SHORT SALES

The decision to attempt to purchase a short sale property is a big decision by itself. Navigating the short sale market is tricky at best, and a minefield at worst. No one can guarantee success in these transactions, but my extensive experience improves the likelihood of success.

A definition of a short sale is a useful tool in understanding the process;

• A homeowner is 'short' when the amount owed on his/her property is higher than current market value.
• A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage

As you might imagine, when any entity is on the verge of taking a loss on an investment, they exercise considerable care before signing off on such a transaction. Adding to the lender’s hesitancy to take a loss, consider that the mortgage loan servicer (the place where payments are made) may not own the loan, meaning that additional investors and / or mortgage loan insurers may need to approve the transaction. As if the loss issue and the multiple approvals necessary aren’t enough, the process is further complicated by the fact that each lender, investor and insurer has their own policies and procedures for managing short sale transactions. This already complex process is made even more difficult if there is more than one loan or lien on the property. The net result is a lengthy process with no assurance of success.

Now that we have covered the difficulties from the lender’s perspective (referred to as “third party or parties”), let’s discuss how the offer process differs from a “normal” sale. Buyers have been accustomed to finding a property they like, making an offer, negotiating the contract with the Seller, then completing their inspections, appraisal and loan approval with a closing in about 30 days of the contract date.

A short sale transaction also begins with a written offer. The handling of that offer is markedly different depending on the Seller’s Realtor and the policies and procedures of the third party(s) due to the provision in the Short Sale Addendum that the Seller may continue to market the property after accepting an offer. This provision is made due to the high failure rate of Short Sale contracts since the time for completing of the transaction is so long…usually between 90 days and 270 days. There are three basic methods of handling offers;

1. The first acceptable offer is accepted by the Seller and forwarded to the third party for approval. This offer is the only one seen by the third party. Any other offers are in an assigned backup position. This is common when the property is priced within the value range of the property and the lender is likely to sign off on the transaction.
2. The first offer in is “accepted” and sent to the lender to begin the process regardless of the likelihood of sign off by the lender. This is typical when the property is priced well below market with the intention of creating a feeding frenzy and producing several offers. The lender will counter the offer(s) much higher, and when the process is done, a buyer may be successful who has the right combination of luck and patience.
3. All offers are sent to the lender, they counter to all offers and accept the first offer back that is acceptable to them.

As you can see, the first method is more predictable and has a much higher likelihood of success. Methods two and three are more of a crap shoot and the property is more likely to wind up in foreclosure. Following the foreclosure process, a watchful Buyer will have a second chance to buy the home as a Bank Owned (REO) property.

    This lengthy discussion of the pitfalls of short sales is not meant to discourage you. The rewards of a successful short sale can be high. It is the Buyer who is prepared and patient that will reap the benefit of the short sale environment in which we are currently operating.

    I have attached the Utah Short Sale Addendum and Short Sale Disclosure documents for you to review. Reading through these plain English documents will answer many of the questions you might have, and will raise others. Please feel free to contact me my email, text or phone so I can address any questions you might have. I am here to help you.