Short Sales are Anything but Short! And you Better know what YOU are getting into. Before looking at the Buyer's pespective, you must understand the Sellers position. For all intents and purposes, short sales, foreclosures & pre-foreclosures are all the same. The owner needs to sell & they owe more than the house is worth. Therefore they need the lender(s) approval to sell "short".
Now lenders don't do this out of the goodness of their hearts. Lenders are looking to cut their losses. Which way will they lose less, a Short Sale or a Forclosure?
Sellers can't just do a Short Sale because their property value dropped and they want out. They have to qualify. There must be a real hardship-such as a loss of job, death of partner, major illness AND the Seller doesn't have other assets or financial options. They must also be willing to complete a full financial package for the lender proving it.
House + Mortage+ Promisary Note (=Debt)
Let me make this very clear DEBT DOES NOT DISAPPEAR!
Florida is a recourse state. When a lender releases a Mortgage it merely means they are releasing the vehicle that secures the NOTE to the house. With the mortage released, they can sell the house, but the note is still there. It just doesn't have the house for collateral. A licensed Mortgage broker & an attorney can legally negotiate the debt. The attorney's task is to negotiate the debt down as low as possible.
Many banks are trying to streamline the process. Part of the problem is every lender has different requirements. IF there is only one lender & the seller qualifies the chances of closing are good. Two lenders or a lender and an HOA and the chances go down...3 or more liens...Buyers you should RUN!
What does it mean if you are the Buyer? Sit down and have a consultation with your Professional Realtor. If they don't do this...maybe you should find one that does.
Make sure your agent checks out the Short Sale before you even go looking... remember 3 or more liens...what do you do...RUN!)
If you have time contraints, you must be in a home by a certain date...don't do a Short Sale!
Once you and the Seller agree on terms and have a ratified contract it will take the first lender 45+ days to respond. Most lenders want agents to put 90-120 days in the contract. If it closes in 2-3 months, that is excellent. It could be 6 months plus AND even with a FULL PRICE offer the lender may come back and counter with higher OR just say NO. There are no guarantees. The Lender may get more if they foreclose and collect mortgage insurance & then sell it themselves.
As far as pricing...it is based on market value. Lenders were looking to get 88-93% of market value...now we are seeing many want 93%+ even closer to market value.
Once the first lender agrees, the process begins again with the second lender..who usually doesn't get more than $3000 compensation regardless of the loan amount....which is why the 2nd lenders are often the deal killers. Sometimes the seller is the Killer...they may have been living in the house for a year or more paying nothing & maintaining nothing, the lien holders agree, but won't negotiate the debt down to zero, thus the Seller backs out of the deal. The Buyer might not find this out till 6 months down the road..Short Sales are like raffles..You MIGHT be a winner.
Everbody wants a deal...what do you do as a Buyer? Don't limit your options...in this BUYERS MARKET...the market value IS an "On Sale" price, whether a Short Sale, REO or regular priced house with a motivated seller.. REMEMBER a short sale is anything but Short!
Broker Associate, GRI, SFR, NHS
Real Estate Consulting, Marketing & Sales
Prudential Tropical Realty
2539 Countryside Blvd #3 Clearwater, FL 33761
One thing to remember is the listing price is "ficticious". So if you see a "bargain" priced Short Sale, it doesn't mean you can actually buy it for even tens of thousands above the asking price. You see, the Seller decides what price to list it at. Until/If the underlying lienholder does an appraisal to determine value, you will not know what price you MUST pay to buy the property. For this reason, you will often see Short Sales come back on the market once the "real" price is known. The buyer at the "bargain" price will realize it's no longer a bargain and will back out. Then the next "retail" buyer can get a contract.
The VERY best bargains are if you have ALL CASH and are a risk taker and willing to do a lot of homework and buy a property without a clear title at the courthouse foreclosure auction.
If you don't have ALL CASH and/or aren't willing to go a very risky route, then you must line up with all of the other "retail" buyers. To capture the very best deal available to "retail" buyers, you need to be able to see past ugly worn out homes that are also quite filthy, too! If you have limited cash, you can still end up with a model perfect home by taking advantage of the FHA 203K Fixer Upper Mortgage or on Fannie Mae owned homes, the HomePath Renovation Mortgage. You will have a contractor come in and renovate the "bargain" priced home soon after you close. Take a Look at Property Brothers on HGTV to see their fabulous transformations. It will inspire you!
All the best,
Make sure you sign a short sale addendum and have all of your dates and deadlines run from the time the bank accepts the offer, not the seller.
Best of luck on your purchase.
My advice would be to consult a local REALTOR who's "SFR certified" if you are planning to sell. SFR certified REALTORS can help prevent avoidable delays when buying or selling a short sale. The website http://www.stopmiforeclosure.com serving Detroit and suburban areas frequently posts answers to these types of questions. You should visit it frequently to learn new guidelines http://bit.ly/YgFZ85.
The best question is what is your time frame ? can you afford to wait 2-6 months for the house you may really want ? what back up plans do you have ?
you may want to target a few different properties . As a buyer you wnat to remain in as much control as possiable and not leave yourself open to someone else's time frame.
A lot can go wrong with a short sale. You could even be kicked out of the contract if the Seller decides to simply draw out the process by delaying submitting bank statements and pay stubs, etc., because normally the Short Sale addendum expires after a few months. If the Seller doesn't extend your contract then you don't get a chance at the house. It doesn't happen often but it is yet another peril in the wild, wild, world of Short Sales.
Also don't forget an owner may realize how expensive it is to rent nowadays and simply do a Deed for Lease with the lender to stay in the house for the next 3 years.
Stick with re-sales and foreclosures! Long Sales are no great bargan as the banks are demanding the same market value as other homes after the 10 months you'll spend waiting for one as the bank askes for new BPO after BPO, raising the price along the way!
The answer is 6 weeks to 6 months if lucky.
if not then 9 months to 12 months.
A lot depends on Number of Lenders, and whether same or different.
How many short sales and REOs in the pipeline being handled by the Asset Manager,
bank and other banks.
What are the inventory levels by Locale, Town, City etc.
Banks do not want to flood the market.
If there is 2nd mortgage the approval process is more complicated since they have to approve the amount they are being offered by the 1st mortgage company and or what they require extra from the owner. We just had a short sale fail through after 3 months due to the 2nd mortgage (Regions Bank) requiring the owner to pay an additional $21,000 out of pocket and they would not negotiate that amount. The seller basically told them to stuff it.
On the average I'd have to say 3-4 months from start to finish. The good news is that Short sale closing are getting shorter as the banks are more organized in their approach.
We can only hope it continues in that direction.
Short sales are still an excellent way to get a good price on a property as many people shy away from trying to tackle them thus keeping the competition down and allowing them to remain on the market for sale.
However, if and when the bank responds you (prospect) have to be ready to perhaps pay more than you offered as the banks seem to be coming back with counter offers higher than the offered amount.
The counter offers from the banks seem to be coming back at reasonable amounts for the current market conditions. Don't expect to get them at a low ball steal any longer (at least in our area).
Like Liane said below, don't limit yourself to short sales. There are many properties on the market that are priced competitively to short sales. Don't overlook them; plus, you can close much more quickly.
Lastly, find ONE great agent and stick with them.
Liane Jamason, REALTOR
Smith & Associates Real Estate