There is a lot of talk these days about short sales and what a great deal they are. First, they can be good deals, but don’t expect to pay pennies on the dollar. You will still be competing against other buyers. Two, be patient. The bank approval process can be painfully slow - anywhere from one to nine months.
I recently represented a buyer in a short sale. We wrote the offer in December ‘07 and ratified it in January ‘08. However, we didn’t get the bank approval until mid-April and finally closed in May ‘08. We had an escape clause if we needed it and we continued to look at other properties. It was a good deal and my client could afford to be patient.
A short sale can be a good deal if you have patience. The deal can take anywhere from one to nine months to close - if it even goes to closing.
What is a short sale? A short sale in real estate is a transaction where the seller’s mortgage holder agrees to accept less than the full amount owed on the loan. The bank is getting ’shorted’ on its money, thus the term short sale. Why would a lender agree to this? A lender agrees to a short sale to avoid foreclosure proceedings, which can be expensive in their own right. Banks are not charities and don’t enjoy losing money on a loan, but in some cases they would rather take a small loss now rather than a potentially larger loss in the future.
So, your condo is worth less than what you owe on the loan and you want to sell. Just do a short sale, right? Not so fast. You also have to show hardship. Are you current on your payments? If yes, then no short sale. Still have a job and money in a savings account? If yes, then no short sale. For the seller to get approval for a short sale, the seller will need to show the bank some form of hardship - medical reason, job loss, other financial loss - that will prevent them from meeting their loan obligations. As I mentioned, bank are not charities and don’t enjoy losing money.
If you are still current on your mortgage payments, then you are not a candidate for a short sale.
OK Rick, I get the fact that banks don’t want to lose money, but why does the deal take so long? The easiest part of the deal is making the agreement between the buyer and the seller. The seller is eager to sell, thereby avoiding foreclosure, and the buyer is eager to buy the the condo at a good price. However, the bank wants to minimize its loss and will do its due diligence. If there are two banks involved (i.e. a first and second trust or mortgage) that will only complicate things.
OK Rick, I am a buyer looking for a good deal, where do I start? First, get yourself an agent that knows the short sale process (shameless plug - call me). Short sales have been rare until this recent market and many agents are inexperienced with them. Make sure your contract is written so you have an escape clause to get out of the contract. Since it can take many months, you don’t want to be stuck in contract if your situation changes - or if you find something better.
How do you know if a listing is a short sale? Often you don’t always know until you start to write the offer and inquire with the listing agent. In the remarks section in the listing, agents will often enter ’short sale’ or ‘third party approval’. Here is a link to listings of condos in Arlington found with this criteria:
Short Sale or Third Party Approval
For other areas or housing type, contact me.