Watch the video above by Jay Papasan for a quick explanation of short sales and the time line for getting a short sale approved.
What is a Short Sale?
Basically, a short sale is when a seller has a hardship and must sell a property, but the home is not worth as much as the seller owes to a mortgage company. Unless the seller is willing and able to bring extra money to the closing table to pay off the mortgage at closing, the seller must get the lender (and other lien holders) to agree to take less than is owed to them as payment in full.
Normally, short sales are only approved when the owner is in danger of foreclosure and there is an approved hardship. The owner is not able to continue paying the mortgage and may have received a foreclosure auction date. Hardships may include unemployment, medical bills, divorce or a new job that requires the owner to move out of town (Disclosure: every person’s situation is different and there is no guarantee every owner with one of the hardships I listed above would be approved for a short sale…and there may be other hardships that would be approved).
What Do You Need to Know Before Buying a Short Sale?
The most important thing you need to understand is that short sales usually take a very long time to get approved. The time frame really depends on how far along the seller is in the process. If there was another offer that got the ball rolling but ended up falling through, it may be possible to get it closed quickly. Please note that quickly in a short sale is not the same as quickly in a traditional home sale. In the best case scenario, plan on at least 60 days.
However, if the short sale package has not been submitted by the owner to the bank yet, it could take several months before a buyer gets a response on if the bank will accept or counter their offer.
Buyers who are not prepared to wait 3-6 months before finding out if they will be able to buy the house AND are completely flexible on when they will close on the purchase should not be making offers on short sales unless the listing agent can assure you that the short sale process is well underway.
In addition, short sales are AS-IS purchases. Typically short sales are in better condition than foreclosures, but the condition varies dramatically from house to house.
In the St. Louis region, the contract normally submitted on a short sale will allow you to get inspections and terminate the contract if you are not satisfied with the condition of the house. But just about every house needs some repairs when it is purchased, and even the short sales in the best condition may need significant work.
Buyers who do not have cash set aside to make both obvious and unexpected repairs should not be purchasing a short sale.
What Do You Need to Know Before Trying to Sell via Short Sale?
If you owe more money on your home than you could sell if for and you are behind on your payments, you may be able to get your lender to agree to a short sale.
But, selling via short sale is not an easy or short process. You will be expected to jump through a bunch of hoops, submitting a ton of documents including tax returns, bank account balances and you will even have to write a personal hardship letter to the bank explaining why you can’t pay the mortgage anymore.
It is a lot of work for both the owner and the real estate agent to get a home approved for a short sale. After submitting all the paperwork (but still not knowing if the bank will agree to a short sale), the agent then needs to find a buyer who is willing to be patient enough to wait months without knowing if the offer will be accepted.
If you aren’t responsive to your agent’s requests for paperwork, your agent will probably walk away from the deal.
You need to be extremely committed and cooperative, or a short sale simply won’t work.
One other thing. Shorts sales are tricky. More don’t go through than get approved.
It’s really important that you list your home with an agent who has a track record of successfully selling short sales.
I have sold a couple of short sales. I’ve learned enough through these experiences to know that I’m simply not the best agent to list one since I don’t specialize in short sales.
However, one of the services I provide at no charge is to screen agents for clients so that they hire the right agent for the job.
If you are in danger of foreclosure, I can connect you with an agent who can help you anyplace in the U.S.
In exchange for finding you an agent, I will get a small referral fee from the agent IF you hire the agent and IF the sale successfully closes. You have nothing to lose by contacting me for a referral…but you have a lot to gain.
Hire the wrong agent to handle your short sale and you may end up with a foreclosure instead.