Why do short sales and foreclosures take so long to buy?

Asked by Trulia Sacramento, Sacramento, CA Wed Apr 17, 2013

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O'Neal Helms, Agent, Lincolnton, NC
Sun May 12, 2013
Generally speaking foreclosures don't take any longer to buy than a regular purchase. However, as with any transaction there can always be exceptions. It is also greatly dependent on the individual agents experience in foreclosure paperwork process. Messing up the paperwork/addendums or filling them out incorrectly could cause a delay in getting executed docs back.
Shortsales however are an animal, and I don't say that lightly, all of their own. I have seen locally a few attorneys stepping up to take claim as being able to process them sooner, however those results have yet to be seen. The last one an agent who works for me closed took almost 9 months. The buyer got a great deal, so it just depends on how willing you are to tough it out to save some $$!
2 votes
Cindy Davis, Agent, San Diego, CA
Wed Apr 17, 2013
Short sales take far longer to buy than foreclosures. They really are not comparable with regard to time frames. Foreclosures typically close at 30-40 days. If they are on the MLS then the bank has priced the home and put it out for bidding.

With short sales, you have 2-4 months (sometimes longer) for the bank to review the seller's financials, get their own estimate of value and process the paperwork. It sits on someone's desk for a long time before anyone gets to it.

The banks just have too many of these to process them in a timely manner...and remember, this is a side business for them...not their principal business!
2 votes
DeeDee Riley, Agent, El Dorado Hills, CA
Wed Apr 17, 2013
Foreclosures are not too bad in general and take usually 30 days or less but short sales are another story. They take a long time because many of the loans are only serviced by the banks on record and investors are really the ones who must give the approval for the sale. If there is more than one loan, it is also those other lenders or investors that have to give their approval as well.

I am disappointed on a regular basis that there never has been a good system for dealing with short sales that would give them some consistency.

I did some research a while back on the closing time for short sales in El Dorado Hills. From the link below you can see the blog post I wrote with the results.

If you are buying a short sale you must have time and extreme patience!

Web Reference:  http://actvra.in/R6X
1 vote
Tom Sommers, Agent, Lakeville, MN
Wed Apr 17, 2013
Try not to confuse the two. they are completely different situations. A foreclosure is the same a buying a home from a traditional seller. You come to terms with your offer and can close in as little as 30 days.

A short sale requires you to negotiate a deal for the home with the sellers and then the sellers must submit the offer along with all of the other information the bank wants from them. It has to go through a system that can take six months so you better be willing to wait.

1 vote
Becky Grubel, Agent, Herriman, UT
Wed Apr 17, 2013
Short Sales can be very complex.
A delay can be caused by a realtor sending an "incomplete" packet of information to the bank.
A delay can be caused by overwhelmed, unorganized or inexperienced bank staff.
A delay can be caused by overwhelmed investors (actual owners of defaulted mortgages.).
If you encounter more than one of the delays above then get ready for a very long ride.

The banks and investors have to cut their losses as much as possible to stay in business. They have to consider
1. the new buyer and if their credit worthiness.
2. the losses already incurred by the defaulted mortgage.
3. the continued losses brought about by the defaulted mortgage and
4. the trade offs to Short Sale vs Foreclosure, just to name a few.

These are pretty big considerations and should not be taken lightly.

And another, more recently noticed variable, is that the value of property is on the rise. As an investor it might be wise to wait for a better sales price to help cut losses.
1 vote
Kylee Roe, Agent, Sacramento, CA
Wed Apr 17, 2013
Short sales could become difficult again, at least in the Sacramento area. We are down from being a market with 65% short sales to 10-20% short sales. Now, buyers can buy a regular retail sale property, without going thru the waiting game on short sales. So, will short sale list prices go down to attract buyers? Possibly. Will the lien holders agree to those lower prices? Probably not.

In the next year or so, I think the Short Sale dance will be adjusting yet again.
1 vote
Scott Godzyk, Agent, Manchester, NH
Wed Apr 17, 2013
it would be nice if a real bank could actually answer this with a truthful answer. Short sales take long because the process is flawed. There is no incentive for anyone to work fast. They go as well as the listing agent is experienced in listing, negotiating and selling them. With REO sales not all take long, I get my new listings under contract in mere days on average, cash sales close from 14-30 days. The problems and delays start with Freddie, Fannie and the fact too few agents get too many listings that just dont seem to put the effort other agents are willing to
1 vote
Jaime Becker, Agent, Sacramento, CA
Wed Apr 17, 2013
There are several factors that would determine the amount of time it takes to approve a short sale. Such factors as: 1) How many loans are there? 2) Who are the lenders? 3) If there are any liens on the home 4) How quick the seller is able to gather the required documentation 5) Filling out any required forms correctly 6) And making sure to submit all required documents.

Typically short sales can take anywhere between 2-3 months now.

Foreclosures do not take that long. There is usually some time before you get an executed contract back, but that is never that long.
1 vote
Josh Barnett, Agent, Chandler, OK
Wed Apr 17, 2013
Because the banks are having to get permission to tap into tax payers funds on the loss.
1 vote
Bruce Slaton, , Elk Grove, CA
Wed Apr 17, 2013
Elizabeth is spot on

An experienced REALTOR handling a short sale should be able to negotiate in a better environment today than just a few months ago.

Then it depends on the Sellers ability and willingness to provide all of the required information needed.

We had a short sale we got the approval letter yesterday for...the house was occupied by a squatter so we could not get access until we evicted him. We got the squatter out and the Brokers Price Opinion (the process the bank takes on their side to determine value) was conducted on the 4th, probably submitted a few days later and yesterday the 16th, we received the approval letter from Ocwen, one of our easiest shorts to date.

However we did an FHA pre foreclosure with a big five bank somewhere in AMERICA and it literally took us a year and a half because the servicer kept passing on the file and dragging their feet.

But I will say, chances are if you are in escrow and the BPO was done let's say last month, count your blessings. Many of our short sales that are closing in the next month will find the Buyers in an equity position in today's market due to the increasing values in the last 30 days.

Patience is key but so is communication so have your agent consistently obtain updates from the Listing Agent asking what stage they are at.

Best of luck in your transaction

Bruce Slaton
Realty World eCurb REALTORS
1 vote
Sue Archer R…, Agent, Palm Harbor, FL
Wed Apr 17, 2013
Short sales take the longest because the seller is making a case that they have a hardship and are unable to pay the difference between the sales price and what they owe for the property. That evaluation can take time, especially if there's more than one lender involved, Mortgage insurers,etc AND whether the package presented to the lender is complete in its original submission.

If you are looking at buying a home that is short sale, it's important that your buyer's agent check out the following: the seller has a legitimate hardship, How many loans need to be approved in the short sale, and the experience of the listing agent in negotiating a short sale. Knowing those factors will give you better insight into how long the approval process might take, and if it might be approved at all.

'Foreclosures' is a legal process by which a lender takes possession of a home when a buyer defaults on their contractual obligation of paying their mortgage.Ii assume you are talking about bank owned properties (sometimes also referred to as 'corporate owned' properties). Those properties were sold at auction, no investor buyer bought it, so ownership reverted back to the bank who is now selling it as an REO property. I don't believe that purchasing an REO is any longer than buying directly from a seller who has equity in their home.
1 vote
Jim Walker, Agent, Carmichael, CA
Thu Jul 11, 2013
I have nothing to add. The previous answers were so good and thorough. I just had to give them all thumbs up.
0 votes
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