Short Sales properties are less common in the current market, however they do occasionally become available and if the market takes a drastic downward turn, they may become common once again. But what is a short sale and is it a good option for you. Let’s discuss.
A short sale is when a property owner sells their home for less than what they owe on their mortgage. There are various reasons that trigger a short sale, however, most common is the owner is unable to continue making the payments. An example would be, you have a mortgage balance of $350,000 but the value of your home is $300,000. A short sale will not net the property owner any money to repay their mortgage balance. Due to this reason, the mortgage lender must approve a short sale before the owner can move forward with selling.
A short sale can be a lengthy process. You must get permission first from your lender to sell the home for less money than you need to pay off the mortgage. You can initiate this yourself or hire an experienced Realtor to reach out. They may need to have written permission from you to discuss any financial decisions with your mortgage lender. Usually the lender will ask for a hardship letter on why you can’t make your payments. They may even request proof of this such as pay stubs, bank statements and tax returns They lender will also typically ask for a valid purchase contract from a buyer with a pre-approval letter and proof of funds for the buyers. The Realtor will also need to provide a Competitive Market Analysts (CMA) supporting the purchase contract. The lender will then evaluate all of the documentation and decide whether to approve the short sale or not.
A short sale can be as quick as 30 days or as long as over a year. It can even be denied by the lender. Here are a few things that can impact the short sale approval timeline:
- Number of lienholders. All lienholders need to agree to the sale and agree upon terms.
- Seller Delays on submitting correct and updated paperwork.
- Lender decisions. These can be a complicated review process especially with other investors involved as well as additional lienholders
- Offers on the table. Only one offer can be submitted to the bank at a time. If the buyer backs out, the process starts over.
Let’s chat about if purchasing a short sale is the best opportunity for you. Short sales can present an opportunity to buy a home for less than you’d pay in a traditional sale. You might also face less competition but may not if it is the the radar of cash investors. The biggest hurdle will be the timeline of short sale approval by the lender. You also need to be aware the that seller most likely won’t be doing any repairs on the home. So many sure you do your due diligence by having an inspection completed on the property so you are aware what the condition really is. You may also be asked to pay for any past liens that be attached to the property. Use this as a negotiation tool with the price.
Make sure you use a Realtor that has experience with short sales. They can show you their track record if you ask them. If you have any questions, please reach out.