Short Sales - Frequently Asked Questions
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What is a Short Sale?
A short sale is the sale of a home in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan(s).
The process starts when a seller who is behind in his payments attempts to sell his house before the bank takes the property through foreclosure. To do this, the Real Estate Agent negotiates with the bank to agree to sell the home for less than what is owed on the property.
How Long Does it Take to Complete a Short Sale?
Although response times vary from lender to lender, it will typically take somewhere between 7-21 days to receive an approval on a short sale offer from the lender. From there, it will take about 30 days to close the escrow.
Why Would a Lender Agree to Accept a Short Sale?
Lenders have ample incentive to negotiate a short sale with a distressed homeowner. First of all, if the lender has to take back a property pursuant to a foreclosure sale, the lender would become responsible for a variety of costs, including property maintenance, utilities, and HOA fees. They also risk destruction of the property by vandalism.
Every month that goes by during the foreclosure process, the bank is losing money. Once the property has been foreclosed on, they must hire a local real estate broker to sell the property. Add up all the months and expenses for the foreclosure process, and it is very expensive for the bank. This is why the lender has a good incentive to work with a short sale. They are less costly, and the bank can move the property off its books much sooner.
What are the Challenges with Buying a Short Sale?
The main challenge in buying a Short Sale is obtaining a lender approval for the sale price and terms. Even with a fair market purchase offer and a clean package, the lender may be slow to respond. So the key ingredient you need for a successful Short Sale purchase is patience. Some of the lenders are overwhelmed and can take weeks responding to an offer. Other lenders act more quickly, responding within a week. Just be prepared to have patience waiting for a bank approval of your offer and throughout the escrow process.
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What Can I Do to Get the Bank to Accept My Offer?
If you want your offer to be accepted, be prepared to make a reasonably priced offer without too many demands. These offers are more likely to be accepted.
Make sure you have your loan in place when you make an offer. The bank is keen on knowing that the buyer's financing is solid. Make sure to include a pre-approval letter with your purchase offer.
To increase your chance of acceptance, make your purchase offer as clean and easy to read as possible. The fewer demands or exceptions, the better.
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What is the Difference Buying a Short Sale vs. a Bank-Owned REO?
A Short Sale is the sale of a home in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan(s). The process starts when a seller who is behind in his payments attempts to sell his house before the bank takes the property through foreclosure. To do this, the Real Estate Agent negotiates with the bank to agree to sell the home for less than what is owed on the property.
REO stands for " Real Estate Owned," and is another way to refer to a "Bank Owned" property. This is property that the bank has taken back through foreclosure and failed to sell at the trustee sale. These properties are also known as Bank "Repos."
With a Short Sale, the homeowner is still technically the owner of the property and must agree to the sale terms in addition to the bank approving the deal. In a Short Sale, the seller is still typically living in the property and will issue all standard transfer disclosure statements. Short Sales take a little longer than an REO to obtain an approval from the lender and to complete the escrow.
With a Bank Owned REO, the bank is the owner and makes all the decisions regarding the sale. They typically sell the properties "as is" and with minimal disclosures. REO properties are vacant and once a deal is agreed to, the sale takes place quickly.
Buying Short Sales or Bank Owned REOs both represent opportunities to get a Great Deal on a home.
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