With foreclosures hitting record highs all over the country, many homeowners facing losing their home are taking a more proactive route and trying to sell the property before losing it to the bank. Because prices have fallen in most markets, these homeowners aren’t able to sell their home for more then they owe. So in order to sell the property, they must get permission from the bank or company that owns their loan first. This process is called a short sale.
Now, it seems like a great idea. However there are quite a few catches. As I stated, a homeowner can’t simply decide to list their home for less then they owe the bank. Unfortunately, this does happen. Usually the person trying to buy the property doesn’t find out this information right away either. I have heard some horror stories of buyers finding out months later that the home they are trying to buy isn’t actually for sale at that price. Sometimes even the homeowner themselves are a victim (finding out later that their agent didn’t explain all of the details to them).
Another thing to remember about short sales is that the house could go into foreclosure, especially if the escrow takes too long. The mortgage lender could decide to change their mind and complete foreclosure proceedings and list the house on the market again as a bank owned property. The homeowner may decide to file bankruptcy and try to save their home through the court system. Of course, these are worse case scenarios. Short sales also face the same issues as regular sales as well, like passing a home inspection (unless you are paying cash, but you SHOULD have an inspection regarless), etc.
Even when everything is done correctly, a short sale listing can take months to close escrow. Some banks are so bombarded with foreclosures and homes going into default that they may take months to give their approval. Quite often banks don’t have any internal system set up to deal with so many properties going into default. You’re more likely to run into this problem in hard hit areas like the Las Vegas real estate market, the Phoenix real estate market, Tampa real estate market and many other parts of Florida. Purchase contracts seeking bank approval may sit for days or even weeks before someone get around to looking at it. And it gets even worse. If there is more than one mortgage holder on the property, each mortgage lender has to sign off on the sale causing further delay.
This article isn’t meant to scare you away from short sales, but to fully disclose how much they differ from other listings. You can get some amazing deals buying a short sale property, but you must be prepared to wait and possibly not get it. If you are buying a property you intend to live in, you might want to reconsider looking at short sales, especially if you are under a time constraint. Even if you are an investor, you might not want to possibly tie up funds in a purchase contract with so many other properties on the market.
ABOUT THE AUTHOR:
Charles Richey is a blogger and real estate investor in Las Vegas, Nevada. He is also the webmaster for his wife’s website who is a Las Vegas real estate agent with Realty One Group. Together they also author a blog about the Las Vegas real estate market.