Short Sale Pitfalls to Watch Out For
Short Sales are still difficult to get closed. Don't let anyone lie to you and tell you that they are easy. They aren't as difficult as they used to be, but there is still a long way to go before every buyer should consider this type of real estate transaction.
Case 1: Buyer enters contract with seller. Seller's attorney manages to get the seller's lender's approval. They then wait 1 week to notify the buyer that the sale has been approved and that the closing must take place in 14 days. This, of course, is impossible for most lenders to get done. In most cases, it takes a week for an appraisal to be completed. 3 days from document signing to ordering, 1 or 2 days before the appraiser makes it out there and 2 or 3 days for the report to get back to the lender. So, we ask the short sale lender for an extension. The request is denied and the bank forecloses on the property. 4 months later the home is re-listed as a foreclosure at the price that the buyer would have paid in the short sale. Even once the sale is approved, there is no guarantee that the bank/investor will do the right thing and you'll be able to close.
Case 2: Buyer (same one as case 1) enters into a contract with a seller for an approved short sale. The closing date is set for 6 weeks later, on Jan 13. The short sale is approved by the lender to close Feb 1. Approved short sale? Not really. The seller in this case has nowhere to go as the house they are planning to have purchased for them (by a relative, I think) gets put on hold by the bank that owns it for some undisclosed length of time. Ultimately, the seller gets the deal closed 21 days later and requires 5 days to move out. March 9th is the new estimated closing date for the buyer. Once the short sale is approved, there is no guarantee it will close on time.
Case 3: Buyer (different one this time) offers full price for a short sale. Seller accepts offer and submits to lender. After a reasonable time (30 days or so) the lender counter offers at $39,000 above list and contract price. A half dozen comparable homes to support the list price, but buyer offers an additional $10,000. Now pending bank response. The short sale lender doesn't have to accept the offer, regardless of whether its reasonable or not.
Case 4: Seller enters into a short sale contract with a buyer. Sale is approved at contract price by the lender after 90 days. House does not pass FHA inspection and contract is cancelled. Even when everything goes smoothly on the seller's side, the buyer side can still screw up the deal.
Short sales are still complicated transactions that require a lot of skill and patience. Before deciding to buy a home, talk to your agent about whether a short sale is really for you. Knowing what to expect can make a big difference in how you react to obstacles in the short sale process.