Monday, January 23, 2012
SHORT SALES from a BUYER's Perspective
Short sales are very much worth purchasing. They are an opportunity for you – the Buyer – to purchase a valuable property at (very often) less than market value. They are better than purchasing a foreclosure because the seller is still living in and caring for the property, and although the property may be somewhat neglected due the seller’s financial distress, you can be somewhat assured that they won’t angrily destroy or rob the property of fixtures or amenities before you take possession of it.
Definition: A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
Plain and simple -- this happens because the seller cannot sell their property for what they owe.
Steps in a Short Sale:
¨ As a requirement of doing a short sale, the seller must list their property in the MLS with a Realtor.
¨ The property is listed at fair market value
¨ Seller signs an Authorization to Release Information granting their Lender permission to discuss all aspects of the Short Sale with their Realtor.
¨ Seller requests a Short Sale Package from the Lender.
You want to work closely with your Realtor (your Buyer Agent) to make sure that the seller is serious and is completing all steps required by their lender in a timely manner. This can be a long process for you, and it doesn’t need to be delayed by the seller’s inability to comply with the process. You also don’t want to wait for months and months only to find out that your offer has been rejected by the investor based upon the seller’s failure to complete their part of the deal.
¨ Seller accepts the buyer’s offer.
So far, this has been the easy part. From your perspective as the buyer, everything that has taken place is as it would be with a typical real estate purchase.
Now comes the waiting . . . . . . . .
A Negotiator is assigned by the lender. Unbelievably, this takes about 4-5 weeks and is highly dependent upon whether or not the Seller has produced all of the lender required documents (much like applying for a loan) and a file has been started. It is also dependent upon how experienced the Seller’s Realtor is. An experienced short-sale Realtor is very good at navigating and guiding the process and will keep the Buyer Agent informed. A week listing (seller) agent can be a real handicap to the process and it will then be up to the Buyer Agent to push and prod and pull the necessary information from the process and keep you informed. The number one reason that short sales fall apart is buyers pulling out of the process. Since the purchase of a short sale property is generally a good financial opportunity for you, as a well-informed Buyer, you will never pull out.
You must be patient, but . . .
Having a good Buyer Agent will make this process a little more tolerable for you.
¨ Seller's lender accepts the buyer's purchase offer. This takes some time – anywhere from 3 to 8 months, sometimes longer. During this process, there will be requests for additional information from the seller, additional market analysis will be completed, an appraisal will be completed, and you will be reviewed as a viable purchaser.
¨ In addition to the Investor accepting the Buyer’s offer, the Seller also has to accept the lender’s terms. This means that whatever terms the lender/investor sets forth for repayment, the seller has to agree to it. Of late, lenders are asking for very little from the seller – anywhere from $500 to $2000 dollars and are not forcing the sellers to accept 1099s for the dismissed debt.
¨ Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.
Seller Qualifications for a Short Sale
¨ You must have a hardship. This can be anything from the home’s market value has dropped to bankruptcy. Here are some examples:
1. The home’s market value has dropped. This must be substantiated by seller’s Realtor with comparable sales.
2. The mortgage is in or near default status. It is no longer the case that you must stop making your mortgage payments in order to be considered for a short sale. Lenders own more homes (foreclosure) than they can handle; therefore, they are much more apt to accept a short sale.
3. Financial hardship. The Seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale. Some examples of hardship are:
c. Medical emergency / sudden illness
4. The Seller has no assets. The Short Sale Package will undoubtedly include a copy of Seller’s tax returns as well as a financial statement. If the Lender discovers assets, they may require you to pay back the short fall. They may, however, discount the pay back.
Short Sale Recommendations:
¨ Hire an attorney. This is not in place of a Realtor, it is in addition to.
¨ Be organized, punctual and courteous.
¨ Work closely with your Realtor and Attorney.
¨ Your Realtor should communicate regularly with the seller’s Realtor. Information is power, and eludes confidence. You want to be well informed all the way to closing.
I tell you all this because from a Buyer’s perspective, this process can seem like a big, black hole. You write the offer, the seller accepts it, the offer goes to the lender and you are told that you have to wait 3 or 4 months to hear anything. WRONG! Do not accept this explanation. If you have an experienced and strong Buyer Agent, you should be informed every step of the way.
That is how I do business.