A brief explanation of what short sales are, and what to expect should you try to buy one.
In our recent series on buying a foreclosure, we mentioned homes in pre-foreclosure which are known as short sales. A short sale is when the owner is behind on the mortgage, and is trying to sell the house to avoid foreclosure. While it is possible to purchase a home as a short sale, it is very difficult, and is a long and tortuous process. For a successful short sale to happen, the lender(s) holding the mortgage(s) must approve the sale and agree to take a loss. Purchasing a short sale, if successful, usually takes at least 4-5 months, during which time there is no way even to know if it will be approved or not. The lender can change their mind at any time without warning. And, they can take months to give their response, which may very well be “DENIED!”
Foreclosure is an expensive process, which costs lenders a lot of money in legal fees, sheriff’s fees, etc. Then, after going through all of that, they usually end up owning the property themselves, meaning they have to maintain and insure it until they finally sell it. Since foreclosure costs lenders so much, and they supposedly don’t like being property owners, you would think they’d make short sales very easy. Unfortunately, it is exactly the opposite. We’re not sure if it’s because lenders are overworked, or if perhaps they actually benefit by carrying delinquent loans on their books, or what. No matter the reason, almost every short sale transaction is a nightmare. It seems like the lenders do everything to make the process as unpleasant and slow as possible. Through it all, there’s no guarantee that all the effort will be worth it.
One of our listings was a short sale, and it took over FIVE months from the time it went under contract until it closed. Until the very end, the buyer had no idea if it would actually go through, or if the bank would decide to foreclose. They got lucky, but it took a LONG time.
Most of the buyers we meet avoid short sales like the plague. Trying to purchase a short sale demands that the buyer must have months to spare, and must be OK losing those months if it falls through. However, if they ultimately close, short sales can be quite a bargain for buyers, while relieving sellers of their financial burden and avoiding foreclosure.
If you are a buyer with the determination and time to pursue a short sale, you must be careful not to get stuck in a contract for months, with no way out. As a seller of a short sale property, having someone with years of financial experience on your side, who can deal with the lender, is a must. We have successfully negotiated short sales for both buyers and sellers, and are ready to do so when called upon.