In most cases, you are purchasing the propertylike anyother, using a standard purchase aggreement with built in protections authorized by your state, like any other.

The only difference is that your offer goes to the bank via the seller for consideration.

The bank will try to get the absolute most they can so no, why would a bank allow for a lower purchase price than listed on the purchase agreement, more likely the bank will counter, thru the seller a higher purchase price.

and yes, if your offer is accepted, you have the time restraints to get the house inspected as per your purchase agreement

Fri Jul 11 2008, 21:26

H Deborah:

The short sale process can vary, but it will generally work as follows:

1) The lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale.

2) The seller issues a letter authorizing the release of personal information about the loan and the property to the buyer.

3) The lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.

4) The seller will complete a "hardship letter," which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.

5) The lender will then look to the broker to provide a price opinion by examining the condition of the house and the market value of comparable properties.

6) The lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.

Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. The lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report (along with potential bankruptcy), and the buyer hopefully got a good deal on a property.

I hope this helps you. Good luck !!

Diane

Sun Jun 29 2008, 17:59

Deborah,
Great questions!

The process of getting a short sale approved is a little like a gun fight in the Old West. There are a lot of variables, so the person who controls the variables - survives!

There are several challenges:
1. The seller typically doesn't care what the home sells for, therefore any counter-offer is based on what the listing agent feels will be needed for obtaining an approval from the bank.
2. Usually -but not always- the home has been neglected as the sellers personal circumstances. You have the same inspection rights as any other transaction, but any defects may not be repaired. I am finishing a Rocklin short-sale with Washington Mutual, where they agreed to give credit for Section One pest damage, and that was it.
3. Getting through the short sale approval process in a reasonable length of time. In my experience, the listing agent has to have "special knowledge" to traverse the bank's "loss mitigation" department while everyone is still young. Typically this means knowing someone on the inside that can expedite the process. If the listing agent will only be contacting the "call center", it will take a long time....maybe longer than you can handle. In every short sale I have done, we cut the approval time using "guerilla tactics" with the bank, and "cutting in line".
4. Title insurance and home warranty, if included in the contract, are typically approved. Just be careful of any liens brought about by the seller's financial situation.
5. If your agent wrote the contract with your best interest in mind, you can cancel any time before your contingencies have been removed. After that, the seller can keep your deposit, up to 3% of the value of the property.

Call me if you have any questions.
J.Scott Carpenter, Carpenter Properties, 916-267-SOLD

Sun Jun 22 2008, 13:41

If your agent uses a California Association of Realtors Residential purchase agreement and Purchase agreement addendum paragraph 5, you would have the protections that you want. The exception to that would be if you accepted a counter offer addendum from the sellers bank that strips out the protections that the CAR purchase agreement and CAR purchase agreement addendum paragraph 5 provide you.

Banks often ask to strip away some of your buyer rights in their addenda.

As to the first part of your question:

Neither you, nor your agent will be privy to the discussions and negotiations between the bank, the listing agent, and the seller as to what price they want to market it at; nor will you know what goes on between the 3 of them when they decide to counter your offer. (That is what the bank "addendum" is. It is a counter offer.)

What if the bank would take less than the owner has counter offered? How would we know? - You would not know. You and your agent need to devise a strategy of offer and negotiation that will obtain the house for you at a good price from your point of view. If you get it for $50,000 below its value. You will never know for sure if you could have gotten it for $55,000 below its value if you had just held out longer. On the other hand if you hold out for the extra $5,000 in savings and they sell it to someone else, or let it go to full foreclosure, you will know exactly how close you were to a good bargain, but let it slip by for an extra 5 grand of unrealized savings.

Wed Jan 30 2008, 19:23

Hi Deborah,

I am a GA Realtor in the middle of working a possible short sale proposal on behalf of my seller client. Short sales are relatively new and a lot of agents (much less sellers and buyers) fully understand the process or procedure. On top of that is the unknown factor: every lender/bank is different. I would recommend that if you do not already have one that you choose a buyer's agent to represent you. Banks do not have a problem paying brokerage fees and they generally will not negotiate directly with a buyer or investor. Bottom line is that bank has the final say and approval over the sales price as well as the final brokerage fee.

For obvious reasons, the listing agent and seller would like to settle at least at a break-even position; however, depending upon the condition of the property, required repairs, time on market, etc. the bank may accept an amount less than what is owed on the mortgage. Most banks in first position on security deed will not negotiate/accept a short sale if there is a second mortgage or home equity loan attached to it. Finally, the seller must cooperate totally by furnishing their lender/bank certain financial information, pay stubs, tax returns, a hardship letter, etc.

Allow me to respond to each of the points in your question to make sure I covered everyhing:

- Offer/counter-offer: All offers must be presented to the bank in a format they prescribe
- Agreeable price: Who knows for certain; many variables are considered by the bank. If accepting a short sale will be cheaper and potentially save them money over foreclosure, they will find a way to make it work.
- Title insurance: Two types, lender & owner's. First will be mandatory and the latter is optional but recommended.
- Inspections: Your responsibility. Best to perform before you submit an offer since the bank will only entertain "as-is" offers. Be prepared to sign a thick stack of forms, disclaimers, etc.
- Home warranty: Typically not included but some lenders/banks may pay for it.
- Cancellation: Probably unlikely. You will be buying the property as-is. Get whatever inspections done before you negotiate and agree to a contract. This includes home, radon, mold, termite, etc. Also, be absolutely certain that you are approved for financing, that you have the required cash to close and that you close on time. Loss of earnest money as well and additional fees may apply for default or any delay caused by the buyer.

Oh, the bank will likely not give you an answer for 4-5 weeks and good luck getting anything back in writing until right before or the day of closing. If you haven't caught on yet, the process is very labor intensive, requires a lot of paperwork and documentation as well as lots of patience.

Hope this helps. The link that VA seller is helpful as well. Best wishes with your home purchase - Ted

Wed Jan 30 2008, 17:39

There is a great answer to your question here:
http://homebuying.about.com/od/4closureshortsales/a/shortsal…

Good luck!

Wed Jan 30 2008, 16:36