While real estate is local, the foreclosure process is pretty across-the-board. Yes, every state has its own system for beginning the foreclosure process. But no matter which state the property is located in, the basis for the process is the same, and the basis for obtaining a property in foreclosure is the same.
This buyer's question was not about the LOCAL real estate market; it asked for general answers about purchasing a short-sale property.
I said, "Also, BE PREPARED to buy the property in "as is" condition. You will LIKELY be able to obtain an inspection, but for informational purposes only. The seller will not USUALLY make repairs."
None of what has been said here is inaccurate just because it's not coming from Ohio.
Please be careful of what you imply.
WHAT IS INVOLVED IN PURCHASING A SHORT SALE? The seller is asking the lender to accept less than the full payoff amount for the mortgage, because there the amount that the property will sell for on the open market in an armâ€™s length transaction will not provide enough funds to clear all the liens and selling expenses. The lender will only agree if it makes the best financial and business sense for them. If a seller has sufficient financial resources to bring a check to the closing table to make up for difference, the lender will probably not approve the short sale. Simply being â€œupside downâ€ in the property is usually not reason enough. The seller must show hardship, and provide a short sale package with documentation that explains why the seller should accept less than the full payoff amount.
All liens (second mortgages, judgments, etc.) must also be released in order to deliver clear title. In a short sale, a buyer and seller negotiate a contract, subject to the approval of the current lender. If the lender â€œapprovesâ€, the sales process moves forward in accordance with the customary settlement procedures for your area.
IS IT HARDER TO GET APPROVAL FOR SHORT SALES? Are you asking if it is harder for you to get approval from your lender to buy? Your lender is not concerned w/ the sellersâ€™ obligations. Your lender will only be concerned about your qualifications and the appraised value of the property.
DOES FHA DO SHORT SALES? Are you asking if you can get an FHA loan for your purchase if it is a short sale? See answer above.
ARE THERE LENDERS WHO JUST DEAL IN SHORT SALES? It seems that you might be asking if you need a special lender as a buyer. The answer is no. The lenders who are dealing in short sales are the lenders who already have loans with the sellers of the properties with insufficient value to cover the mortgage and other payments due to reach closing.
Different lenders will have different criteria for approving short sales. What might fly with one, might not with another. It is the lender who is owed the money who has the right to determine what is or is not acceptable to them. Lenders usually have one central office that handles all short sale negotiations nationwide. A lender might be more flexible in one geography vs. another depending on the performance of their loans for that area.
Because â€œshort salesâ€ and â€œforeclosuresâ€ are big buzz words in real estate, many buyers focus their energies in this direction. Perry indicated in his reply that there may be other properties that meet your criteria, and suggested that you no overlook these.
Across the nation, short sales are a topic of conversation within real estate offices, amidst consumers, investors, and the media. Not all markets across the US have significant activity in short sales or foreclosures, but there are several markets with considerable volume in these types of transactions. As a result, there are numerous classes being taught across the nation educating real estate agents on the process. Educators travel to various locations repeating their course; other courses are offered online.
General questions about short sales might be answered by any number of individuals on Trulia from various locations. If you have more questions, please do post on this thread, or feel free to start another.
When it comes to advice for your purchase, you absolutely need a local RE Pro. Not all RE Pros are well versed in short sales. If you are considering a property that is a short sale, do find a local buyer agent to represent you who has experience with short sales. Only a local RE Pro can help you interpret the sales data and market trends for your area. I cannot provide you any advice about Ohio real estate, but I hope the general info contained herein is useful for you.
To clarify what Perry is saying: A foreclosure is not the exact same as a short sale. Well, it is, but really, a short sale is, in essence, a property in pre-foreclosure -- part of the foreclosure process.
The difference is that it is still in the owner's possession, but requires bank approval to be sold (for an amount less that what is owed to the lender). A foreclosed property has already been sold at public auction. This happens should a short sale become unsuccessful, or not agreed-to by the lender.
Sometimes, the outstanding balance owed is high enough that nobody will be willing to offer the minimum bid and the property is not sold at a public auction. At this point it becomes an REO - Real Estate Owned property - and goes back to the lender.
Anyway, in answer to your actual question: In general, making an offer on a short sale is sort of like making a regular offer - at first. The offer has to be approved by the seller, THEN has to go the bank and be approved by them, as well.
Typically, a short sale offer must be accompanied by "proof of funds", if cash, a pre-approval or commitment letter from your lender, and be prepared to pay earnest money with certified funds (this would be the same with a foreclosed property, as well).
Also, be prepared to buy the property in "as is" condition. You will likely be able to obtain an inspection, but for informational purposes only. The seller will not usually make repairs.
