Short Sale Review
What is a short sale? While short sales were very prominent 9 or 10 years ago, they still exist in today market. So here is a quick review of what is involved in the short sale.
Simply put the current owners have had a life changing event such as divorce, death of spouse, or loss of income. When that happens they contact the current lender and their lender tells them to hire a Real Estate Marketing Expert to put the house on the market and find a Buyer. For this instance I'll use the term you as the Buyer. You like the house, it fits your needs and you submit a contract. The Seller reviews and signs the contract and now you and the Seller are in agreement and the house is taken off the market as Under Contract. In order for you to move forward the Seller must submit your contract to their current lender for third party approval. Now you must sit and wait while the current lender sifts through the Sellers tax forms, bank statements, pay stubs looking to make sure the Seller is in financial difficulty and not creating fraud. You see the term short sale means the Seller is selling it for LESS than what they owe the lender. This process often takes 4 to 6 months, as the lenders don't want to approve this until they are satisfied fraud is not being created. Once the current lender approves your contract you typically have 30-45 days for your lender to fully approve you for your purchase of this house.
Again short sale means selling for less than what is owned NOT short sale time!
Why do banks do this? In Maryland the foreclosure process is a long lengthy process. Lawyers are involved taking the house through foreclosure and clearing the title before it can be resold. Often a bank owned house has been foreclosed 12-18 months prior to the public seeing it for sale. During this time the Lender's Asset Manager tacks care of the house and prepare it for sale once the title is clear. The resources spent on the foreclosure process is great! SO, banks loose less money working with the current owner to sell their house as a short sale, for less than owed.
Circle back to you the Buyer; You and the Seller are in contract to purchase the home. Typically you'll tell the Seller (through the contract addenda) that you'll wait 60 days for the third party approval. At the end of that time period you can elect to extend the wait period, or escape the contract and all earnest money returned in full. It also means you may not enter into any other purchase contracts with any other Sellers until you escape the short sale contract.
Please note in a typical short sale the Seller is living there and not paying their monthly mortgage. Additionally when they start to go into financial peril they don't do any updates or improvements. So you may experience a higher level of regular maintenance challenges after settlement. You can and should have your home inspections as normal however you're buying these houses are in as-is conditions.
Sellers: if you find you have a life changing event, first contact your lender to alert them to your financial situation. Next contact me and I'll work with a Real Estate Attorney to help and guide you through this process. Know this a short sale is not as hurtful to your credit in comparison to the damage done going through foreclosure.
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