What about Short Sales

Over the last couple of years we have been experiencing a new kind of home for sale product called a short sale. For those who don’t know what that is the description is basically a home on which more is owed against it than it is worth or can be sold for. The seller is asking the lender or lenders to accept a pay off for less than owed to sell the home and remove their obligation. Any seller considering this kind of transaction should consult their tax accountant or possibly a real estate attorney to find out just what their final obligation will be. The tax man cometh and there is no escaping him. Homeowners receive a 1099 for the amount of debt that was forgiven but currently the government is allowing them to file another form to take this tax burden away. How long this will go on is not clear so take all precautions when starting down this road. Not to mention “recourse” and “non-recourse” loans. Better get some help understanding this.

For buyers who want to pursue this type of purchase it can be a lengthy process of waiting. The seller and sellers agent will set an asking price on the property to try and solicit offers. Generally this price will be low as they need to attract an offer (ever heard of “come on” price?) to entice the bank to seriously respond to their short pay request. The process of negotiation with the bank should be started as early as possible but some banks don’t tend to respond until they receive that initial offer. So a price is set and offers are solicited often bringing in even lower offers than the asking price. Once the bank recieves the offer a negotiator or servicer is assigned. He or she will then determine the current value of the property either by appraisal, drive by appraisal or BPO. They will then use this information to determine the final offered price which is  pretty much on take it or leave it terms. Here’s a news flash: the bank can wait!  And it is not that they are greedy as some people may think. It is that this is a business and they must try and recoup as much as they can for the property. And from the stand point of value it greatly undermines everyone’s value to have these homes sell at so much less than they are worth.

Often the buyer that has been patiently waiting is lost at this point. Sometimes it is because they have not been patiently waiting and have moved on to purchase a home that is more readily available. Another reason is the price offered by the bank is often higher than the “come on” price and is not acceptable to the buyer. Remember they are looking for a “deal” and anything percieved as not a deal is not acceptable. Perception of “deal” -That is a subject for another day!


The Short Sale offer. If you are not faint of heart and have a lot of patience then it is a good time to jump into these transactions. Apparently the banks are now getting a bit more interested and starting to respond a little quicker. Still could take 4-6 months but I am seeing some success stories with times closer to 3 months. However, come prepared. Bidding on a short sale is the same as bidding on a bank sale with respect to what documentation must be submitted to the bank in order to be considered. This is the important part-the bank won’t even look at your offer without the proper documentation which includes:

1. Prequalification from a lender-Best if you have a direct lender!

2. Credit scores: these can be included in your prequal lender or provided from a report you generate yourself. BEST is to have your lender provide them. Mortgage scores can be different from if you were buying a car or furniture.

3. Proof of funds for down payment. This is a must. You must be able to prove you have the down payment available. 

Also with inventory decreasing and with this trend forecasted to continue there will be much more competition from other buyers. Most of these homes receive multiple offers and only the best are even considered. This doesn’t necessarily have to do with price (but that is very important) but can also be about credit scores, down payment and the strength of the buyers ability to purchase. 

Bank Owned properties (foreclosures) The same rules apply but in this case you will not have to wait long for an answer. It is almost always highest and best but cash or a big down payment can sometimes trump offers that are monitarily close. Very competitive so no sense in underbidding! Most of these sell for close to or above the price asked.

Remember, Interest rates are still historically low! A rise in interest rates can easily change the cost of the home per month and over the length of the loan. If you are thinking of purchaseing a home in this great buyers market please call Mary Burke -LifeStyles Realty-949-275-6544 for assistance.  

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