1. Why would a Buyer consider a short sale?
Think of a short sale as a pre-foreclosure sale. You are purchasing from a very motivated seller and negotiating with a motivated lender. The seller want to sell to avoid foreclosure and the lender also wants to avoid foreclosing. Foreclosing on a property is very expensive to a lender. Thus, the Buyer of a short sale is very likely to get a very good deal on the property.
How much can a Buyer save?
The savings can depend upon many factors like condition of the property, location of the property, the
motivation of the lender and seller. In my opinion a buyer normally can purchase the property about
10% below market value.
But I have heard that Buyers can purchase short sales for 50 to 60 percent of value. Isn't that true?
There are rare occasions where such a deal is possible, but it is very rare. These deals are usually
discovered by savvy real estate investors and the properties are rarely exposed to the public. When
purchasing a short sale property that is listed expect a more modest, but very profitable savings.
Are there any disadvantages to purchasing a short sale?
If you do not have a pressing deadline by which you must purchase, a short sale may very well be worth
the effort. There are two main issues of which the buyer should be aware: (1) The process of
accomplishing a short sale involves a lot of time. From beginning to end it can take 3-4 months on
average; (2) Even though the Seller accepts your offer, it must be approved by the Seller's lender, and it
could take 60-90 days to receive an answer on your offer.
Why does a short sale take so long? What is the process?
Here is a brief overview of the process. First, the seller must list the property with a Realtor. This is
required by most lenders. Second, a buyer must be found and a contract executed between the Seller
and the Buyer. Third, the sale and purchase agreement along with the seller's financial information is
sent to the lender for review (this is called the short sale package.) Fourth, the lender orders a Broker's
Price Opinion on the property. Fifth, once conducted, received, and reviewed, the file is assigned to a
Loss Mitigation Specialist. Sixth, the LMS accepts, rejects, or counters the Buyer's offer on the property.
Seventh, the negotiation continues until it either all comes together or else falls apart. Eighth, if all
parties reach agreement the closing date is set, usually for about three weeks away.
How long does the above process take?
Once a purchase and sale agreement is executed between the Seller and the Buyer the whole process
may take anywhere from 3-6 months. In today's market a Buyer can expect a response to their offer
from the lender anywhere from 2-3 months, maybe longer.
How is the listing price of the property determined?
The list price is determined by the listing agent. As a Broker-associate who lists and sells a lot of short
sales I cannot emphasize enough the importance of the list price. Some listing agents will price a home too low, hoping to create a bidding war between buyers. Low offers simply are doomed to be rejected by the lender. Other agents may price the home too high and no offers are received before it is too late to save the owner from foreclosure. The key is to price the home competitively in order to attract excited buyers, and yet not so low as to fail to get the transaction approved. The listing agent must be very skillful in pricing.
Does this mean that I could offer full price and still not get the property?
Exactly right. If the listing agent prices the home too Iowa buyer could easily waste three months
simply waiting for a rejection.
Who exactly is the Seller, is it the owner or the lender?
The Seller is the owner of the property as in any other transaction. The lender is involved in the
transaction because the sale is subject to the lenders approval. The lender must approve the deal
because the lender must accept a "short pay" on the mortgage for the deal to work. Without the
lender's cooperation there is no deal.
So, do I submit my offer to the Seller or the Lender?
Your offer is submitted to the Seller who in turn may accept it, reject it, or counter it. It is then
forwarded to the lender who also may in turn accept it, reject it, or counter it.
Might I be up against other competing offers on the property?
It is possible that other offers could be accepted by the Seller as back-up contracts. Some lenders will
only deal with one offer at a time which is in your best interest. Other lenders will want to know about
all offers and will consider the merits of each offer. Being the first Buyer to have an executed offer with
the Seller does not guarantee that your offer is the one the lender will negotiate.
Must a Buyer be Pre-Approved?
I recommend that Sellers only entertain offers from Buyers who are Pre-A
That is the short story.
