What's the typical process when buying a short sale?

Asked by Trulia, San Francisco, CA Mon Mar 5, 2012

How long does it take? What are some pitfalls?

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Fred White, , Louisville, KY
Mon Mar 5, 2012
Your two questions go hand in hand. One of the major pitfalls is how long it can take. The other pitfall is that it's possible not to happen at all.

Basically, you make an offer and the seller has to jump through all the bank's hoops in order for the offer to get accepted. The bank will not accept an offer that is too low, and the seller and the bank have to deal with what is done with amount that is "written-off" or due to be paid off at a later date. A lot of this involves calling the bank on a regular basis and communicating with the other part of the bank that is foreclosing on the house.

One common mistake is that someone tries a short-sale, just because the house is not worth what they mortgaged it for. This can't be done unless there is a hardship like a death, loss of employment or a divorce.

As a buyer, you will be dependent on the seller's ability to put together a proper short sale packet and their ability to work with their bank. If you like control over a situation and need a house in a certain amount of time, a short-sale is NOT for you.
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Neil Blumberg, Agent, Louisville, KY
Wed Mar 7, 2012
The process:
(1) Meet with Realtor. All Lenders (except maybe small local ones?) demand that the short sale be conducted through a real estate agent.

(2) The Realtor will discuss the details of your case and lay out the options you have to solve your problem. It may be that short sale is the best, but there are alternatives. He will discuss HAMP and HAFA, if relevant (government programs).

(3) If you go the short sale route he will inform you which documents you need to gather and assist you with the financial analysis the bank requires, and obtain your written permission to communicate with the lender(s).

(4) After doing a CMA (comparative market analysis) he will recommend a price to market your home at. Short sales are very different and the price he recommends will not necessarily be the same as if you were not doing a short sale - he may recommend higher or lower.

(5) Depending on certain factors, he may arrange for the lender(s) to immediately make an evaluation of your home via a BPO (broker price opinion).

(6) Your home is then marketed and ultimately an offer will almost always be accepted by you. Buyer will need to submit proof of funds or pre-qualification to purchase, submitted with the offer. That acceptance is contingent upon lender(s) approval, and also maybe a 3rd party lien holder approval. If you are in bankruptcy the approval of the bankruptcy court will be required.

(7) Inspections are done by buyer. If the lender(s) approve the deal (with or without negotiation conducted by your realtor) you close. Important to you is to obtain a release from all further liability, so that when you walk away from the closing table you cannot be perused by your creditors for a deficiency judgement. Depending on the lender and program and state you live in, you may even walk away from closing with as much as $30,000 in cash from the lenderl! Yes, I know, it sounds crazy!

(8) If the deal is not approved your house is foreclosed on and sold at auction.

Some pitfalls:
(1) You waited too long and the house is about to be auctioned.

(2) The BPO comes in too high and the lender refuses the deal.

(3) You don't get a high enough offer.

(4) Your buyer becomes impatient and walks away.

(5) Your spouse gives up and refuses to continue with the sale.

(6) The buyer's lender refuses to give the mortgage because of value or condition issues.

(7) You do not get the walk-away money you expected or the waiver you expected.

(8) The 2nd or additional lien holders do not accept the amount offered.

(9) Major deterioration in house condition (flooding, mold, etc)

This is a very brief overview. Lots more occurs. There are solutions to most of the above issues. Brace yourself, this could take many months. Find an expert.
Web Reference:  http://metro1realty.com
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