Then, be prepared to wait. This process can drag on forEVER.
You also want to be extra sure you do your homework prior to making an offer, i.e., know the situation on any back-taxes and/or assessments. In "short", you don't want any surprises should your offer be accepted.
Be sure you are working with an Realtor or attorney experienced in this process. If you are going at it alone, you will need to be familiar with all of the forms of the short sale process, and in dealing with the bank and its process.
FOR ALL OTHERS: The only "sellers market" in america is the foreclosure market. Don't expect any deals from a foreclosure as the bidding process brings 20-30 people to bid on almost every deal. A deal that was already priced at market.
It's easier to get a deal by going to a realtor, asking them to find the oldest property on the market and start dropping discounted offers. In addition, you won't have to wait 30-60 days to hear an answer.
Looks like you have received some excellent information and tips so far regarding the short sale process. It is a process, more than a traditional purchase from a consumer owned home. I strongly recommend that you have an experienced buyer agent represent you. In addition, you will most likely be required to sign "seller addendums" at some point (regarding the bank's role in the short sale), and it is important that you review the documents carefully and fully understand what you are signing. If you have any legal questions regarding the documents, you should have a real estate attorney (your agent should be able to give you some names) review the documents.
As stated previously, the short sale process requires patience. Your Realtor will be a great help and push things forward (as much as possible). Your Realtor will also make sure to find out if the bank has even agreed to participate in a short sale. I have represented buyers and sellers with short sales, and the problems come when the seller hasn't completed the necessary paperwork (required by their lender), or even spoken with the lender, prior to obtaining an offer from a buyer. If they have completed the paperwork and gotten the ball rolling, you should be in good shape.
Best of luck to you!
Dont get run off by someone who is all the way on the other side of the country, trying to educate you on our LOCAL market. I go to Austin 6 times a year, and there market is MUCH better than ours here in Ohio, however, I would NEVER begin to advise someone on how to find a good deal there. Perry had a good idea, about looking at home on the market for a long time, but do not write off the short sale thing or the foreclosure market - there are deals out there. All investors have different criteria and what may be a deal to one is not a deal to another, so keep looking and find the "right" agent who will know how to help you.
The seller will take your offer to their lender to approve (should the seller be looking to negotiate the shortfall with the lender, which is likely). Be prepared to have some patience for the lender to review your offer, I've experienced up to 4 weeks, with that in mind you may want to negotiate some kind of lock on your interest rate -- although rates have not been moving up. Good luck!
No there are not lenders out there who just deal in short sales. Banks require short sales to be listed on the local MLS system with a realtor before they will even think of approving a short sale. So, you can easily locate these properties as well as foreclosures on any local real estate website. Or, a realtor can email you a list of properties.
Short sales can happen on an y type of loan. (FHA, conventional, VA)
If you are representing the seller in the short sale, or a realtor is, you will need to show the financials (w2s, tax returns for past 2 years, salary statements), hardship letter, sales agreement, purchase offer, Preliminary HUD-1, Authorization to Release (if representing the homeowner/seller.
Approval can take a while depending on the negotiations for the short.
The main thing is the BPO. All negotiation begins off of the BPO that the lender does. With various lenders at this time, scheduling an inside BPO can take up to 90 days....with all the homes in default, lenders are backed up. But, you can still negotiate the junior liens while you wait for loss mitigation dept. at the 1st mortgage lender to schedule the BPO. All the junior lien holders really require is the HUD-1, pre-qual/approval letter, hardship letter. They want to see where the money from the transaction is going! And, they don't want to see the seller get anything out of the sale...or, rent back the house from the buyer....
I don't see many lenders just dealing with short sales, but there are hard money lenders involved on the investor side. FHA does do short sales, but the ratios they use for the BPO process will be different that for Fannie Mae or Freddie Mac, or VA, etc...
If you need more help, email me directly since I'm not on this BLOG every day. You can reach me at email@example.com
Not all REO homes are sold as-is. The bank wants to net a certain amount at closing and if they can net that amount while still doing some repairs, than they may just do the repairs.
On a short sale, there may not be any money available from the seller for repairs, but if the problem is a HUGE habitability problem, then the bank may consider repairing the issue. I had a bank agree to install a new furnace, as the old furnace is not working and filling the home with carbon monoxide.
Please find an agent in your area and do not listed to the people who do not live here - they are not in OH and do not know our market like we do, just as we do not know their market like they do. NOw that you have perspectives on purchsing a home in Austin, TX, and in Chicago, IL, I hope you can find a true persective on how to buy a home in central Ohio too!!
Good luck and let me know if you need anything, you should still have my email address from before!