The Benefits of Buying a Short Sale

Should I Buy a Short Sale

The current real estate meltdown engulfing our country has led to the renewed popularity of the real estate short sale. A real estate short sale comes about when the value of a home drops below the amount owed on the outstanding mortgage. If the mortgage holder agrees to accept a loan payoff for the lesser amount, the transaction can be completed. For the current homeowner who is in a negative position, the short sale allows him to exit a difficult situation without enduring a foreclosure and totally destroying his credit. The buyer gets to purchase a new home at the current market value, which is usually substantially less than the current owner paid. The lender gets something right now for its mortgage without having to initiate expensive foreclosures and without having to own and manage homes which it may have to take back at auction.

This is how things should work in a perfect world, but as we all know, our world is somewhat less than perfect.

With real estate values plunging and homeowners attempting to relieve themselves of homes that are worth less than the outstanding mortgages against them, banks are being overrun by short sale requests. As real estate values continue to drop, short sale requests will continue to increase. The short sale request usually consists of a sales contract, an appraisal showing the home’s current value, a hardship letter from the homeowner and copies of the homeowner’s tax returns and current pay stubs. The lenders must then review the application, which can take months to complete. The lenders have said that the reason for these lengthy reviews is not only the sheer volume coming at them, but because many of the packages submitted for review are incomplete. Lenders must spend time reviewing a file and determining that a decision can’t be made because of missing or incomplete documentation. The agents are asked for the proper information, which again, must be reviewed. The amount of time spent on a file is now doubled.

It becomes impossible for the buyer to schedule a moving date because the date can’t be determined. If a prospective short sale buyer sells his current home, he may be forced to find temporary lodging for his family while waiting for his offer to be accepted, if at all.

If the new home has a second mortgage as well as a first mortgage, a second lender must be dealt with, in addition to the first mortgage holder.

These difficulties have driven many agents away from short sales. With a traditional sale, they know what to expect during the process and can usually close these transactions within thirty to sixty days, instead of five to six months. Closing a short sale can often lead to a bargain property, but like so many other things in life, care must be exercised.