What is a Short Sale? A short sale is a transaction in which
a lender allows the Home securing the loan to be sold for less than
the remaining mortgage amount due and accepts the proceeds as full
payment of the loan. This is generally the result of the borrower's
inability to make the mortgage payments and/or a home value which is
currently less than the total amount owed on the mortgage(s).
Typically, a lender will not consider a
short sale unless the borrower has stopped making payments on their
loan and has in hand an actual offer to purchase the subject property.
Why Are Some Short Sale Listings
Priced So Low? When you see a short sale listing far below
other homes in the area it is usually because the lender has not yet
agreed to accept a short payoff. A lot of lenders will not even
negotiate on as short sale until there is an offer on the property.
The listing or selling agent will price the home lower and lower, just
to get an offer that they can bring to the lender. Rarely will
the lender agree to these offers. The biggest obstacle is when
there are more than one lenders involved. In lot of these
short pay situations the borrower (home owner) has taken out an
additional loan on the home. In this case it is very difficult
to get the lender in second position to let the borrower walk away
from their obligation because there is usually nothing left to pay
them after the primary loan is paid off.
This is why you will see "Subject
to Lender Approval"
How Do I Buy a Short Sale Listing?
Typically on a short sale listing you will see that the
listing agent has added the now required disclaimer that the sale of
the property is contingent and "Subject to Lender Approval".
The first thing that you do when buying a short sale listing is to
make an offer to the seller. Once buyer and seller have agreed
on a price, an escrow account is opened, and it is then sent to the
lender to approve the short sale. This can sometimes take weeks
or even months to get a response. You will need to be very
patient in dealing with a short pay situation. It is also wise
to have your real estate agent (hopefully Me) check out the current
loan situation on the property. If there is only one lender on
the property, your chances of actually buying a short sale will be
better.
Scott's
Typical Short Sale Listing Example "A"
(Might Have a Chance of Working)
|
Asking Price of Home For Sale |
$500,000 |
|
Amount Owed on Home |
$625,000 |
|
Current Market
Value |
$585,000 |
In example "A" you see a typical short sale scenario.
The listing agent has priced the home way below comps in the area at
$500,000. The seller currently owes the lender $625,000.
The other homes in the area of similar size and condition are selling
for $585,000. Now, lets say that the listing agent gets an offer
for $500,000...The seller accepts, and escrow is opened. The listing
agent now has to go to the lender and present this ridiculous offer,
and explain why they should accept this short payoff of $500,000
(minus commissions) on a loan of $625,000, when the market value of
the home is currently $585,000. This is not an easy sell as you can
imagine. Most likely if the lender is willing to agree to a
short payoff at all at this point, they will suggest a counter offer
much closer to current market value.
Now...here is what
actually happens...The buyer thinking they could actually buy the
home for the $500,000 asking price is disappointed and not
willing to listen to the counter offer even though it probably is a
great offer...The listing agent is happy, because they now know what
the lender is willing to accept...and the seller is still in a very
bad situation.
Scott's Moral of this
story...If you are going to look at short sales...make sure that
they are within reason, and even better yet, find out if the lender is
on board with the proposed offering.
I will be happy to do all of
the legwork
and investigative work for you, just give me a call.
Scott Pessin
(818) 687-6000
Scott's
Typical Short Sale Listing Example "B"
(No Chance of Working)
|
Asking Price of Home For Sale |
$500,000 |
|
Amount Owed on Home |
$725,000* |
|
*Seller Owes Lender A |
$600,000 |
|
*Seller Owes Lender B |
$125,000 |
|
Current Market
Value |
$585,000 |
In example "B" you see a typical
short sale scenario that will not work. The listing agent has
priced the home way below comps in the area at $500,000. The
seller currently owes two different lenders a total of $725,000.
The other homes in the area of similar size and condition are selling
for $585,000. Now, lets say that the listing agent gets an offer
for $500,000...The seller accepts, and escrow is opened. The listing
agent now has to go to lender "A" and Lender "B" and present
this ridiculous offer, and explain why they should accept this short
payoff of $500,000 (minus commissions) on a loan of $725,000, when the
market value of the home is currently $585,000. This is not an easy
sell as you can imagine. Lender "A" and Lender "B" most both
agree to release the seller from their loan obligation. Even if
Lender "A" is ok with accepting less than the $600,000 that they are
owed, with Lender "B" getting nothing on the sale of the property it
is highly unlikely that they are willing to play along.
Scott's Moral of this
story...If you are going to look at short sales...make sure that
they are within reason, and even better yet, find out if the lender is
on board with the proposed offering.
I will be happy to do all of
the legwork
and investigative work for you, just give me a call.
Scott Pessin
(818) 687-6000
If you have
further questions about short pays, short sales, foreclosure, or if I may help
you in any way, please call me. I am always happy to help
you.
Scott Pessin at 818-687-6000.
|
Email
Scott
E-mail Scott Pessin