Considering a Short Sale (foreclosure, agent, mortgage, mortgage)
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Thought I would ask the pro's- thinking of making an offer on a short sale (State FL) but obviously very concerned about a few things. One of my concerns is if my offer is accepted what is to prevent damage to the house before the owners move out- am I allowed the typical final walk thru before I give my money?
I understand short sales can take a while but if a buyer were to pay cash would that speed up the process?
Would appreciate any info or advice from the pro's that are experienced with these types of sales. Thank you.
Location: Sarasota/ Bradenton - University Pkwy area
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Not knowing where you live or what state laws are applicable, I will try to stick to general information about short sales.
In some ways, buying a short sale property is like making a traditional purchase. The buyer makes an offer in writing. The seller decides whether to accept the offer, counter back different terms to the buyer or reject the buyer’s offer. However, any offer agreed to between buyer and seller is subject to approval by the seller’s lien holders. Without that approval, the seller cannot close and you cannot purchase that home.
The offer should include some sort of Short Sale Addendum. Once the seller has accepted your offer, you are bound to that contract to purchase the home according to the terms written into the contract. Your short sale addendum will stipulate how long you the buyer are willing to wait for the seller's lender(s) approval. It will also indicate whether the seller can keep the listing active in the MLS and continue to submit offers to his/her lender(s) under short sale approval is obtained.
Short sales are typically being sold “as is with right to inspect.” The seller does not have the financial ability to pay for repairs to the property if repair issues are found during your inspection period. For this reason, short sales may not work for buyers that are using VA or FHA financing. If you want a final walk through of the property before closing, make sure it's written into your original contract.
After the contract and short sale package have been submitted to the seller’s lender(s), your next step is to wait. How long? If there’s only one lien holder, it typically takes less than 2 months to get a response. If there are multiple lien holders, it may take up to 6 months or more. If any one of those lien holders say no to the terms of your contract, the sale cannot be completed.
Having cash makes it easier to close but does not speed up the approval process with the seller's lender(s). They are not a party to your purchase agreement, so are not obligated to work with the seller on a short sale at all, although most do. The seller's lender may come back with a totally different sales price or require other contract changes in order for them to approve the short sale.
So if you are thinking of making an offer on a short sale, keep in mind that there will probably be a lengthy wait time for a response, the response may or may not be what you're expecting, the seller's lender can cancel their approval at any time up to the actual closing.
All that being said, if you've identified a short sale property that you'd really like to buy, it may be worth wading through the process.
Also, keep in mind the number of short sales that never close prior to foreclosure! Even a full price cash offer has no guarantee the seller's lender will approve the loss. Sometimes, their lender has a vested in letting the property go to foreclosure so it can potentially wipe out all junior leans in addition to possibly having the lender collect back payments, interest, penalties, attorney fees, etc., from the Mortgage Insurance Company.
Short sales can work well for investors, but can create havoc on owner occupants expecting to close. As a buyer, you could do everything exactly right and the transaction can still fail to close!
in your area, are you allowed to back out and get your earnest back at any time prior to the seller's lender approving the short sale? if so, you have nothing to loose by trying. If not, realize the deck is stacked in the seller's lenders favor.
I explored short sale opportunities late 2011 when house shopping.
Made 1 offer that was accepted by the owners that drug on for months and ended up not being accepted by the 2 lien holders.
My personal experience is that I would NEVER waste my time ever again on short sales ever again. especially in a good buyers market with low rates and plenty of conventional homes on the market.
The number of Short Sales has dropped dramatically and that is good for the person that has found a house they like but it is a Short Sale. One of the reasons we hear stories of long wait times was the massive number of homes that were SS on the market. Banks were not prepared to deal with sorting it all out.
Now, most Banks have a history of experience and can process them much faster. That does not mean that a particular property will not take an extended time as there may be multiple liens that have to be settled. Often the secondary lien holders will be difficult to deal with.
I recently did a Short Sale with a VA loan in 5 weeks.
Every situation is different.
It helps to have a Lender and a Realtor® with experience with Short Sales. I would also add having an experienced Title Co that has a Short Sale department can make a big difference.
When considering a short sale I always ask if there is more than one mortgage on the property and if there are back HOA dues. When there is only one mortgage the process is faster because only one lender has to approval the sale. When multiple lenders, then each has to be negotiated and sometimes the second lender wants more than the first allows so you have to negotiate further.
Condo or Homeowner Association dues are a concern in Florida because they must be paid before transferring. Lender's will usually allow for a certain amount to be paid from proceeds. If the association is owed more we try to get them to take less or the buyer usually pays the difference.
Paying cash for the property is helpful because there is one less lender involved and usually some more flexibility on the terms and the ability of the buyer to pay some of the shortfall from the seller's side.
You do get to do a final walk through before closing. When the seller is cooperative throughout the transaction they are usually good the day of closing. Make sure the contract is specific for any appliances like washer and dryer if you want them to stay. Shortsales have become much more organized than they were a few years ago.
Thanks for the info. I think they are up to date on HOA fees.
I was thinking the same thing that in the contract I would need to specify appliances/ light fixtures & window treatments.
Apparently the house is "under contract" but they are accepting back-up offers. I'm just wondering if banks even care about what is under contract as opposed to best offer or less hassle from buyer if all cash.
The selling agent has stated that there is only one lien on the property.
Thanks for the info. I think they are up to date on HOA fees.
I was thinking the same thing that in the contract I would need to specify appliances/ light fixtures & window treatments.
Apparently the house is "under contract" but they are accepting back-up offers. I'm just wondering if banks even care about what is under contract as opposed to best offer or less hassle from buyer if all cash.
The selling agent has stated that there is only one lien on the property.
The bank usually looks at the offer that is presented to them and qualifies the transaction from there. One thing I forgot to mention is that although you and the seller have settled on a price the lender can determine that the home is worth more and demand it. We usually prepare comparable sales to argue the price. At that same time that is where you may have an opportunity that the first buyer walks away. If your offer is in second place and you can meet the price that the bank wants, you can usually close in about 30-45 days.
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