Interest rates are falling ( should I add the oft misquoted term “to historical lows”) and you have decided that now is the time to buy. Maybe, the news that home prices have dropped considerably has spurred you to action. It could just be that, regardless of what is going on in the world, your personal situation has brought you to this decision.
If you go looking for information on the internet, you have probably seen hundreds of homes for sale at prices that seem to good to be true. Let me be the first to tell you, if something appears to be to good to be true, it probably isn’t what it appears to be.
You just might be the next person that calls me or sends me an email announcing your intent. You might be the next person that shares “I want to buy a short sale”.
So you want to buy a “short sale”?
I don’t blame you. If I were operating on the limited information that is available, I might want to buy one myself. As a matter of fact, if they were such a great deal, I might wonder why they ever become available to the public at all. If they were such a great deal, I would expect those smooth talking real estate agents would snatch them up as soon as they could. I would expect that those investors that always seem to make money when folks are really down, would be buying them as fast as they could get the deal done.
Hmmmm. There sure seems to be a lot of them out there. If you ask some agents, they will swear that they are being sold quickly. I have even heard some title companies bragging that they closed one a day during 2008. For all the talk that is being shared, there sure seems to be a lot of them on the market.
At the risk of being told I am all wet, I will preface the rest of this note with the statement…..the following is my understanding of the short sale process in my market and does not reflect the experience of others in this or other markets. Fair enough?
As most of you that might be reading this are aware, many homeowners owe more for their home than their home might bring in today’s market. Many homeowners took advantage of increasing values and borrowed money in the past few years against the value of their home at that time. Values have gone down. Some of these folks borrowed money that was offered via exotic loan programs. Some of these people used exotic loans to make the initial purchase. Yes, the world has turned upside down.
What is a short sale?
In very basic terms, a short sale is the process in which a home owner sells their property and the proceeds of the sale are less than the amount necessary to clear all the liens on the home. In days gone by, a short sale was usually accompanied by a check from the home owner to cover the shortfall. Times have changed. The importance of fulfilling responsibility has taken a back seat to a new mentality of “it’s not fair” or “it’s not my fault” or the old standby “everyone else is doing it, so it must be o.k.”. Let me be clear, there have always been cases where situations prevented a home owner from bringing money to the table. In our current market, it seems the reasons have been expanded to allow for bad judgement in the beginning.
Now, if a home owner falls behind in payments and determines that they can not or will not pay the mortgage anymore, they face a few choices. They can move out. They can strip the home of anything that is salvagable and move out. They can contact their lender and ask if they can return the keys. They can just mail the keys to the lender, or they can call a real estate agent and see if the home can be sold.
If they speak with the lender, the lender may advise them to attempt a short sale before returning the keys. The lender may send them a short sale package. This package will give the lender a clear picture of the home owners financial situation and “hardship”. The home owner will share this package with the real estate agent. The real estate agent will have permission to speak with the lender. The agent will make sure the package is complete and will have it ready to submit once an offer is made on the home.
Understand, there is a huge difference between advising a home owner of what information will be required and approving the sale of the home. The lender (s) only have one figure and that is the amount that is owed to them. If there is more than one lender, they each have to approve the final sale figure.
The home owner sets the asking price.
Most of the time, the home owner will discuss the asking price with the real estate agent. The agent will do a market analysis and offer that information. Often, that figure is significantly lower than what is owed on the home. The lender does not approve nor disapprove the asking price. It is just a “best guess”. The agent has to hope that the price is low enough to attract an offer and high enough to satisfy the lender.
No one knows if the price is right until an offer is submitted and reviewed by the lender (s).
There is no guarantee that the offer will be reviewed quickly. One problem occurs when the home owner vanishes. This can happen. People down on their luck, often disappear. The offer can not go to the lender until it is signed by the home owner. Once the offer is signed, it is sent, along with the package to the lender. At that point, the buyer has to wait. At any time, before the offer is approved by the lender, the buyer can declare the offer is void by sending that notification in writing to the home owner (via the agent).
Each lender has it’s own process for dealing with short sales. None that I am aware of have hired additional staff to deal with short sales. Many have cut back the number of employees and the work load on the remaining employees has increased. The lender (s) will attempt to determine if the price offered is the best they can get for the property. The lender (s) will attempt to measure the benefit of selling via a short sale or just taking the property and selling as-is. (If the owner has vanished, this is the likely outcome). Lenders are under a great deal of pressure from all sides. They are dealing with current loans, delinquent loans, property that has been foreclosed, current foreclusure proceedings and re-working loans for people that qualify for that. There is a lot going on at a lender. In the middle of the process, the lender may be sold or taken over or just file bankruptcy. It is a precarious world out there for lenders today.
Your short sale offer is just a small piece of a multi-faceted financial institutions transactions.
So, if you don’t need to move right away and you aren’t terribly concerned about the accuracy of the price of the home you want to buy and you aren’t worried about the various things that could go wrong at any time during the process (can anyone say, interest rate change)… buying a “short sale” may be right for you.
Before you jump into the fray, it might be best to sit down and go over your situation. It might make a lot of sense for you to share what you want and when you want it. It may behoove you to slow down just a bit, and meet with a real estate agent and go over the home buying process. If you are in the Maryland suburbs of Washington, D.C. or in our Nations Capital itself, I would welcome the chance to sit with you and go over the market and your situation and see what is the best way for you to proceed in buying a home.
I can be reached at 301-537-4377 or you can drop me an email at firstname.lastname@example.org