Buying a short sale property

The real estate market is constantly changing and the rules around short sales are also shifting with government intervention.
A short sale is not a quick way to buy real property. It is not usually completed in a short time frame. It will most likely take longer than a regular real estate transaction.  Selling short means that the seller is in financial difficulty and the mortgage is worth more than the value of the property. The seller is “upside down” and wants to sell short of what is owed. 

Patience is recommended for those interested in purchasing a property through the short sale process. You could end up with a great deal on a home, or become entirely frustrated. If you expect to move in by a specific date, then look for a regular sale.

A short sale takes anywhere from three to eight months to complete and in the past were often unsuccessful. Buyers would cancel and walk away because of the time it took to get an answer from the seller and the lengthy escrow period. The banks had a foreclosure department, but very few people to handle short sales. The banking institutions have been staffing up their short sale departments, and this will be a regular stream of business now and for the foreseeable future

Purchasing a short sale property successfully depends on the number of loans on the property and the Private Mortgage Insurance companies. Banks are more willing to negotiate a short sale than they were two years ago, some quicker than others.

Why a short sale takes a long time

The prolonged time is due to the investors in Mortgage Backed securities. The banks are the servicers of the notes and have to defer to the investors.  The loans were packaged and sold to investors by Wall Street. There is a great deal of confusion and hesitation among them. All of the investors have to agree that they will lose money. Some will lose more than others depending on their position of ownership,  the negotiations may take a while. Originally the banks would not accept a short sale without a bona fide offer. That has changed however and a mortgager can initiate the short sale without one.

Making an offer

Ask if a Notice of default has been filed, and how much time is left.

Make the offer as you would in a traditional sale.

The seller accepts and signs the offer.

It goes to the loss mitigation department of the lender.

The seller must send a complete financial package and other documents.

Missing documents mean long delays. Sometimes the banks lose documents, or they are sent to the wrong departments.

The listing agent needs to follow up on a daily basis to make sure it is moving forward. Check in often with your Realtor® to make sure this is happening.

They assign a negotiator when all the documents are in.

You have to wait for an answer. The banks are inundated with short sale requests, and have limited staff. You might get different answers on different days.

Don’t expect that the bank wants to dump the property. They will do an appraisal and 2 BPOs (Broker Price Opinion) for an estimate of value. The negotiator will counter your offer. Usually it is a verbal counter.

Hold off your inspections until you receive notification of acceptance from the lender.

If all is in alignment, it will go through the escrow process and you will get the keys.

This page is for informational purposes only.