short sale?

Here's the skinny:

The way it works on a short sale is that you make an offer and negotiate with the seller as usual. Once there is agreement and a  ratified contract between the buyer & seller, then the offer is submitted to the seller's bank along with a myriad of other financial paperwork prepared by the listing agent and the seller (aka: "the package").

There has to be a proven "hardship" and financial insolvency on the part of the seller for the bank to "approve" the short sale. The buyer will likely wait at least a couple of months...sometimes more, sometimes less, depending on other factors that usually have nothing to do with the buyer at all. Banks are inundated with files upon files on their desks, and it just takes time.

Buyer's agents have no control over the process as all communication is done by the seller, their agent and the seller's lien holder(s). It can be frustrating to say the least, but if you want the house then you will have to go through the process. To prepare my clients, I say don't expect to hear for 3-6 months then if we hear sooner that's good news. Of course the banks don't always give approval, so it's never a guarantee. 

Short sales are usually "as is" sales, meaning you can still get your inspections but the seller will not be making or crediting money for any repairs. If the property is a condo or in an HOA, the sellers may be behind on their payments. The listing agent should do their due diligence to have everything prepared up front for buyers, but this is not always the case. (A recent condo short sale I closed had an outstanding balance of $5,000 owed to the HOA and it was a big mess trying to get it sorted who would pay for it. We ended up negotiating with the HOA to come down on the price, which they were not happy about. But we finally made it happen.)

So, you've found the property of your dreams, which happens to be a short sale & you want to make an offer. What next? You have to make a case to the seller, their agent & the seller's lien holder that you are qualified to purchase the property. You need your ducks in a row from the get-go. They don't want to accept an offer and then find out it's not possible for the buyer to perform after all the time and energy it takes. When submitting your offer, you'll also need an updated pre-approval letter from your lender, FICO scores, and any other supporting documentation that shows you as a strong, capable buyer and proof of funds (where your down payment will come from). If the seller accepts your offer, the offer and your financial information will be sent to the seller's lienholder as part of "the package." Remember, the bank wants to make sure subject buyer is able to move forward.

You're a good candidate to buy a short sale property if: 1) you don't have a deadline to move, 2) you're patient, 3) you're patient, and 4) you're patient.

There's a lot more involved, but this gives you an overview. Of course if you have questions or if you need assistance with selling or buying a short sale (or a regular sale) in the LA/South Bay, feel free to call me to get the process started.