People ask me all the time “what is a short sale?” Or as my mother likes to say “There’s a house in the neighborhood for sale, I think it’s one of those quick sale things you told me about…”
A short sale is a house that is for sale but the owners owe more on the mortgage than they’ll be able to get in a sale – i.e. they owe more than market value.
But in the short sale process the seller tries to convince the bank to accept less than they owe and allow the sale to go through. Herein lies the problem: short sales can be fraught with difficulties.
A lender can sit on your offer for 3 months or longer – if you don’t mind waiting for months for an answer then this may not be a problem, but if you’re hoping to move in quickly or utilize your buyer tax credit before the end of April this could be a problem.
Keep in mind when attempting to purchase a short sale it’s not up to the sellers or the buyers or the real estate agents or the mortgage broker whether or not the deal gets accepted – it’s up to the bank. Period.
I hear people say way too often “the bank doesn’t want to own your home.” The bank doesn’t care. The bank may end up with more money from the Private Mortgage Insurance, by foreclosing on the property, then they do by accepting less than is owed on a short sale. So don’t assume they’ll accept your short sale offer in the false hope that it’s a better deal for them.
Also, if there is a 2nd mortgage on the home, you not only have to deal with approval on the 1st mortgage to accept less than is owed, you have to deal with approval on the 2nd mortgage as well. Sometimes the lender on the 2nd mortgage really gets the short end of the stick and refuses to agree to the deal.
There are also some other odds and ends that can be very frustrating to deal with: it’s likely there are a number of other unpaid bills floating about such as the utilities. It can be a chore to get the water turned back on when the utility company is still owed for non-payment from the previous owner.
There can also be a problem with real estate agents and accepting commission on a short sale – they are often asked to accept a smaller than normal commission – unfortunately I have personally read on the Internet (from the agents themselves!) of instances where an agent refused to continue with a deal because they were asked to accept a smaller commission.
Understand the odds are not in your favor. Agents who have studied short sale numbers indicate that very few of them, very few actually end in a successful close.
If you are absolutely intent on making an offer on a short sale house, make sure that you question the listing agent extensively on whether or not the lender even knows that a short sale may occur, and why they are in financial distress, etc. Some listing agents have listed the home on a short sale but haven’t even told the bank much less negotiated a plan with it. Do NOT get your heart set on this home and don’t invest money in inspections or appraisals until you are reasonably convinced that you have a commitment from the bank.
photo credit: ArthurGouveia
[...] are starting to approve (or at least consider) more short sales. If you recall my post on “Should I Buy a Short Sale?” you know that short sales can be fraught with complications, may not actually happen in the [...]