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Douglas Trudeau , Assoc. Broker
Prudential Foothills Real Estate
64 N. Harrison Road, Suite 160
Tucson , AZ 85748
Mobile: 520-954-2209
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Short Sales, What Can Buyers Expect?

What is a short sale? When a home owner can no longer afford to make payments and must sell their home for less than what they owe on the mortgage, it becomes a short sale. For simplicity, we will call this person the seller. The lender is accepting less than (short of) the amount left on the note. There is a lot of red tape involved in a short sale. It takes much more than the usual time, and other offers may come in while waiting.

Normal transactions require a mutual consideration between the buyer and seller. The buyer offers a specific price with a defined closing date. Other conditions may apply as well. The seller considers the offer. If all is well, the seller accepts. If not the seller may counter offer. Once acceptable conditions are negotiated, there is mutual consideration and there is a binding contract. Normally within a few days or hours a deal is struck. Sounds simple enough. Not so easy with a short sale.

In a short sale the person responsible for the note (loan) has to get permission from their lender to sell the property in a short sale. Lots of verification, confirmation, and paperwork. Then the home is put on the market. As a buyer you find the listed price to be a good deal. You make what you consider to be a reasonable offer. Negotiations with the person responsible for the loan are worked out. The buyer feels they have a deal. Not so fast.

Now it has to go to the lender carrying the note. This is where the bottle neck lies. Some lenders have their act together, some haven’t a clue. The lender is a third party bean counter. No concept of the condition of the home. No concept of the current market in the geographical area where the home is. Just a bean counter looking at contracts for homes in Seattle, Tucson, Miami, Cheyenne, Boston or wherever they have short sales coming in from. The lender is looking at numbers. They, in reality, are the seller since they have final say.

Depending on the competency of the organization, the lender may reply within 15 days. Which in the world of short sales is fast. In some cases, 60 days later the buyer is still waiting for an answer. Meanwhile interest rates may have changed and the buyer may be knocked out of qualifying for the loan. The lender holding the note really doesn’t care. They are dealing with the loss end of profit and loss. While waiting two, three or a dozen offers may come in on the property. It is not a contractual agreement until the lender holding the note agrees. The first buyer may get knocked out of the picture by the last offer to come in.

As a listing agent I have seen on numerous occasions where information was sent to the lender holding the note, and documented that the lender conformed receipt. Only to have to send everything all over again a week later because the lender claims they don’t have the paperwork. On one occasion this happened four times. Talk about incompetence. In another deal the lender stated a specific acceptable price. An offer came in for $2,000 above that price. The lender countered for $7,000 more. A current buyer I represent on another deal pulled their offer after no response for 45 days and five other offers came in. Three better than theirs. The phantom lender has yet to respond. In a short sale last year my client had received 3 offers. All were submitted to the lender. After 120 of no response all the deals fell apart. Next week I close on a short sale that will have taken approximately 40 days from offer to closing. It can happen.

Knowing whether a home has a first and second loan on it helps. If the sale falls short on the first and their is nothing left for the second loan how agreeable will the lender on the second loan be to release their lien on the home? Has the lender on the second loan been contacted? Is there a mutual agreement between the first and second lenders?

So, buyer beware. Short sales can be a good thing. It takes patience, more patience, then a little more patience. Knowing that the lender may not make repairs, the seller cannot afford repairs, and the home may be sold As-Is. It may take a few offers on a few homes. Ask your Realtor what experience they have with short sales? What lenders have they run into problems with? Find out who the lender who is holding the note is. Sometimes getting a loan from the same lender, if you can get a good deal, is an advantage. Sometimes knowing who the lender is can be a sign to walk away now rather than the inevitable two months from now. Some lenders are flat out incompetent when it comes to selling off their properties in short sales. Some have it down to a science. Purchases of short sale properties can happen. You just have to be prepared, be patient, and know that it is not like the normal purchase of a home.

This entry was posted on Wednesday, May 14th, 2008 at 3:58 am and is filed under Tucson Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Thanks for clarifying short sales.
Aloha,
Keahi

May 15th, 2008 // Keahi Pelayo
Nicely done. I voted for it over on RealEstateVoices.com. I’ve been writing about short sales a lot lately myself.

May 16th, 2008 // John Lockwood

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