short sale myths once evidenced widespread confusion about what a short sale is -
mostly misconceptions that they are quick, or faster than â€œnormalâ€ real
estate transactions. Â In reality, the â€œshortâ€ in short sale has nothing
to do with timing. Short sales usually take many multiples of time
longer than traditional real estate deals - running anywhere from 3 to 8
months-plus, on average, from contract to closing!
The only thing short
in a short sale is the sales price - it is less than, or â€œshortâ€ of, the
amount the seller would need to pay off all the loans and other
outstanding obligations (tax liens, delinquent HOA dues, etc.) against
the property. In these situations, unless the seller is willing to write
a check to make up the difference, their lender(s) must agree to
forgive the shortfall in order for the sale to close.
But most short sale
buyers - and sellers - know this stuff by now. Â With one in four
homeowners in America owing more on their homes than they are worth,
short sales wonâ€™t be going anywhere for a long time to come. Â And the
more people get involved in a short sale transaction, the more confusion
and misunderstandings result.Â
Here are 5 of these â€œnext-generationâ€ myths
about short sales, and the facts to shatter them:
Myth #1: That there is
anything typical, standard or normal when it comes to getting a short
Fact: Â Thereâ€™s no such
thing as â€œnormalâ€ in a short sale.
Some of the most frequently asked
questions in the Trulia Voices Community include things like:
Is it normal for a
bank to respond to a short sale with a counteroffer higher than the list
Whatâ€™s the standard amount of time it takes a bank to approve
a short sale package?
Whatâ€™s the rule of
thumb for how much below asking a bank will approve?
Despite the recent
goverment â€œstreamliningâ€ efforts that promised to impose a set of
standards most banks would follow in processing short sales, itâ€™s still a
black box experience for most buyers and sellers. Â Buyers submit their
offers, sellers sign them and hand over all their financials to their
listing agent who submits it all to the bank - and then often no one
hears anything back for a few months, if ever. Â Other times, the whole
thing is approved in a matter of weeks (though this is much less rare).
The bank is in the
power position, and can respond to your offer however they want. They
may counter at a much higher price and demand a cash payment from the
seller. Â Or not. Â They may take weeks, or they make take six months.
Â They may approve a way-below asking offer, or require a hundred
thousand over the asking price. Â Forget the idea of standard, when it
comes to a short sale.
Hint: short sale listing agents who have done a
lot of recent, successful short sales with the same bank do often have
insider knowledge that is the closest thing to a rule of thumb over what
any individual bankâ€™s practices are. If youâ€™re a buyer, prioritize
short sales that are listed by short sale masters - your agent will know
who they are. Â If youâ€™re a seller, ask prospective listing agents for a
list of short sales they recently closed, including which bank(s) were
Myth #2: Â Itâ€™s smarter
for homeowners to walk away than to short sell their homes.Â
Fact:Â Increasingly, Iâ€™m
hearing those who own upside down homes ask why they would bother with a
short sale, when they could just walk away with much less effort and
drama. Â The reality is that walking away and letting your home go to
foreclosure is an extremely serious, personal decision - the wisdom of
which varies dramatically owner to owner and state-to-state. Â Some
states allow lenders to sue homeowners who default on their mortgages,
and impose state taxes on the mortgage debt cancelled out in a
foreclosure, sometimes totalling tens of thousands of dollars.
family and financial plans would be impaired much less by a short sale
than by a foreclosure. Â For still others, itâ€™s pretty much a wash. Â For
everyone, though, it is faster to recover your credit and ability to
take out another mortgage on a new home after a short sale than after a
that a short sale costs a seller little or nothing except some time and
effort, in many instances it is smarter to make the effort to short
sale than it is to walk away.
Myth #3: A short sale is the same as a
pre-foreclosure. Â Fact: A short sale is a home being sold for less than what is owed
on it. A pre-foreclosure is a home that is in some stage of the
foreclosure process because the owners are behind on the mortgage
payments. Â Many short sales are pre-foreclosures, because the owners
stopped making payments when they put the home on the market, either
because they canâ€™t afford them, they are simply done with the property
and donâ€™t see a need to continue paying on it, or because they feel the
bank is more likely to approve their short sale application if they are
in default on their loan (a position many experienced short sale agents
argue is true).
not all. Â Remember, nothing is standard when it comes to short sales.
Short sales are closed every day on which the seller is still in good
standing on their loan - these are mostly the short sales of owners who
elect this strategy out of a desire to maintain their credit as much as
possible, but have to move for work or family reasons.
Buyers should not
assume that every short sale will come on the market later as a
foreclosure; they should inquire as to any foreclosure notices against
the property, and keep track of those time frames. Â Many a buyer has
been surprised when the bank auctions a property they are in contract to
Myth #4:Â The the buyerâ€™s
broker - or even the buyerâ€™s offer - has much to do with getting a short
Fact: Writing a clean, well-qualified offer is important to getting a short
sale seller to believe that a buyer will hang into the short sale for
the duration so they will sign the contract. However, the buyerâ€™s offer
and agent have little, if anything, to do with whether the sellerâ€™s bank green lights the
deal, as needed to close it.
While the bank obviously cares about the
price you offer, even thatâ€™s not as important as several other factors,
the bankâ€™s perception of the homeâ€™s fair market value (as
usually indicated by a third-party brokerâ€™s opinion, or an automated
the sellerâ€™s financials (if they have a bunch
of cash stashed, the lenders is unlikely to let them sell the place
with no contribution from them)
the completion of the
sellerâ€™s workout application package and follow-up (squeaky wheel gets
the grease and all that, and itâ€™s the listing agent that needs to be
that, often, for these transactions to get closed).
Myth #5. Â That the bank
â€œcanâ€™tâ€ do X or â€œhas toâ€ do Y.Â
Fact: The sellerâ€™s bank in a short sale is being
asked to waive debt that they are legally owed. They have the absolute
right to simply refuse entirely to accomodate this debt forgiveness
request. However, if they do choose to waive some or all of the
shortfall, they also have the right to place whatever conditions on that
waiver. They can ask for more money from the seller - or the buyer (and
often do). They can ask the agents to reduce their commissions (and
often do that, too). Â They can refuse to pay various closing costs, if
they want. Â And the buyer or seller can counter, accept or refuse any or
all of the bankâ€™s demands, too, but know that the banks do have the
right to place whatever conditions on the short sale they want. Â After
all - he, she or it who has the cash (or the mortgage, in this case!)
makes the rules!
Psst - you should follow Trulia and Tara on
Facebook, too! So,
why buy a short sale? Â With all the hassle, there are still some great
deals to be had. Â In many cities, most homes on the market are short
sales, so if you rule them out, you may never find a home.Â