Short Sales Revisited - A few things to know before you list or buy

Short Sales Ins & Outs, What to expect.

Sellers, when to consider a short sale.

1. You owe more than the current market value & you need to sell

2. If you don't need to sell in this market don't list your property

3. In a short sale you have to consider the current Fair Market Value of your home: Do you owe more than than the current fair market value of your home?

4. Do you have an interest only loan, with an escalating interest rate? An ARM?

5. Are you on a fixed income, does the increasing cost of living make it impossible for you to continue to make payments? Are you getting a divorce? Have you had a loss of income? What is the reason you need to sell now?

6. In a short sale the lender will have a certain amount they expect to net based on the current fair market value. Usually based on what is called a BPO (Broker's Price Opinion).

7. Is your loan interest only? Do you have a first & second mortgage? Is it a primary residence or an investment property? Is it an ARM?

There a lot of questions about how this all works. For a conventional loan the lender's typical threshold is approximately 85-92% of the loan. FHA insured 82% of loan, VA Guaranteed 88-91% of Fair Market Value. The threshold represents a percentage of the current market value not the balance of the loan. Closing costs & commissions need to be added to this amount to establish a listing price.

A few acceptable reasons for a short sale: Loss of income, divorce, fixed income + raising costs, job transfer, ARMS that increase beyond your ability to pay etc.

Buyers, if you make an offer on a Short Sale (pre-foreclosure) property be prepared to wait it out. It could take 6 weeks or 6 months. Don't make an offer if you need a 30 day or 45 day close. If lender approves your contract be prepared to move quickly with financing. The lender will usually give you a closing date 2 to 3 weeks out from acceptance. Depending on lender this might be extended if going through the underwriter process is taking longer than it should. Short Sales are sold "as is", don't ask for warranties, repairs or other expenses that might hurt your chance of acceptance. The lender is unlikely to approve the offer & the seller would not be in this position if they could afford to pay them.

This is not an ordinary transaction, lenders are different, you need to be committed to the transaction. A short sale takes a lot of time, negotiation and good old elbow grease. If you are approved, do everything you can to make it happen. This is a process that can net you an exceptional investment. If you can't perform or hang in there, don't get involved.

Contact a professional real estate agent for more information.