Short sales

[Fishboy]

I won't pretend to know anything about this, but I'm looking through the real estate listings and see several properties in "short sales". I looked it up in Wikipedia and understand that the bank is allowing the sale of the property below the value of the loan. The upside for the bank is that they minimize their loss instead of going into foreclosure.

What's the downside for a buyer?

Aloha pumehana,
Brian and Mary
Lynnwood, WA\Discovery Harbour

[Dennis]

If the home is in decent condition, there is not much down side. The worst case is the seller's lender does not accept the offer. The difficult part of a short sale is getting the lender to go along with it. If the loan has been sold, the servicing company or bank must obtain investor approval. If the seller had PMI (Private Mortgage Insurance) they also would have a say in the deal. If the loan were an FHA or VA type loan, those agencies must sign off. Some of these deals may also have a second mortgage in place. These situations are more difficult as the second lien holder is likely not to receive anything and not want to go along with the short sale. While lenders are more likely to accept a short sale than several months ago, the process can take awhile. All of this process takes time. Be patient, and you could land yourself a nice deal.

[jdirgo]

There is a downside. GOOD LUCK getting it to go through. Some clients/friends of mine here on Punaweb have had a short sale pending for 7 months with NO response from the bank.

Think of it this way -- in a foreclosure, the bank has already taken the loss and they need to try to fix the situation if they can. In a short sale, no loss has happened yet and someone has to sign their name to the paper committing the bank to a loss. Here you are, Joe Nobody at XYZ Bank, hoping to keep your job. Would you sign the paper saying "I hereby authorize XYZ Bank to take a $50,000 loss on this property". I didn't think so.

Other than you being able to expect unicorns to magically appear in your lawn in less time than a short sale will go through, there's no other real downside. Don't expect the seller/bank to be willing to pay for termite inspections or treatment. And completely forget about the survey. If you want anything done, be prepared to pay for it.

John Dirgo, R, ABR, e-PRO
Aloha Coast Realty, LLC
808-987-9243 cell
http://www.alohacoastrealty.com

[John S. Rabi]

John is right, the biggest obstacle is the lender. There was an article in the PBN recently, only 18% of the short sales closed in the time period mentioned. I closed on one last year, it took four months to close and the lender put in last minute conditions. (Yes Mr. Buyer, be prepared to pay all the closing cost!) I closed on one this year too, it took only two months, but the lender only took a $5,000 loss, so they gladly signed off on everything. I have another one pending since last October, nobody barks at us from the lender's side.
The biggest problem with short sales is that the seller lists the property and will accept any offer hoping the lender will sign off on it too. Even though banks don't want to be property owners (foreclosure,) they don't just rubber stamp short sales.
There are few listings with already approved short sales, as a buyer I would rather go for those. The buyer's agent has to be smart with preparing the offer to make sure the buyer will not have to spend any funds up front for the loan until final approval from the lender. Another issue for the buyer is the lack of disclosure. You buy what you see, you have no recourse, so make sure you have a good home inspector.
I took a class on short sales last year and I was surprised to see the small number of real agents taking the time to get educated in this subject. If you are considering buying a short sale property make sure your agent knows the ins and outs, otherwise you might not get the kind of representation you need.

Aloha,
John S. Rabi, GM,ARB,BFT,CM,CBR,FHS,PB,RB
808.989.1314
http://www.JohnRabi.com
Typically Tropical Properties
"The Next Level of Service!"

[Dennis]

I agree with both John's. However, from a lenders perspective (Ohio) we are seeing more positive responses to short sale requests. Holding out for a sale through foreclosure will usually result in even larger losses for the lender(i.e. Damage to property, vandalism, increased legal fees, maintenance etc.) However, that being said, prepare for possibly a a lengthy period of time before your sale goes through. Then after everything is done, all the paperwork is completed, your deal can still go in the tank due to a fickle lender. These are tough deals but like I said earlier, you can find some real deals out there. Be patient.