A Short Sale is the sale of a property which the owner owes more to the lender(s) then the property is worth. The seller makes no money on the sale.
Short Sale agreements are contingent on the approval of the lender(s) to all the terms and conditions of the Agreement. This is a very time consuming process, sometimes in excess of 6 months depending on the different lien holders.
The Pennsylvania Association of Realtors has found it necessary to create an addendum for agreements to short sale properties. The addendum is very helpful BUT in most cases the buyers do NOT give enough attention to the addendum. Realtors should educate themselves in the Short Sale process if they are going to attempt a Short Sale. Buyers need to understand they are attempting to purchase a " distressed property" a heart beat away from foreclosure.
A "short sale" purchase agreement is first reviewed with the sellers. In the case of multiple offers the listing agent and seller will do their best to choose an offer to present to the lien(s) holder. The priority being the offer has the best chance of surviving the bank review and the time needed to complete the process. Price although a high priority is NOT always the determining factor. The agreement for sale has the option of many contingencies in an attempt to protect the buyer. Just a few are the mortgage contingency (dates for completion of certain critical parts such as the appraisal). Inspection contingencies, zoning, and on and on. The seller with their advisers need to understand the possible affect these contingencies may have on the agreement to survive until settlement.
The seller will be required to submit very detailed financial information to the lien holder to help them evaluate the seller(s) situation. The seller will be required to submit a hardship letter to the lender explaining why they are unable to continue making the payments as agreed. The lender will usually require updates to bank statements and other information several times to assure themselves the seller is truly distressed and that a short sale is the best option for the lien holders.
The lien holder will be very interested in the buyers ability to purchase the property and the buyers willingness to extend the time needed to complete this process. Each time a buyer gets frustrated and walks from their agreement the process has to start over again for the seller and the new buyer. All new documentation is required and even if a prior short sale was approved OR very close to being approved, this approval is NOT transferable even if the new offer is for more money.
In addition the lien holders are very aware of the temptation of investors, with the help of professionals, to try to take advantage of these situations. Lenders will do their best to be sure the sale is an " Arms Length " transaction another reason to fully process every subsequent offer. It is sometimes in the sellers best interest to try ensure an existing offer close settlement rather than start the process again with a new buyer.
In the time it takes to process a new offer the delinquent interest payments, fees, fines, and attorney fees are continuing to grow. There sometimes comes a point that the seller is better served to bring their own funds to the settlement, if possible, close and move on.
These are some suggestions when thinking about getting involved in a short sale.
- Do you have the time ?
- Do you understand the process ?
- Can you think somewhat like an investor ?( after all look at the potential savings )
in most cases the higher the reward the higher the risk.