What Everyone Needs to Know About Short Sales
By DOUGLAS G. FRANK, Staff Writer
The following is the second part in a two-part series on the short sale process. Part one is right here, and contains valuable information for homeowners interested in short selling their property. Part two includes the skinny on what to expect when buying a short sale property.
Ahh, the home buying process. The American dream, so to speak. Buying a home is probably one of the most daunting, complicated, drawn-out things an average American will go through in their lives, that is, unless they’ve gone through a bankruptcy, divorce, or any other procedure that involves our lovely court system. ‘Oh no, Mr. Frank, it’s not tough at all. My Realtor found us a wonderful home and we got it for a great deal and everything was real easy.’ Bullshit. Just because you got to sit back in your comfy chair and watch TLC all day while your little toy Chihuahua sits in your lap and licks his balls doesn’t mean that everything went hunky-dory behind the scenes.
Your real estate agent has to write up a contract that is anywhere between 9-20 pages long depending on all the addendums and counter offers he or she has had to negotiate the hell out of before you got the deal you wanted. He also probably has at least 2 other deals going on at the same time (and he has to if he wants to make that car payment). Not to mention your mortgage broker is busy securing underwriting and weeding through paperwork that is at best twice as much as a standard purchase contract. And he has to have at least 10 other clients at the same time if he wants to feed his family.
Anyway, my point is that these things are not easy. That’s why you hire an agent to handle all the crap for you. There’s so much work involved in a standard property transaction, who would be sadistic enough to want to triple the workload? Enter short sales.
Short sales, as readers of my last article already know, occur when a homeowner needs to sell his property for less (MUCH less) than he owes on it. The banks are open to doing these right now, so why not jump on the bandwagon and get a great home for a decent price? Right?
A lot of people think that short sales and foreclosure homes (also called “lender owned” or “REO’s”) are the same thing. The logic is there, they are both forms of distressed properties. But that is where the similarities end. With short sales you are still dealing with the owner of the property. The bank hasn’t kicked him to the curb yet. Once you reach a deal with the owner he has to take it to the bank and beg them to accept it in lieu of full payment of his mortgage. With a foreclosure, you are dealing with a lien holder, and they are not the easiest to negotiate with. The listing agent in a short sale can be a very good ally, which is refreshing in a property deal. This is because in a short sale rather than being buyer vs. seller, the circumstances are buyer & seller vs. the bank.
Short sales usually are good deals, I will give them that. They are priced a little below market value because they are lived in, a little rough in most cases, and are being sold as-is. The funds from the sale are used to settle a debt, not satisfy a debt. You can settle a debt for $1 if you had a good enough negotiator. If you have a good agent, he or she will be able to recommend a strategy for getting the best deal possible.
Notice I said if you have a good agent. I’m not gonna lie; there are not a lot of us good guys out there. Most of the agents I find are absolute idiots. You’d be surprised how many of them don’t know basic fundamental concepts of their profession. Seriously, at least once a week a fellow agent will make me cock my head like a spaniel and do a very Tim-Allen-ish grunt, “Errrm-Huuungh?” Actually the stupidity can get so annoying in the course of contract discussions sometimes that I want to scream or throw something, or make fun of them. Most of the time, however, it will be one thing, just one thing that just is so ridiculous and unreasonable, coming out of left field at 90 miles per hour, that just stops the conversation in its tracks. I have that awkward moment when I realize to myself that the person I am talking to is a complete ninny, so I just stand there, mouth agape, then drive home later completely silent, unlock the door, take all my clothes off, sit down in the leather chair in my front room… and cry. It’s what’s wrong withAmericatoday: Stupid, unreasonable people lacking common sense are handed responsible decision-making positions and we are left wondering why things never get done inWashingtonDC.
If you want to buy a short sale, mmm, meh… just don’t. Seriously, I’m not kidding. “Oh, Mr. Frank, but the house is perfect!” OK… if you must, you must. I can’t stop you. But hear me out.
Here’s why I hate them:
First, they take too damn long. The average short sale takes about 12-16 weeks to get approval. Add another 4 weeks for closing, and you have a transaction that could take up to 4 months before you even hear anything. You’d have to be a real trooper to hold out that long for a house when there are others on the market that will close in 30 days or less.
Second, they are risky. You have to be a real gambler to take the odds on a short sale. It’s not that a majority of them don’t close or anything like that. No, it’s just that there are variables in a short sale transaction that are not in any other transaction. For instance, a bank does not have to do a short sale. When you are going into a short sale, make sure to ask if the short sale has been approved yet or not. If not (which is usually the case, since most major banks won’t even start short sale proceedings until they get a signed contract), then that means the seller has to now get approval, which is what takes so long in a short sale transaction. There is no guarantee that the seller will get that approval, and it could take you months for you to find that out. Months you could have been looking for other homes.
Third, delinquent mortgage means looming foreclosure. It’s not a bad idea to check with the seller how far behind they are on their payments. Many a short sale has been cut short by a foreclosure and trustee’s auction. The reason this happens is because the banks that are too big for their own good have 2 departments, a short sale department and a collections department, and neither on talk to each other. So yes, the left hand doesn’t know what the right is doing. If there is a scheduled foreclosure date, consult with your agent to see if it is enough time to get the short sale done. Sometimes the trustee sale date can be extended in favor of a short sale. Also, if the homeowner is behind on his payments, he may also be behind on his taxes or HOA fees. Be aware that these fees are there and half to be paid by someone at close.
Finally, As-Is means AS-IS. You are not getting any improvements done on a home that is listed for short sale. Usually sellers have to prove hardship to be approved for a short sale. However if they lived there, they do have to give you a disclosure report. But you are paying for anything that isn’t up to par. Sometimes it’s worth it, sometimes it is not. I highly recommend that you get a qualified Home Inspector to do a complete check on any As-Is property you are interested in. Remember, you have about ten days after a contract is agreed upon to withdrawal from that contract for reasons related to condition of the house. Make sure your agent uses this time wisely.
Okay, that’s my take on them. I haven’t had much luck selling them because my buyers usually want to close fast, and short sales are not feasible. But there are some good deals out there if you have the time and patience to wait it out. Good luck to you all, and happy buying.
And that’s my giving a damn.
Douglas is a concerned citizen, and practices real estate in the Southwestern region of the United States.
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