If you are thinking about buying a short sale there are a few things you need to understand about short sale listing. Being a Short Sale Listing Agent and listing many and many short sales. I thought that this would be a good read for someone who is thinking about buying a short sale.
What exactly is a Short Sale?
In order to understand a short sale, also known as short payoffs and pre-foreclosures sales, we must first describe the meaning of “short sale” A “short sale” is defined as the negotiation of the transfer of ownership of real property with a Mortgage (lender), also known as beneficiary, When the property is financially over-encumbered with monetary liens. To sum this up this means that the bank accepts less than what’s owed on the property.
Example of short sale in real estate.
A example of this is : We have a home where the Payoff amount is $300,000. In the area Homes are only going for $250,000. There is a difference from the 300k and 250k price = – 50k of Equity. This amount would make the seller upside down on their mortgage and unable to sell their home.
In the above example the homeowner would list there house for sale and sell it for what they owe and have to pay the difference of the sale price and what’s owed. If you were the seller and you had to come out of your pocket for the above amount it would make you uneasy because a lot of sellers do not have the deference of the amount to come to the table with at closing. This is were a short sale is needed. If you are seller and you need help with your short sale let then you can chat with me.
The short sale will allow the seller to sell the house for less than what’s owed on the mortgage amount. This can also be used when a seller is faced with foreclosure and needs to sell a home when they are 2 or more payments behind on the mortgage. What this is considered is what we called debt settlement. The same way that you would debt settle with credit cards and settle with car debt is the same thing we can settle with mortgage debt. This is why it’s called a short sale. It is used to allow the homeowner a opportunity to settle there mortgage debt and start over…
Why does it take so long to do a short sale?
One thing you have to realize that if you are going to do a short sale you have to have patiences. So many people confuse a short sale with a regular Real Estate Sale And what you have to understand is that you can not confuse a short sale with a regular sale. It will take time due to the process and the paperwork needed to complete a short sale. On a regular transaction you only have to deal with just the seller and the seller’s listing agent. When you sign your purchase agreement, the closing process normally can take between 30 to 60 days depending on your lender.
When you are dealing with a short sale the time frame can take longer any were from 60 to 100 days. This depends upon how far along the transaction is. If the process is done correctly and all paperwork is properly given to the bank, the time frame can be cut in half. Keep in mind that you are dealing with mortgage companies. The mortgage company normally assigns a negotiator and from there the negotiator will handle the file for the bank. The other part to the process that most people don’t understand is the fact that mortgage companies have pools of loans that are packaged together.
Mortgage companies are considered servicing companies for the actually investors who owns the loans. Each loans have different investors who owns them. So when a short sale is done. The loan package has to be sent in to that investor for approval of the short sale. Depending on how many loans and files they have it takes time for the investor to approve the file.
What Is The Time Frame On Receiving An Approval Letter?
This would actually depend upon the mortgage company and how many files they are processing at the time. Remember, each company is different. On average it can take up to 90 days (3 months) to get an approval letter for a short sale. This factor also depends on the negotiator. Each negotiator is different.
How does the Short Sale Process Go?
First you have to come to an agreement on price. (This is between the seller and the buyer) Then you have to make your offer subject to lender’s approval. (This is normally written in the the contract agreement under special provision “That this offer is subject to lender’s approval.)
Once this is completed then you will sign a contract along with the short sale addendum and your approval letter. This will get sent to the listing Agent who will then give this to the seller to sign.. Once the seller signs your offer along with an estimated HUD statement it then has to be sent to the bank.
The documents are processed and then assigned to a bank negotiator. The bank negotiator looks over the file and makes sure that all necessary paperwork has been sent in.
From there the negotiator will order a bpo which is a (broker price opinion on value) or (the bank will pay a certified appraiser to go out to the property and give them report on what the property is worth.)
From there the negotiator then analysis the report and contacts the agent for either an acceptance of current offer or a counter offer proposal. Keep in mind that sometimes the negotiator will not counter the offer. The listing agent will notified your agent that the offer has been accepted or rejected based on the price of the house.
Once an agreed upon price is met the negotiator will then send the file to the underline investor who approves the sale. Once there is an approval a letter is then sent to the listing agent and then the listing agent forwards this approval letter to your agent.
Things to keep in mind when buying a short sale.
Make sure you understand that you do not have a finalized short sale until you receive an official letter from the bank saying that your offer has been approved. Many buyers make the assumptions that when the seller accepts the offer then its final and they are good to go on the short sale deal. Not so! You must have an official letter from the seller’s bank letting you know that you have been approved for the short sale.
Make sure you follow the instructions of your lender to insure that the closing process is a smoother process. How many times in the real estate industry we’ve seen this scenario. The bank approves the short sale. The buyers file goes to the underwriting process and find out that there debt to income ratios are too high or they over spent money on a credit card not knowing to keep the card at the lower limits. So make sure you are doing exactly what your lender is asking you to do.
Remember you are accepting the property “as is” If your not aware of this take the time to read the example short sale addendum above. A Short Sale means the seller is not making any money. Therefore, the seller may not have the ability to make necessary repairs if you are trying to go regular FHA 203B financing. If the property needs a lot of work and you are interested in that property. Take a look at possible doing a 203k loan.
Keep in mind that sellers are suppose to make sure the utilities are on during the inspection period. But there are some instances were the buyer might have to cover having the utilities turned on for inspections due to the sellers not able to get the utilities turned on.
Make sure you are comfortable with this idea that in doing a short sale there is a waiting process. There are so many people who do not have the patients to deal with buying a short sale. Do keep in mind that a short sale can give you a possibly good deal. So you have to make sure that you are able to weigh the option of being able to wait it out.
Make sure your lender can close the short sale file within a timely manner.
Make sure your lender can close the file in a timely fashion. You must understand that a short sale is not a regular transaction. There are dates and time when the loan is expected to close. Please make sure you stress to your lender about the importance of closing on time. This will insure that you get the house of your dreams without delays. Some lenders do offer extensions but is better to just close on time and not even have to worry about getting an extension. The way you insure this is to make sure that when your file is in underwriting and condition comes back you take care of those condition ASAP. Don’t delay on getting something to your lender. That one delay could be the one that causes you to lose the short sale deal. So make sure you get everything into the lender in a timely manner.
Conclusion:
Short sale can be a great way to buy your next home. But you must remember these key factors when you are going thru the short sale process. You must keep in mind that short sales do take time, also homeowners might not have the necessary funds to do utilities and keep them on during inspection. You also want to make sure your lender can close the file within a timely manner. This will insure a successful short sale transaction. Also remember that if you need help with your short sale and you are trying to sell your home feel free to contact me and I will assist you.