Short sale?

Has anyone purchased a short sale? What is the process? Is the process different than buying a regular house? I know that the closing process can be lengthier by many months, but that's all I know about short sales.

Are there any unexpected surprises that can pop up? Is it worth buying a short sale? Any feedback is appreciated!

Thanks!

Re: Short sale?

Short sale purchases are VERY different from a typical real estate purchase. I have sold short sales, but I really don't recommend them for a first time buyer or really anyone who is buying the home as a primary residence (versus an investor/builder).

With a short sale, the seller owes more on their mortgage loan than they can sell the house for (e.g., seller owes $450,000 on a house worth $375,000). So in order for the seller to successfully sell their home to someone else, the bank who holds their mortgage has to agree to take less than what they are owed. Normally, the seller uses the sale proceeds to satisfy any loan balance, but with a short sale they can't. So the bank must "approve" the sale.

The challenge with short sales is that the buyer must come to terms with the seller first, and actually enter into a contract, prior to the bank who holds the seller's mortgage getting involved. The seller may not even qualify for a short sale (there is more to qualify than just being upside down on a house/mortgage), or the bank may want WAY more for the house than what the listing agent listed it for or the seller agreed to take. Often listing agents will list a short sale house low to attract a buyer and get it in front of the bank to get the process rolling -- and the seller isn't walking away from the sale with any money, so he/she doesn't care what it sells for. But then the bank will do it's own valuations - appraisals, bpos, etc. - and come up with what it thinks the house is worth.

So you may offer $300K on a house, and the bank can come back and demand $350K. And every bank is different with their short sale process, but some banks take a LONG time. So you can be under contract for months, and then learn that the bank wants a higher price that you may or may not be willing and able to pay. If there is more than one bank involved (multiple loans) it's even more complicated. One short sale I was involved with took 15 months from the time the offer was accepted until the closing. I think the fastest one I was involved with took about 8 months.

Other challenges with short sales is that they are typically sold "as is," and the house may have been neglected and in disrepair for some time (in ways that aren't always obvious). "As is" applies to home inspection type issues, but also things like missing C/Os and even hostile tenants who won't leave (the eviction becomes the buyer's responsibility).

So in a nutshell, the uncertainty surrounding the process - and the outcome - isn't ideal for most buyers.

Also, on short sales, you will be competing with investors who are better equipped to weather the process of the short sale (they have experience doing so), and those are all cash buyers.

Feel free to ask me any questions, but I would advise you not to bother. In most areas, short sales aren't that prevalent anymore, anyway. It's not like 2010 or so where short sales were a much bigger segment of the market. You aren't cutting out much inventory by avoiding them.

Re: Short sale?

We bought a short sale. From contract signing to closing took 9 months . We weren't in a rush to buy so we were able to wait but I did start to get restless after a while and considered walking away. We had an accepted offer from the seller right away but that didn't really mean anything until the bank accepted. We ended up having to come come up over asking price and we were paying cash. There were title issues and lost paperwork from when the seller's original mortgage lender folded and her new bank didn't have the right paperwork--I don't remember all the details but it was a nightmare. However, we still ended up getting the house for well under market value, by at least $50k. That was in 2012 and now it's worth at least $150k more so we made out really well. We basically redid everything in the house b/c it was pretty nasty and sold "as is," which is typical of short sales. Luckily DH is handy so he did almost everything himself, which kept reno costs down. It took another 5 months from closing to move in. It's most likely our forever home so it was worth it in the end. I love my neighborhood.