What you don’t know in real estate is always the biggest challenge we face as consumers. How can you find out about that home you so desperately want so you can make a smart offer? With a short sale, there are so many players that it is essentially impossible to predict any common sense outcome. From the amount the short sale bank will accept in the offer, or the time it will take to get to the bank negotiator’s desk is a mystery to us all – Buyer, Seller, Listing Agent, Buyer’s Agent, and Title Company.
Depending on the short sale lender, you might expect to wait anywhere from 2 weeks to get approval (if you are extremely lucky) or 1+ year! My longest short sale dragged out for 18 months. I was representing the Buyer and she wanted it no matter how long she had to wait. It was a great deal and we knew it IF she could get it at the price she offered.
The Seller (a Realtor who shall remain nameless) had purchased this particular property during the real estate boom as an investment property and included it in his bankruptcy when the market tanked. The home was relatively new but the Seller (having gotten 100% financing – popular back in the day when all you needed was a pulse) was seriously under water (the home’s value had decreased significantly below the amount remaining on the mortgage). The bankruptcy protected the Seller from foreclosure so there was no real sense of urgency on his part.
The unusual circumstances of this particular short sale made it even more unpredictable when we found out the first and second lien holders were recorded by the courts in the wrong order! This meant that the second lien holder with the smaller note (let’s say $20k and held by ABC Bank) was in first position for the short sale. The first lien holder (let’s call them XYZ Bank with a note of $300k) was in second position to collect on the short sale. For anyone who has ever closed on a short sale, you know the first gets the lion’s share and the second gets a bone for good measure. In other words, there was no way XYZ Bank was going down without a fight! So, ABC Bank and XYZ Bank were in dispute while we waited – and waited and waited and waited!
In the meantime, we had no way of knowing what the lenders would say (when and if they ever resolved their issue) when they had the offer in front of them. Normally, when the bank receives an offer from the Listing Agent, a short sale bank negotiator will order a BPO (Broker Price Opinion – which is similar but not as detailed as an appraisal). This BPO then sets a bar for which the bank will either accept, reject or counter the offer that is on the table.
Some banks have streamlined the process and use third-party software solutions like Equator to expedite the process between Sellers, Agents, and their short sale banks. However, not all banks offer this and not all sellers have only one loan to contend with! The more lien holders, the longer the process is likely to take.
Once the short sale bank approves the short sale offer, the clock starts. Most short sale banks give you a flat 30 or 45 day window in which you must close the transaction – regardless of how you are financing your purchase (cash or loan). Ideally, you don’t want to conduct the home inspection or deposit the earnest money in the designated escrow account until after you have written short sale approval. After the home inspection is completed, and assuming you want to continue, you can then make formal loan application and place your title order. Most Buyer’s Agents will (i.e., SHOULD) handle all of this for you and make sure you meet all deadlines as dictated by the contract (state real estate laws and contracts vary).
A short sale is a great alternative if you are in a rental situation where you only need to give 30 or 60 days notice and can live in the property month to month. It can also be a great alternative as a second home if you can stay in your current home and obtain financing without the sale of your current residence (an option that is not available to most of us). If you are living with a family member, this is also a great option.
There are so many things to consider when writing an offer on a short sale. Don’t be dissuaded to do so if you are in a position to see it through. But remember, patience is a virtue and you will need plenty of it to get to the other side of that sale!
And always, ALWAYS use a Buyer’s Agent to help you through the process!