I get asked this question very often -- what is a short sale? It is easy to answer by sending someone a link to a website or several websites that explain a short sale. Here is how the Columbus Board of Realtors explains it:
"The term "Short Sale" is used in the real estate business to describe a situation where there is more debt owing against a property than the current market value of the property, and where the seller is unwilling or unable to bring sufficient liquid assets to the closing to cure all deficiencies. In other words, the Seller can't sell the property unless the third parties, or "Creditor(s)," agree to accept a payment that is less or "short" of the amounts actually owed to the Creditor(s). The Creditor(s) are usually mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities such as the IRS or State Tax Commission."
What does that mean? A short sale means the seller's lender is accepting a less than the seller owes on the mortgage in order to release an existing mortgage. The seller may have stopped making payments or they may just be underwater - owe more than the house is worth. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
The process is that you make an offer, the seller accepts it, the seller's agent sends the offer to the lender along with the seller's hardship package (the seller has to prove hardship), and then we wait for the bank to process the package and the offer.
Depending on the lender's back-log of foreclosures and how much paperwork the seller has already submitted, it could take anywhere from two weeks to six months (or more) to get a response on an offer from a lender. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender.
If a mortgage company agrees to a short sale, they ask buyers to purchase the home in its present condition - as is. Lenders typically will refuse to pay for:
•· Suggested repairs disclosed on a home inspection.
•· Pest inspections or work necessary to issue a clear pest report.
•· Roof certifications or roof repairs.
•· Home protection plans for the buyer.
•· Deferred maintenance.
Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender's desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinary buyers do not.
The short sale process, from submission to short sale approval, is generally as follows:
•· Submission of offer and complete short sale package from the seller.
•· Bank acknowledges receipt -- 10 to 30 days.
•· Bank orders a BPO or appraisal -- 30 to 60 days.
•· File is reviewed -- 30 to 60 days.
•· Negotiator is assigned -- 30 to 60 days.
•· Level II negotiator may be assigned -- 30 to 90 days.
•· File is approved or rejected -- 60 to 120 days.
If you're running past 120 days, it's possible that the listing agent or a third-party negotiator is not on the ball and is lax about calling the bank. Calling the bank means waiting on hold anywhere from 10 minutes to an hour or longer.
Or, a lengthy short sale period can also mean the bank has internal problems, not enough staff or has lost the file a few times, prompting the listing agent to resend the package over and over
This is the short version of what a short sale is. They can go smoothly or they can be a nightmare. If you are patient and don't mind waiting up to 6 months for an answer from the bank, you might get a good deal. But other things can happen while you are waiting - the house can be vandalized, the seller might have a 2nd lien on the house that the mortgage company doesn't know about, the bank/lender can, after you've waited several months, counter offer with a higher price (I've had that happen to one of my buyers); if the house is not winterized, the pipes can freeze. About 10% of short sales do end up closing, and the other 90% stay in limbo long enough to go into foreclosure. A lot depends on the listing agent, the bank, the negotiator and the seller and how quickly they all move toward the goal of selling the house.
I hope this helps explain what a short sale is. There is a ton of information on the internet about short sales, but these are the basics.
Roberta Kayne, Realtor & Photographer - All Rights Reserved
Specializing in First Time Buyers and Relocation Buyers
Central Ohio - Columbus - Dublin
Certified Residential Specialist (CRS)
Accredited Buyer Representative (ABR)
Short Sale & Foreclosure Resource (SFR)
Residential Relocation Specialist (RRS)
Re/Max Affiliates, 614-537-4564
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