See link to blog for more detail
These are some docs typically required from the homeowner (part of the short sale package submitted to bank):
- Signed and dated financial worksheet listing all monthly expenses
- Signed & dated hardship letter (why they are unable to pay the mortgage)
- Letter authorizing the realtor and/or attorney access to information on the account
From the realtor: a fully executed listing agreement and some comparible sales in the area
During the introduction/application process - the bank will also address commissions, fees and costs, timeline etc. These are typically submitted to and provided to the bank via the attorney handling the transaction.
Short sale approval does have a timeline attached - for instance, if a closing doesn't take place in say 30 days, the entire short sale package may need to be re-submitted with updated information or the approval process may need to start over.
There are many other factors that come in to play, but hopefully this will help you understand the steps involved. Good Luck!
What Happens in a Short Sale
A â€œshort saleâ€ refers to a situation where the owner of the home does not have enough equity in the property and not enough cash or liquid assets to be able to sell the property, pay off liens and selling expenses (e.g., closing costs, property taxes, transfer taxes, real estate commissions) and provide a clear title to the purchaser. In short, there is more owed on the home than what it will likely sell for on the market. Lenders use the term to describe this as a loan that is â€œupside down.â€ While many short sellers are at-risk of foreclosure, a short sale can also occur to a seller who bought high and took out a lot of equity and might be forced to sell due to a divorce or job transfer.
If a homeowner facing foreclosure cannot negotiate with the lender to work out a repayment plan or loan modification, a short sale can be a viable option. Many consider a short sale better in the long run for the homeowner because it avoids foreclosure which will damage a personâ€™s credit score and make it much harder to buy another home in the future.
According to Beth Llewellyn, CEO of the Partnership for Homeownership, a foreclosure will stay on the credit report for at least 10 years as it is a court action similar to bankruptcy. However, foreclosure can do even more damage to a credit report than bankruptcy. Ultimately you must prove to the lender that the foreclosure happened due to something beyond your control such as job loss or illness.
â€œItâ€™s ideal if the homeowner who chooses to sell can work with a professional REALTORÂ® before they are delinquent three months,â€ says Llewellyn. â€œWithin this short window of time, a REALTOR might assist in negotiations with the lender to place the property on the market and possibly save the buyer any equity left, as well as prevent a foreclosure on their credit file.â€
Be wary of scams. Consumer groups have learned that advertisements that say â€œCash for Houses/Any Situationâ€ or â€œWe Buy Houses for Cashâ€ bait homeowners with the promise of rescuing them from imminent foreclosure. Unfortunately, the â€œrescueâ€ often involves the borrower signing over title of the house to a different person or entity, thus, and the family ends up being evicted from their home.
It is important that sellers work with a licensed Illinois REALTOR to sell their home. REALTORS are in the business of helping homeowners and have the expertise to guide them through a tough situation. A REALTOR has the expertise to develop a reliable Comparable Market Analysis (CMA) to determine the current fair market value of the home.
Understand the tax implications of the decision to sell short and consult with a tax advisor. Sometimes in a short sale situation a lender will write off a loss and send a 1099-C form to the seller showing forgiveness of the debt. Itâ€™s a good idea to research http://www.IRS.gov under the key words â€œshort sale,â€ â€œ1099-Câ€ and â€œinsolvency,â€ to better understand this option. Under current federal tax law, when a debt is forgiven it can be treated as taxable income even though you did not actually receive the money. The seller might also visit with a tax advice professional.
There will be paperwork and research required of you in this process. First you have to locate your mortgage documents to understand the terms of your loan. If you have authorized an attorney or REALTOR to act on you behalf in the sale of your home, the lender will need a letter of authorization. Other documentation required by the lender includes:
Financial Disclosure Form
One-page â€œhardship letterâ€ explaining how you got in this position
Last two months pay stubs
Copies of most recent two months personal checking account statements for each borrower on the loan
Copy of signed last two yearsâ€™ personal tax returns
Yes, the short sale will require time and consultation with the appropriate legal, tax and real estate professionals. It can take from two weeks to as long as 60 days to receive an approval of a short sale from a lender. But usually itâ€™s a much better option than foreclosure given the impact to your credit history.
Francine--there is a legal link on my website if you would like ,more info---hope this helps
a short sale is the sale of real property where the fair market sale price is less than the loan(s) on the property. A short sale means the seller's lender is accepting a less than the existing loans on the property.