So you want to buy a short sale, eh? Well, the first thing you need to patience. You may ask, “Betty, my favorite Realtor, why does it take so gosh darn long?” Well, there are many reasons but to fully understand any of them, you need to be crystal clear what is exactly going on.
To be clear, the ratified contract is between the Buyer and the Seller. Period. However, a short sale is contingent upon third party approval. So the Seller’s Lender is not aparty to the contract, but the contract can’t come to fruition without the blessing of the Lender. This Lender needs to “forgive” a whole lot of debt, sometimes $100,000’s of thousands. And they don’t do that easily. Getting the short sale approval letter can take between 2 to 3 months to obtain.
Issue #1 – The Seller is not compliant and/or does not give the necessary documents in a timely manner.
The listing needs to submit the Seller’s bank statements, tax returns, updated hardship letter and pay stubs. Certain lending institutions may require more or less documentation. This is required. Immediately. When the negotiator asks for it, there is a time limit they will wait to receive it. When they say they need it, they need it or else they may shut the file down completely and you’d have to start all over again. Negotiators do not work on commission; they work 9am to 5pm. They have many, many files and probably don’t care. This is a job for them; they are not emotionally attached to the outcome of your specific short sale. They are merely following their employer’s protocol.
Issue #2 – The Listing Agent doesn’t know what he/she is doing.
A short sale is a serious deal; the alternative is, often times, a foreclosure. You need to know that the listing agent is an experienced and competent short sale agent. Getting a real estate license is easy; anyone can get a license. Short sales should not be handled by new agents. They are complex and time consuming; if you don’t know how to properly work them, your Seller can end up in foreclosure. That said, if you are the buyer of a short sale, make sure the listing agent knows what the heck they are doing. You don’t know how many times I’ve run into agents who just don’t get it or don’t care or both. From the buyer’s perspective, an incompetent listing agent is a waste of time. Ask your agent if they think the Listing Agent knows what they are doing. Find out the track record of the listing agent.
Issue #3 – The price on this short sale is too good to be true.
Some listing agents list short sales way below current market value to generate a fury. They will have so many offers that it generates a bidding war to benefit the Seller. Other times, agents will list short sales way below current market value to get a quick offer because the Seller has an approaching foreclosure. This should send up a red flag. This short sale seems like a great deal but will never work out. The Seller’s lender will order a BPO (Broker’s Price Opinion) and an appraisal. The bank wants fair market value and are not in the business of losing or giving away money. The bank will counter back at a higher price. Buyers – don’t waste your time! If it sounds too good to be true, it probably is!
Issue#4 – The Sellers are getting divorced.
He is pissed at her. She is pissed at him. They don’t want to talk to each other. The listing agent is in the middle and they don’t want to cooperate with a short sale work out!!! What about you – the Buyer? They don’t care about the Buyer. In fact, the Buyer is “stealing” the home from them. The Sellers probably purchased at the height of the market. The price that you are buying for in 2011 is now a price they can actually afford. But they are in debt now from buying at an inflated price. Please find out what the reason for the Seller’s short sale. What is the Seller’s hardship? Their hardship is private information, but some agents will tell if prompted. If it is a divorce hardship, buyer’s don’t necessarily need to run the other direction. Just be wary of a divorce situation; there are certainly amicable divorces, but be advised that a divorce situation can take longer than usual.
Issue#5 – There is a second mortgage. And a third mortgage. And a Home Equity Line of Credit. And Tax Liens. And Mechanics Liens.
The more players involved, the more complex the short sale becomes. The second mortgage holder will not agree to the short sale unless they receive some consideration. If all players don’t agree, you remain in a holding pattern. Before you write an offer to purchase, find out how many mortgages there are and which bank(s) they are with. Also, it wouldn’t hurt to do a full blown 60 year title search. Perhaps there are tax liens attached to the property. These liens become known when the Buyer pays their settlement agent to do the title search. And at this time, the Buyer is fully invested. Buyer has already paid for the home inspection, termite inspection, appraisal, etc. And then will find out there are thousands still owed to various and sundry sources. This is a wastes the Buyer’s time and money. If this were a perfect world, the listing agent would do a title search at the time of the listing. Know all the liens attached to the property prior to submitting an offer! A title search is about $150.
Betty Westerlund, Real Estate Consultant
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