I sold my first short sale in the 90's. I have over 10 in my pipeline. I am known in my marketplace for the specialty. Buyers are justifiably interested in the savings a short sale can offer. However, few buyers are prepared for the process, often because it is new terrain for their agent as well. Forewarned is forearmed. Here are some things that you should be prepared for if you have a short sale in your sights:
- You must be prepared to wait...and wait. Occasionally, we get some short sales where everything just clicks and the thing is done almost as quickly as a regular sale. Those are the exception and not the rule. Typically, and it all depends on the lender, short sales can take months. Here is part of what is going on behind the scenes: the lender's loss mitigation department is inundated with short sale applications. Often, the negotiators are rotated every 30 days. Faxes get lost. Responses take a long while, and the seller's negotiator (typically the agent or in New York, the lawyer's office) can be on hold for an hour waiting to speak with a human, only to hear that they were given the wrong fax number last week. It is a maddening, daily battle. Be glad you aren't in the front lines. Eventually, it gets sorted out.
- You are buying the house AS IS. Just like with a bank-owned foreclosure, it is "an as" is transaction, because no principal has the funds to remedy any physical issue with the house. Get an inspection for sure, but understand that unless it is an environmental problem, the lender won't address anything and the seller cannot financially.
- You WILL get clear title. In an approved short sale, none of the seller's back taxes, arrearage or other issues convey to you. The lender is hitting the reset button and releasing all liens. That may not mean that a non-conforming bathroom shed or finished basement is compliant, but financially the title is whole.
- No, you may not speak with the bank. Some buyers get frustrated with the process and figure that all they need to do is speak to someone and fix the short sale. They cannot. The lender will speak ONLY with the borrower or an authorized party about the mortgage being worked out for the same rules of confidentiality that prevent your bank from talking with anyone about your finances. Even if you were to get hold of a loss mitigator, your input will be as welcome as if you walk into a stranger's operating room or onto a construction site.
- You probably can't "steal" the house. As a matter of fact, your offer may not even be submitted unless it is your best offer. Once the seller's hardship package is approved, the bank will order a BPO (broker price opinion) or appraisal to ensure that the sale price is in line with market conditions. You might get a $400,000 house for $365,000, but you won't get it for $250,000. Short sales are good deals, but they are seldom steals. Which brings us to this point:
- The lender may counter your offer. The house may appraise considerably higher than your offer, or your offer may indeed be too unrealistic. If the bank counters you, look on the bright side: the finish line is in sight! If the counter isn't to your liking, the smart move is to counter back. If you simply walk away, you may have nailed the seller's coffin, who has, in good faith, been working and waiting just like you have been. Negotiate. If the seller chose your offer to submit to the lender over the others, you should operate in the same good faith and negotiate. The lender may still come down some.
- Once approved, you have a deadline to close. The biggest irony in real estate is how glacially slow lenders are in approving short sales and how impatient they are to close once they rubber stamp one. Typically, it is only 15-30 days to close or the offer is rescinded. Therefore, you should have your act together with regard to your appraisal, rate lock, inspections, and so forth. When that approval come down the pike, you need to be prepared to pull the trigger.
My view is that if the short sale process were easier and more streamlined, the market would stabilize far faster, doing the economy a world of good (are you reading this, Mr. Obama?). Unfortunately, the process we work with now is often bloody difficult more often than not, with lots of moving parts and a shifting landscape. Understanding that going in can lessen your frustration and minimize the confusion of a process that is anything but simple. Few worthwhile things are.