Definition of a short sale (sometimes called a pre-foreclosure): - A home is sold for less than is owed on the property
- The seller doesn’t have other money to pay the difference to the lender(s), and
- Those lenders agree to accept less than is owed on the property
Hardship requirement:Often lenders require there to be some hardship of the seller that they cannot keep the property and cannot sell it for enough money to fully pay off the loans. In a Short Sale the buyer purchase from the seller/owner of the property with the lender’s approval. In a Foreclosure the buyer purchases from the lender who has foreclosed on the property and now owns it. Homeowners often try to have a short sale in order to avoid foreclosure. Short sales offer buyers some of the best home pricing in today’s market. But there are hazards to offering on a short sale property. A short sale purchase may be right for you if:You have lots of time and no firm deadline for when you need to move in. Once you’ve had your offer accepted by the seller the lender needs to approve the purchase. This can take around two months if there is only one lender and four or more months if there is more than one lender involved. Your financing is in order. Cash is always best in purchasing a short sale property. Most people don’t have it. Lenders look more favorably on pre-approved buyers with a good size down payment (15-20% or more of sales price) than buyers with less to offer or who have not been pre-approved. You can make a non-contingent offer. If you have a house to sell yourself or have other requirements for the sale—like a specific closing date, lenders are less likely to accept your short sale offer. Pitfalls of Buyer Short Sale Offers:Rejected offers. Lenders often receive multiple short sale offers and pick the one they like best to accept or to counter. It can take a long time to find out if your offer is accepted. If you make an extremely low offer on a house, your offer may be rejected after months of waiting. Bad terms. Even if the lender aggress to your short sale offer, the sale may not go ahead. Often the lender requires the seller to pay back the “short” portion of the loan at a later date. If the seller refuses, the transaction fails—possibly after months of waiting. As is. Most short sale purchases involve no repairs being done by sellers (with no funds) and lenders who receive less than they are owed. If you get a good deal on the property, that may have to be enough. Short Sale Facts- Six in ten short sale offers approved by the lender do not close. Either the buyer walks from the transaction or the seller refuses to agree to remain liable for the lender’s deficit.
- Over all, lenders tend to accept 10% off current value but not more than that.
- For buyers with patience, time and nerves of steel a short sale can be the way to purchase at the lowest prices of the market.
Foreclosure Alternatives Program (FAP) of the Obama Administration will soon (August 2009??) be setting guidelines for short sale transactions.These guidelines will include: - Incentives for lien holders
- Standardized documentation
- Streamlined acceptance procedures
- Property valuation for minimum acceptable net return
- Time lines
Do you have short sale questions?Ask me. I’ll get you the answer. Anne@PortlandHomeSource.com
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