BUYERS: What to Expect in a Short Sale Situation
What to Expect in a Short Sale Situation:
1. As a buyer of a short sale property you can get a fantastic deal with equity already built into a home you purchase, but you need to be prepared for the process that a short sale must go through and have the patience to wait.
2. In a short sale, the property appears to have a total debt against it that exceeds the Fair Market Value of the property. The Seller/Owner pursues approval of a short sale with the lender(s). The lender will have to agree to accept the proceeds and release its lien on the property without being paid in full.
3. Because the lender is not being paid off in full, the lender must approve any contract the seller agrees to. Most lenders will expedite a contract review and approval if the contract is clean and follows these guidelines:
a) Buyer should be pre-approved for financing the home or be able to provide proof of funds.
b) Offer is written with no contingencies except for inspections and due diligence.
c) Buyer must allow additional time for lender approval after seller has signed the contract. This could require an additional 30 to 60 days and in some cases longer.
d) Once the lender approves the transaction or an agreement is made on the offer, the buyer may be required to close quickly. Sometimes 10 – 30 days after approval.
e) Seller is required by the lender to continue to offer the home for sale after signing a contract with the buyer until the lender approves the offer. Until your offer is approved, the lender will consider any other offer that is received.
f) The contract is terminated if the lender rejects or does not approve the buyers offer. During the negotiation process, the lender may recommend counter-offers or addendums or changes to the offer that would make it acceptable. These would be submitted to the buyer by the seller on the lender recommendation.
g) Because the lender is taking a large loss on its loan the property is being sold “as is”. The seller does not have the funds for repairs so requests for repairs will not be approved.
h) Lender usually will pay normal seller closing costs including title policy and commissions, but generally will not pay for the lender required appraisal.
i) Usually a lender will not pay any buyer closing costs (home warranty, inspections, discount points). Some loans require the seller to pay some closing costs (like VA and FHA) so you should talk to your lender.
j) Lenders will not approve increasing the sales price to cover buyer cost.
4. This is a very complex transaction compared to the traditional real estate transaction. Please do not use a previous experience as a reference point for this transaction. The two are very different.
5. We know how to get answers and work hard to get the answers as quickly as possible, but you need to understand that the seller really has no control over the time for the lender approval of an offer. It often depends on the lender and what additional approvals might be necessary from a mortgage insurer or another government agency. The negotiator or the mitigator responsible for this loan, may have a large workload delaying response time. It could also depend on the lenders current foreclosure inventory as well as internal policies and procedures that the seller does not know about.
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