A Short Sale is different from a foreclosure, which is when the Seller’s Lender has taken title of the property and is selling it directly. In a short Sale, the Seller’s Lender or Lenders must agree to accept a discounted payoff to release any existing liens. Although the Seller still has title to the property, the Seller in a Short Sale is just one of the “decision-makers”. The more “decision-makers”, the longer the process takes.
Please be aware of the following to help you make an informed decision:
• Short Sales are not for the “faint of heart”. Patience is a must. The process is complicated and takes time. The Seller must prepare a Short Sale Package and provide documentation that they are no longer able to afford the payment(s) (“de-qualify”) for their current loan/loans(“dequalify”). Once the packet is complete and an offer is received, it is then submitted to the Lender or Servicing Agent. The file will be entered into the computer base and nothing may happen to it for several days or weeks. Then a Loss Mitigator is assigned to the file. Each Loss Mitigator may have 200-500 files that they are expected to process. If the file that has been submitted is incomplete, the file goes to the bottom of the stack, waiting for completion. It may take 45-180 days to receive Lender Agreement.
• An experienced Real Estate Agent is essential. Your Agent must know what questions need to be asked of the Agent representing the Seller, i.e.,
1. Is the Short Sale Package complete? Has there been contact with the Lender/Lenders? Has a Loss Mitigator been assigned?
2. How many loans are on the property? Are there any other liens on the property – HOA, taxes, assessments, etc?
3. Are there multiple offers on the property? Has the seller accepted & signed another offer that has been submitted to the Lender? Are all other offers considered back-up offers? How many other offers are there?
4. Has the lender agreed to a Short Sale on a previous offer which did not close escrow? If so, how long ago was that and are they still in communication with the Loss Mitigator?
5. Are the loans on the property purchase-money mortgages (non-recourse loans) or recourse loans (i.e. home equity loan, etc,) Recourse loans may require a Seller to agree to a Promissory Note, which the Seller may certainly not agree to and, even if the Lender has agreed, the final decision rests upon the Seller to sign the Promissory Note. Close of escrow may not occur and the contract will become null and void because the contingency has not been met.
6. Has the date been set for the “Trustee Sale” (Foreclosure)? If the Foreclosure is less than a month away, unless communication has already been established with the Lender, agreement may not be received in time to delay the foreclosure. If the answer to these questions posed by your Agent is not favorable, you may decide that writing an Offer on this property is not in your best interest. Not all Listing Agents are experts at Short Sales. An Agent who knows the process can make all of the difference in the transaction.
• The Lender will not accept a price that is not close to market value. Before the Lender agrees to a price, a BPO (market analysis) will be completed. Your agent will prepare a market analysis for you to determine market value to assist you in making an informed decision regarding the price you offer. List Price does not always reflect market value.
• Written evidence of loan Pre-Approval by your lender is mandatory; must be submitted with an Offer
• The Sellers of a Short Sale are generally not in a financial position to make any repairs and the Lender will not be responsible for any repairs. The property will be sold “As-Is” and you will be required to sign an “AS-Is” Addendum.
• The terms of the Short Sale Contingency are clearly addressed in the Short Sale Addendum you will be required to sign. As a Buyer, this Addendum allows you to withdraw your offer at any time prior to Lender Agreement. Generally, escrow has not been opened per the Addendum, thus earnest monies have not been deposited.
• Some Sellers request that the Buyer open escrow at the time of Seller Acceptance prior to Lender Agreement and require the earnest deposit be non-refundable should the Buyer cancel the offer within the first 45-60 days. After that period, if Lender Agreement had not been received, earnest money would be refundable.
• The Lender will not accept an offer contingent upon the sale/closing of a property.
• Close of Escrow is generally required to be approximately 30 days following the “Agreement Letter” from the Lender.
• A professional Home Inspection is highly recommended on the property during the Inspection Period. The results of this inspection will assist you in making your final informed decision on the purchase of the property.
• Some Lenders may reserve the right to change conditions and renegotiate the terms of the Offer even after they have given a verbal O.K. to the Listing Agent.
• Buying a Short Sale may be more expensive up-front. Because lenders rarely pay for any extras, as a Seller might be willing to do, you may find it necessary to absorb more costs, i.e., transfer taxes, HOA fees, utilities during inspection period (if seller has turned off), additional inspections, etc. If the preliminary HUD Settlement Statement, which was submitted with your offer, did not accurately reflect all of the Seller expenses to be assumed by the Lender, you may end up having to come to escrow with more money to cover those additional expenses.
• A specific Title/Escrow Company may be required by the Seller and/or Lender. Fees may vary from company to company.
• As a Buyer, you are not in control of the transaction. You are not in control of what the Listing Agent is doing to keep the approval process going. You are not in control of the escrow date. You are not in control of the home closing process either. The Seller’s lender calls the shots.
• Consistent follow-up through-out the entire process by your Agent is mandatory. Someone needs to make sure that the wheel is still turning and keep you informed of the status. At the end of the day, you may have been able to purchase your Dream Home or an investment property at a great price with few surprises because you knew the process before you began.