Friday, July 24, 2009

What is a short sale?

What is a “Short Sale”?
By JR Hafer
Perhaps you have a question you’re curious to ask: What is a short sale? Simply stated, a so-called “Short Sale” is: When the owner of a house (or any real property) owes more on the mortgage than what it is worth.
Since there are more foreclosures on the market and the list continues to grow exponentially, lenders will agree to accept a lesser amount as a total payoff, in most cases.
The cost to a lender to foreclose on a house can amount to as much as $40,000 to $50,000 after it is all said and done. These lenders realize it would be better to accept a lesser amount, rather than to pursue the expensive foreclosure process. They know there isn’t much chance to recoup the cost of foreclosure anyway. The additional cost to the lender, after foreclosure, is enormous. For example; the cost of insurance, taxes, homeowner’s fees, repairs and most likely vandalism make the opportunity of short sales an attractive alternative to foreclosure. The short sale has become a necessary evil for the lenders. It has also become a great opportunity for potential buyers to purchase a house at a deep discount.
The downside to the short sale is the time it takes to get the short sale process completed. It can take up to three months or more just to get an answer regarding your offer to purchase.
When the lender receives your offer a series of negotiations start which may produce a counter-offer rather than the acceptance of your original offer. Negotiations between your Realtor® and the lender can last a relatively long time depending on financing considerations, your financing, your pre-approval and other conditions and concessions you may have asked for.
Make sure you understand that short sales have no determined time limit and your lender’s interest rates may change substantially before you get an acceptable figure nailed down. Only after a solid dollar amount has been agreed upon can your lender start the underwriting process. Therefore, you should consider that additional time in your closing time projection.
Remember, when you enter into a “Short Sale” purchase attempt, the listing price may not be sufficient to pay the total of all liens and the cost of sale. The sale of the property at full listing price will require the approval of a third party (the lender). However, although the contract is between you and the seller, the bank must agree to accept a certain percentage of the amount owed. Also remember, the listing price may be an approximation of the amount that the lender may or may not settle for. Therefore, a “low-ball” offer is probably not realistic and could possibly even become counter-productive toward your effort to purchase the house in a short sale.
A short sale may be beneficial for you to consider. However, if your purchase schedule is limited and your time constraints will not allow for the time it takes to get an offer accepted, in some ways, you may find your efforts to be a waste of time for you and your Realtor®. So follow his advice.

1 comment:

  1. This is very informative. Keep up the good work!