This may be a funny analogy, but I look at short sales much like I do a bad date. You never know what’s under all those layers of hidden fees, red tape and requirements. You don’t know what the bank is going to ultimately approve. You never really know how long the entire process will take. There are a plethora of “unknown” factors whether you are dealing with the buyer or seller’s side. Much like a date, the short sale may look good on the surface… but the more you start to find out over time, that attractiveness starts to dull quiterapidly!
Please understand that short sales are a much different beast than a foreclosure. It’s actually the preventative measure put in place to try and avoid foreclosure. Here are the Wikipedia definitions of each term:
A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. Creditors holding liens against real estate can include primary mortgages, second mortgages, home equity lines of credit (HELOC), homeowner association liens, mechanics liens, IRS and State Tax Liens, all of which will need to approve the sale in return for being paid less than the amount they are owed. The lien holders do not have to agree to accept less, but they often do since the alternative is to let the property go to foreclosure.
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower, who has stopped making payments to the lender, by forcing the sale of the asset used as the collateral for the loan. Formally, a mortgage lender (mortgagee), or other lienholder, obtains a termination of a mortgage borrower (mortgagor)‘s equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure)
From a buyer’s perspective, short sales may look like a grand deal. However, be prepared to wait for up to 12 months to finally close on a home. Not that a buyer wouldn’t want to wait that long, but typically that’s not the case. Usually, when someone is ready to buy a home, they are ready to buy within a 2 week to 90 day time frame.
I actually had a situation happen where I had a buyer on contract, was told the price was bank approved and we could close on the property within 30 days. Fantastic! My buyer was super excited and put in a full price offer. We waited… and waited… and waited to hear back from the bank to ensure his offer was approved. Only to find out that the bank had decided to put his offer to the side and list the house on an online auction site. WHAT?! How is that possible? Well, the unfortunate thing is that when it comes to short sales, the banks are going to practice all measures to try and gain as much revenue as they can. The attorney settling the transaction told us to “wait before we release” the contract. Putting my initial instincts of angriness to the side, I really wanted my client to get this house that he bid on weeks ago. So, I followed the auction site to see that they in fact did get an offer on the home. However, it was near $60k LESS than what my client offered in the first place! The auction site also placed a clause on the house reading, “Final price must be approved by Seller.” I anticipate that we will pick things back up where we left off as the “People have spoken,” Mr. Banker. They don’t think your house is worth as much as you do!
Another wild thing about short sales is that because the banks tend to stall during the sales process, often times these short sales end up going into foreclosures. Then, that’s a whole new ballgame! And let’s not forget while this process is going on that the homes are frequently vacant just sitting there for months.
Short sales are a gamble, and may not pay off for the buyer ready to move now. However, if you have time and patience, it may be worth your while to save a few bucks.