Short Sale Process
What is a short sale? When an owner of a home incurs a life changing event such as loss of income, transfer of their job, death of a spouse, divorce etc. and fall behind in their mortgage payments they begin a dialog with their lender. More often than not the lender will work with the owner by telling them to hire a Realtor to list the house and find a Buyer. (They will not tell them what to sell it for at this point.) Once a Buyer is found and the Owner/Seller and the new Buyer agree to terms of a contract, that contract is subject to 3rd Party approval. (3rd Party is the current Lender.) The house will be sold for less than what is owed on the current mortgage balance, or Short Sale.
From that point the Lender collects many many documents from the Owner/Seller ie. bank statements, income tax documents, hardship letters to name a few. Over the course of several months they continue to collect bank statement so that they can see any income. They also hire another unrelated Realtor to perform a BPO, or Broker Price Opinion. They do this so that they can be sure the Owner/Seller is not "giving" the house away. Why? They want to make sure the Owner/Seller is not creating fraud and once they are satisfied they approve the sale.
Why would the lender allow a home to be sold for less than the mortgage? Simply put, foreclosure of a property is a long and lengthy process. The cost to hire an attorney to take the property through foreclosure and clear the title is very time consuming and expensive to that lender. Often time this takes upwards of 12-24 months to clear a title and for the property to be marketable. Throughout that period the lenders hire a property management company to clean the house out, and maintain it during the foreclosure process. Consequently lenders lose less money allowing the current Owner/Seller to Short Sell the home.
Bottom line for Buyer of Short Sale homes; Often times these properties are sold well under market value. (more than a Bank Owned sale) The Owner/Seller does not keep up with the maintenance of the home during the period so the new Buyer does have some "catching up" on that front. The property is sold As-Is, however you can have a home inspection with the right to escape if there are hidden issues that arise in the inspections. The process takes upwards of 3-6 months depending on the current lender, so sitting and waiting for the third party approval is often a deterrent to the Buyer. However if the Buyer can wait for the approval they often get a better deal than the bank owned sales.
I'm sure this will lead to further questions about the process, and I'd be happy to meet you for coffee and answer those questions!
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