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SPECIAL REPORT ON SHORT SALES  

If you are in touch with the real estate market at all I’m sure you have heard of short sales. You hear about them, but what actually are they? Putting an offer in on a short sale property can be a long, arduous process and in many times, result in a waste of time. But the reality is that more and more homes are being sold short and more lenders are agreeing to short sales. So if you are interested in a house that is a short sale, you might as well be educated about what they are and what you can expect, so as to make your purchasing process more successful and less stressful. Below is a no-nonsense look at short sales. Whether buying or selling, I hope this information takes the mystery out of short sales and provides you a base of knowledge to help you in your search for a home or the sale of your home. 

What are Short Sales?  

Short Sales are when an owner of a home attempts to sell their home when they owe more on their mortgage than their house is currently worth. Unfortunately this situation is far from rare these days, mainly due to the decrease in home values over the last two years and the increase in interest rates.  

Why do sellers decide to sale short?  

There are many reasons why a seller would choose to sell their home short, but the most common reason is this scenario: Owner A purchased a home in 2005 for $500k. Their loan was one of those option ARM loans where they could pay a minimum payment (far below the amortized payment amount) for an introductory period of time. Usually it is a year. The minimum payment made the payments very affordable to Owner A at that time and they were hoping real estate prices would continue to increase and refinance in a year or so.  

The problem was that after the introductory period was up, the interest rates went up and the home prices went down. Now the property is only worth $400k and Owner A has found himself in a situation where they can no longer afford the new payment amount and they cannot re-finance out of their loan due to decreased property values. So, they get stuck! Realizing they can’t afford to pay their mortgage or refinance into a loan they can afford, they decide to sell and get out from under a dark cloud that doesn’t seem like it will go away anytime soon. 

What are the ramifications to the seller when they sale short?  

The reason a seller would choose to sell their home short versus let their home go through foreclosure is because it is less damaging to your credit record if the home is sold short versus a completed foreclosure. If you sell short, your credit record will still show any late payment history, but the account will show as settled. If you end in foreclosure you carry around that foreclosure item on your credit record for many years. 

One of the biggest ramifications I’ve seen when a seller sells short is their pride is bruised considerably. I’ve spoke with owners who invested their nest egg in a property they thought would be a great investment, but come to find out they can’t afford to pay their mortgage anymore. It’s very disheartening. One thing history has shown is that the real estate market goes in cycles so if you can hold onto the property now, it will be sure to increase in value once again.  

When do lenders agree to a short sale?  

When an offer comes in on a short sale property, that offer must be approved by the lender(s) who ultimately will be incurring the loss. When the market just started turning south, lenders were more hesitant to agree to a short sale because their foreclosed property inventories were relatively low and they felt that they could incur less of a loss if they took back the property and sell it themselves. As bank owned inventories rose, so did the motivation to agree to short sales. The lenders are inundated right now with bank owned properties (REO’s). More often they will agree to a short sale rather than incur the additional expense of completing foreclosure and then re-marketing the property. 

Lenders do have strict requirements on the seller prior to agreeing to a short sale. All lenders are different, but they generally will require the seller to draw up a financial hardship letter and income/expense worksheet to prove to the lender they cannot afford their mortgage. Plus, they may ask for the seller to provide paycheck stubs, income tax documents, and bank statements to prove their financial hardship position. 

How long does a short sale take?  

When a buyer puts an offer in on a short sale, most likely they will be in a situation where they hurry up and wait, usually for 4-6 weeks. It can take shorter than that to get a response from the lender, but you really can’t count on it. If you are on a time frame to purchase a property, buying a short sale is not the way to go.  

Buying a short sale can pay off if you can be patient. What can typically happen is let’s say Buyer A puts in an offer for a short sale home. It is the first offer to be submitted for the property. That offer goes to the lender for approval. Generally, it will take 2-4 weeks just to get someone assigned to look at a file, much less approve it. Once a negotiator is assigned to the file, they will typically request a broker price opinion (bpo) and/or an appraisal. They will also be asking the seller to update their information on their financial situation.  

1-2 weeks later you may have a response from the lender that will give buyer A an indication of what they will accept in terms of price and terms. Many times Buyer A has since moved on and found another property. So, if you are a buyer and you find out there is already an offer on a short sale property, then that’s great news because that means a lot of the leg work has been done. You have a better chance of getting a response from the lender in a shorter period of time, and there’s a good chance the original buyer is not around anymore. But you can’t be certain of that. In fact there could be multiple offers waiting in the wings. . . 

What are the ramifications to the buyer when they purchase a short sale?  

When purchasing a short sale, the buyer can’t expect the lender to pay for some customary expenses that the seller usually pays for. Don’t expect the seller/lender to pay for any repairs either. Chances are you will have to foot the bill for any termite repairs and home warranty. All lenders are different so you just have to wait and see what they are willing to do. Make sure your agent uses the correct purchase agreement and addendum so you are protected and informed of what to expect. 

Please contact me if you want to discuss short sales in more detail. If you are looking to purchase a listing that is a short sale make sure you work with an agent who knows this process as many times there are multiple offers on the property and you need an aggressive agent who will keep in touch with the listing agent and find a way to make your offer the one that the lender will ultimately consider. If you are looking to buy or sell a home in the near future, I would love to help you. I specialize in the San Diego North County area, specifically Carlsbad, Oceanside, and Vista. It’s a great time to buy!  

Contact me with confidence! I guarantee your privacy will be respected. And I offer the services on this site for free and without obligation. Why? I want to be YOUR REALTOR®. As your trusted, professional real estate partner, I will help you find the best home in your area within your price range. And together we will sell your home, for as much as the market will bear, and as quickly as possible. 

Buying and selling a home is one of the biggest events in your life. As a top Oceanside, Vista and Carlsbad REALTOR®, I have the experience and track record you are looking for. Please let me help. 

- Crista McClure-Swan