Buying a Short Sale — The Need for Speed

Short sales offer not just a lifeline to homeowners in over their heads, but an opportunity for homebuyers seeking an amazing deal. Better yet, thanks to new regulations, the once lengthy process has recently become considerably more streamlined.
In a short sale, a homeowner that cannot afford to pay the mortgage and the lender that loaned them the money enter into an agreement in which the home will be sold for less than the balance of the loan. This is generally because the homeowner has incurred a financial hardship — such as unemployment, an unforeseen medical expense or divorce — that is going to make it impossible to continue paying the loan.

So, the homeowner and the lender enter a short sale agreement as a win-win, and the buyer makes that a triple win. For the seller, a short sale enables them to start rebuilding their credit rating sooner than a foreclosure would allow. For the lender, a short sale lets them sidestep the often-sizable costs that they must bear in a foreclosure. And, of course, for the buyer, they benefit with a price often below market value.

However, short sales differ from standard real estate transactions. Buyers should understand the elements of a short sale so that they know what to expect and how to work with the seller. Cooperation is key between all parties in the short sale: the seller, the lender and the buyer, so you want to know the ins and outs.

Short Sale Process

A short sale involves an agreement between a lender and a borrower to sell the home for a price below the loan amount. Every lender has its process for a short sale, and it also has its own criteria for approving a short sale agreement.

The initial stages of a short sale will seem very much like a regular real estate process. You will want to get pre-approved for your loan, work with a real estate agent to find the short sale opportunities in your area, view the properties, research the ones you like, and begin negotiating with the sellers. But at a certain point, the lender will need to be brought into the process to approve the short sale terms. In other words, not only is the seller negotiating with you, but he or she must then negotiate with his or her lender to get its blessing on the deal.

Because of that negotiation with the lender, the seller will work with a real estate agent that is qualified to work on his or her behalf. The seller’s agent often holds a short sales certification from the National Association of REALTORS®. This agent will be an expert in shaping the agreement with the seller’s lender, and his or her expertise will help ensure that both the seller and you succeed in making a deal that the lender will be happy with and approve.

The short sale process used to be lengthy, and could go on for many months, while ultimately ending in disappointment. Thanks to new rules that recently went into effect under the Department of Treasury’s Home Affordable Foreclosure Alternatives Program (HAFA), the process has become more streamlined, which works to everyone’s advantage.

Previously, the lender could take months to review and consider offers put in by potential homebuyers. Under HAFA, sellers are now required to respond to a bid within 10 days. However, be warned that lenders will generally counteroffer your bid, which will stretch out the approval process. They can also take their time when accepting the final offer and completing the paperwork, which means a short sale can still take months to complete. When you consider the great deal you’re getting, though, that extra time may be well worth it.

Sometimes a property may be listed as an approved short sale on the MLS. This means the lender has agreed to a selling price that is lower that the balance of the loan. In general, the approved short sale price is non-negotiable; however, you can reasonably expect an approved short sale to move faster than the other type of short sale.

As you can see, the short sale process offers homebuyers a tremendous opportunity to get into a good property at a bargain price. Better yet, HAFA has eased the process considerably and streamlined an ordeal that previously took up to a year into a realistic process for all parties concerned.

Contact me today to learn more.

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  3. How “Repair Credits” To The Buyer Can Sabotage Your Home Sale

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