Short sale?
What is the ubiquitous term: short sale mean? Many people may have an idea of what that term means, the following is a condensed version of a short sale. A short sale is when the owner of a property is upside down meaning they owe more than what their property is worth and they cannot refinance for that exact reason. They have fallen behind on there payments in many cases due to a jump in interest rate or loss of job. One option is to short sale the property and attempt to sell it before it goes into foreclosure. A short sale may satisfy a sellers outstanding debt (if the seller did not pull equity) and is not as bad as a foreclosure for their credit. The operative words are ”as bad” I want to be clear it will negatively impact the sellers credit to some degree.
The big questions always is “How long is the short sale process?” The banks guidelines are so fluid and constantly changing, it is difficult to access exactly how long this process will take. It really depends on the bank and each bank is different. Some are doing their best in trying to resolve them quicker and others are so overwelmed and take up to six weeks to respond to an offer. I would guess that the later is the most common in this market. An important caveat is that the bank will not do an analysis of what they will or will not accept for an offer until an offer has been submitted along with the short sale package. An important factor is whether there are one or two loans? Another thing to point out is that once the NOD or notice of default is filed, it was normally 3 month time period from the NOD that it went into foreclosure. That is not exactly happening today, some banks are allowing more time to resolve it in a short sale.
A fascinating aspect of a short sale is that a buyer may benefit from being patient. In many instances there are several offers submitted to the bank and like anyone the bank will entertain the highest and best offer, but by the time the bank makes a decision that person or buyer in first position has ran off and purchased another property. Many times the listing agent will contact the other buyer agents and ask if their client is still interested in the property. This is why patience is critical and many times beneficial to the buyer. Though the process is tedious to say the least, it can however be a great opportunity for buyers. I invite you all to share your experience. Given that there are in some cases more short sales than regular sales in parts of the bay area,
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Hi Francis,
A great explanation of Short Sales. They can be a real trying experience for buyers and patience is key!
Larry
Great description of a short sale Francis. I have had my fair share of experiences with short sales. I have had some clients put in an offer wait it out and rewarded with being able to purchase the home and I have had others that waited and for one reason or another were not able to purchase the house. There has been lots of talk about the possibility of banks actually shortening the time it takes to sell a home via short sale. One of those reasons is because once the bank has forclosed on the home they do need to put money into their reserve to cover it, hence the money is “tied up” and can not be used by them. Hopefully the short sales become shorter in length for everyone’s best interest. Only time will tell.
Adam
Francis,
Great points and thanks for explaining the process and making it easier to understand.
Brian
Francis, comfortable explaination of a short sale for the buyers consideration, on the flip side it is hard not to see some advantages mixed in with the disadvantages for the seller. If the value is vastly lower than the loans, and the seller also has difficulty with making payments, there can becompelling reasons to do the short sale. One biggie is the understanding that on a primary residence there may be no obligation to pay the short funds or any taxes due on the short funds.A
seller should always check with a professional tax person for up to date information. There are so many options to consider.
Hi Francis,
Short sales are a pain, but if the buyers are patient there can be a big payoff in the end. My clients just closed escrow on a 1,700 sq. foot home in the Hayward Hills with City and bay views. It was a short sale and they ended up getting it for only $360,000. Amazing…Stressful right up to the end, but well worth it.
Francis,
In short sales banks still do an appraisal just as if it is a REO. I believe the selling prices are similar. I have heard it costs a bank as much as $30,000-$40,000 to foreclose so there is something in it for them to leave it as a short sale. They also have to pay property taxes, HOA fees, and maintain the home.