Short Sale Buyers

“Short Sale” describes the sale of a property for less than is owed on its mortgage.

These were prevalent during the mortgage crisis of 2007 to 2010

I became a Certified Distressed Property Expert® (CDPE) in 2009

…meaning that I completed specialized training to better understand the complexities of the mortgage meltdown phenomenon and the unique situation and needs of a homeowner who could benefit from doing a short sale.

In today’s market these sales are few and far between.

But just so you know, here is some of what I learned. Before writing an offer to purchase a property that can only be sold as a short sale, in addition to the appeal of the home itself, it is also essential to vet its desirability based on details related to the short sale experience and skills of the listing agent, the motivation of the seller, and the reputation of the lender regarding cooperation. For instance, a seller without a genuine commitment to selling may use an inexperienced agent to put their home on the market, when what that owner truly wants is a loan modification — but they are soliciting offers in the meantime, both to demonstrate that the property cannot be sold at a price required to pay off their loan or just in case their request for a loan modification doesn’t work out.

Of primary importance –

does the listing agent actually understand the process? Who is the seller’s lender or loan servicer and what is their reputation for efficiency at processing these transactions? How far along is the seller in the process of negotiations with the lender? Have they applied for a loan modification and been refused? Does the listing agent seem genuinely dedicated to managing the demands of such a challenging transaction?
Some traits common to all short sales that should be understood (by both sellers and buyers):

  • It takes at least three principal parties to do a short sale: the seller, the seller’s lender(s) and a buyer
  • Advertisement as a short sale doesn’t necessarily mean that the lender has consented to the price or that they’ve even agreed to allow the property to be sold for less than is owed
  • Though the property owner makes the decision to put the home up for sale, final sale approval is the lender’s decision
  • Before the lender will agree to a short sale the seller must submit extensive documentation (sort of like a loan application, but in reverse) to establish that they genuinely cannot afford to keep the property
  • Some lenders will not even review this documentation until after submission of an offer.
  • The seller may come to realize that tax consequences resulting from debt forgiveness are unacceptable
  • Many hindrances may arise to cause the seller to abandon the sale during the marketing or escrow process:
  • The lender may insist that the seller remain liable for the difference between the selling price and what’s owed
  • A second mortgage lender may refuse to cooperate making it impossible to convey clear title
  • A Homeowners Association who has a lien on the property may refuse to cooperate
  • Inaccurate information included on the owner’s original loan application may become a problem
  • The lender may determine that the owner’s other assets disallow qualification for a short sale
  • A loan modification that they have in process may go through
  • A foreclosure may simultaneously be in process and occur before escrow can close
  • Do not be seduced by a short sale property’s ‘too good to be true’ advertised price, it may be virtually meaningless.
  • Patience and a tolerance for uncertainty are key ingredients for (perhaps) getting a good deal in the end. I know of short sales that have taken over a year to close.
  • These are truly Buyer Beware transactions.