What to expect as the buyer of a short sale Part 2 of 3

So you’ve been hard at work with your Austin Realtor searching for the perfect piece of real estate and then one day, you find the home of your dreams at an unbelievable price! The only problem is that it is a short sale. So what does that mean to the buyer? As I’ve discussed before, a short sale is basically, when a mortgage lien holder agrees to accept less than the full amount owed on a mortgage. The seller has to qualify to put his home on the market as a short sale, but what is required of the buyer? The number one thing is PATIENCE. A short sale does not follow the normal route that a typical resale would. Even though a seller is not going to get anything out of the short sale other than salvaging a piece of their credit, they may still have some emotional attachment to their home. Try and put yourself in their shoes. They may be going through some trying times including, death, divorce or a loss of job, so they might not be at their most rational state. Some buyers, especially investors, feel that a distressed situation requires a low ball offer, kind of a “hit them while they’re down” mentality. In reality, once the seller signs off on any contract, the bank with the mortgage lien must sign off on the transaction as well and this is where your patience as the buyer will be tested. Banks may take weeks, months or in some extreme situations, even years to come to terms that they are not going to be paid in full on a mortgage loan. That translates to slow responses or even no responses to the offers that potential buyers have submitted. A good short sale listing agent will be on top of keeping all of the parties involved in the transaction informed about where the process is. One of the biggest problems that potential buyers may face, is the inexperience of the listing agent in completing short sales. Typically, only about 25% of all short sale transactions are successful, due in large part, to the inexperience and inability that most agents have in “trying” to do a short sale. Before even considering putting in an offer on a home that is a short sale, make sure to have your agent do some research on the listing agent to make sure that he or she knows what they’re doing so as to not waste your time submitting an offer that will fall on deaf ears. In most cases, having an experienced short sale buyers agent and an experience short sale listing agent involved in the transaction will increase the chances of the transaction being approved by the bank as well as cut the wait time dramatically. From a personal perspective, I’ve been able to get a short sale completed in under 30 days from start to finish.

Read my next blog post at http://www.romeom.com to learn about the final steps required to complete the short sale process.

If it is called a short sale, then why does it take so long? Part 1

This is a commonly asked question that most homebuyers stuck in the roulette wheel of a short sale ask. Five years ago, most people, including Realtors in the Austin area may have never even heard the term “short sale”, but today, it is as common a real estate term as foreclosure or bank-owned. It is difficult to understand all of the inner complexities of why a lender would choose to sell a property for less than what they are owed, but a simple explanation would be that a lender may be motivated to take a short sale loss, if they know that that loss is ultimately going to be covered by the government with one of the federally backed programs such as FHA or VA. If the home is located in an area with many foreclosures, where the lender may not be able to recover all of the costs associated with foreclosing on a property, the lender would rather sell the property short of what they are owed and cut their losses rather than gamble that there may or may not be a buyer for that particular property down the road.
So the next question might be who qualifies to “short sell” their home? Though are various reasons, the most common is:

Seller is financially strapped

- May have lost their job or a significant decrease in income
- Might be a divorce situation
- May be due to poor health and/or medical bills
- Must move due to job transfer or some other reason and cannot make up the difference between what his house can sell for and the higher amount that he owes
- Death in the family
- Many other reasons …..

Loss of equity is NOT a valid cause for a short sale

In order for the home seller to qualify for the short sale process, they basically have to go through the process of applying for a mortgage in reverse. Whereas when a borrower is trying to prove their financial worthiness to obtain a loan, a short sale seller is trying to prove to the lender that they are no longer financially capable of owning the home. Of course, if the home seller made fraudulent statements on their original loan application, all bets are off and the home seller may be liable for damages. In some cases, home sellers involved in a short sale may be encouraged to speak to a tax specialist or attorney in discussing some of the possible legal and tax liabilities that may result in the short sale of a property. All in all, it is not an easy process.

So what can a home buyer looking at possibly purchasing a short sale expect? In my next blog, I’ll describe the hurdles that the typical short sale home buyer can expect during their short sale purchase. Visit my Austin Short Sales page for more information.