If you are looking at homes for sale, you will probably come across the term "short sale" for a particular property. This term describes a situation where a seller, usually facing aÂ financial problems, Â trying to sell his or her home for less than the outstanding balance of the loan. Avoiding foreclosure Â and get out of a home that is under water is usually the motivating factor. InÂ most circumstances a seller may have already defaulted on the loan and lender initiate foreclosure action.
You may notice homes being sold as a short sale at Â lower sales price in most cases. Â Even though the sales price may be lower than the outstanding balance. Another point to consider is you may be responsible for extra fees that aren't included in the sales price being charged by Mitigation company that are hired by seller or Realtor to Negotiate with seller's lender.
One major disadvantage to buying a short sale is you must wait for bank approval of your offer. This is due to the fact the bank will be losing money in the process. The bank must weigh the pros and cons of a short sale versus the extra costs and time involved with a foreclosure. In additional in most cases the lender may need to sent the file to investor who owns the loan for approval.
Unfortunately, waiting to hear from a bank can take several months, regardless if the seller accepts your offer immediately depending on who is the lender. Expect the entire process to take a while with no guarantee the bank will accept the deal, especially if the seller has been frantically advertising the home for significantly less than what's owed on the loan. Â Most Short Sales that take more than 90 days for an approval has to do with the Negotiator ability to communicate effectively with the lender. Â
Best way to reduceÂ time to approval is to select a Realtor who's experienced in dealing with these type of properties. Your agent should do some research before you make an offer. It's imperative you know what the seller owes on the home; if it's a lot higher than what you're willing to pay, most likely the bank will deny your offer.
It's also important to know if there is more than one loan. Â Does the seller have Mortgage insurance, Â who is the lender, If they do have Mortgage insurance, you may want to find out ifÂ Â they prepare to sign promissory note on bring cash to close to make the deal work. This will help to understand how long it could take to get an approval.Â If there is more than one lender plus Mortgage insurance you'll need to get the approval from all lenders in order for the deal to succeed. With many lenders involved, it becomes more difficult to approve the deal as all lenders are eager to receive as much compensation as possible, especially if they're already taking a loss. Most of this information can be pulled from the deed of the property or request from listing agent.
Before pursuing a short sale, make it a point to ask your agent to contact the seller's agent and find out what preliminary short sale steps have already been taken. A bank will only consider accepting a short sale if the seller can document they are facing financial hardship . The fact of the matter is a short sale can't be finalized without the approval of the bank investor. There's no point in wasting time pursuing a property if you're convinced the odds of having the bank accept a short sale are nearly impossible.