What do buyers need to know before considering pursuing a short sale property? Is it a panacea or a black hole?
1. What are the possible consequences for the seller that would ultimately NOT make him take any approval given by his lender? Here are just a few questions-
a. Will there be a large potential deficiency on any loans, especially a 2nd loan?
b. Will the seller, with some reserves at his disposal, be unwilling to contribute any funds to see the home sale complete?
c. Is the seller actually trying to get a loan modification while the home is on the market?
2. How soon is the auction sale date? Often the lender will not postpone any auction date beyond one 30-day extension. Wells Fargo has policy on this point.
3. Who is the lender? How many loans are on the property? Some lenders are way more responsive than others. Bank of America, who took over Countrywide, has some 500 potential investors behind the scenes. Each investor has their own policy on dealing with short sales. Some are reasonable, some want 10% to consider taking a shorts sale, some want a promissory note signed by the seller to repay some of the debt, etc. Additionally when you are dealing with bank employees some are not properly trained which can lead to arbitrary answers.
4. What other liens exist on the property or against the seller? An HOA lien, child support, IRS liens are quite common. Some can be taken care of through time but you need time to work through it. I recently heard that some credit card companies are getting judgments against a seller and then recording a lien against the seller which shows up when the escrow company does its job to look for recorded liens. The credit card companies want to get a piece of the pie and can delay closing. Any liens can prevent closing altogether.
5. You must remember you are buying a home as-is. Usually with no upfront inspections. When the short sale lender approval is given the actual sale starts and you are under the gun to get your inspections. What happens if you find out about unknown issues – like a broken fireplace chimney or furnace that does not work?
6. What is the listing agent’s ability to get the job done? Is she submitting all the forms in a completed package? Is she responsive to all parties? Also is she proactive by giving comparable sales to any agents doing a BPO (broker’s price opinion)?
7. What about timing? A few lenders respond in a couple of weeks and most others take months. Do you need to have some predict on your moving date? Is your lease ending on your apartment? Baby on the way?
I do represent sellers with a high motivation after I look at the potential to close the transaction.
Regarding representing a buyer in a short sale, I will look at the above and determine the potential to actually close the sale. If anyone, especially the seller or listing agent is less than forthcoming to my questions, I skip the property. After all only 22% of the short sales are completing right now in the Santa Clara County. There are LOTS of pitfalls.
Who wants to put their client through 6 months of waiting to find out they will not get the home? At the same time while the buyer is waiting for an answer to the short sale interest rates may be going up so the buyer’s buying power was reduced in the meantime. That is my viewpoint on how I need to represent my clients fully.
What do you think?
Broker, Certified Distressed Property Expert