Monday, April 14, 2008
by Carol or Jim Chamberlain
In the past year everyone has been talking about short sales and how much money you can save when buying a home. What is a short sale? In the simplest of terms, it is when a home owner has a loan on their home that is more than the current market value of the home.
Is this a perfect opportunity for a home buyer to purchase a new home at a price well below the current market value? The Seller just wants to get rid of the property at any price as he has not equity anyway. The bank doesn’t want the property. Banks are not in the property management business. The bank wants its money so that it can lend to someone else who will pay them back with interest.
If it looks to good to be true, it usually is. Most offers on short pays never get accepted by the bank’s loss mitigation department. It is not uncommon to take 4 to 6 weeks to get just to get an answer back on your offer. Then there is certainly to be a counter offer regarding the price. Many listing agents of short sale properties list the property very low so that it looks like a “really good deal”. Then when an offer or even multiple offers are presented to the bank usually they will counter even higher than the list price.
Fact is, many sellers do not qualify for a short sale and they are not even aware of it. Before the property is listed for a short sale, a hardship package should be completed and sent to the lender to verify the sellers’ eligibility for short sale. There are strict guidelines that a seller must fall into when selling their property as a short sale. Many homes are listed before the hardship package is even sent to the bank. It can take 4-6weeks to get an approval for a short sale. This process has to be completed with each loan that is on the property.
It must be a true hardship or the bank will not look at it at all. The most common reasons lender will approve a short sale are:
Relocation out of the area
Inability to pay the loan
Death in the family
Loss of job
Court ordered sale of the property, usually due to divorce
The lender will want to see the last 2 years of the sellers’ tax returns. This is to ascertain if they any other assets, in state or out. The bank also wants to verify amounts in checking accounts, savings accounts, and retirement accounts (401k’s included) to see if this truly is are a hardship case. As a seller, the bank feels that you borrowed money from them and they expect you to pay it back. The seller is asking them to “let them off the hook due to them making a poor investment or exercising poor judgment on their ability to repay the loan.” So, before the bank agrees to allow the seller out of the loan for less than they are owed, they are going make sure the seller is truly a hard ship case. If the seller does have other assets, they will not approve the hardship, and the property will go into foreclosure.
Multiple loans on the property increase the difficulty of getting a short sale accepted. With multiple loans there’s a good chance the second will not get any or very little money. And a third is usually just out of luck. So why would you as a lender agree to a short sale at all if you are not going to receive any money? Most won’t. There’s nothing in it for them and the first will more than likely get the property back and get most of their money after they foreclose and the subsequent sale of the property.
This is a highly abbreviated version of what it takes to do a short sale. Look at purchasing an REO (Real Estate Owned) property. The Bank already owns the property and now you will deal with one identity that can make a decision in a reasonable amount of time and you will still get an excellent deal.
Click here and read more information about short sales in Wikipedia
