Short Sales

Understanding Short Sales in California

Lenders in the past few years have made loans to borrowers that have become difficult to pay; either because of adjustable interest rates or life changes such as divorce, loss of a loved one or loss of a job. This, coupled with declining home values, has put some borrowers in a position where they cannot pay their mortgage, and they may also be behind in their property taxes or insurance bills as well.

If the borrower may be facing the prospect of a Notice of Default and subsequent foreclosure, and the current value of the home is less than what is owed to the lender, the borrower should consider calling the lender and asking them to consider a short sale.

A short sale is a business decision for the lender. The lender may consider whether they would receive more money by allowing a short sale or waiting to receive ownership of the home by foreclosure and trustee sale down the line.

If the lender gives the okay to proceed, the property is marketed by a Realtor just like you would in the sale of any home. When the listing of the home is input into the local MLS, there will be wording for other Realtors to see stating "Short Sale Rules apply."

A short sale is subject to a lender's approval (or 2 lenders in the case of a 1st & 2nd), because the lender(s) is being asked to agree to take less money than what is owed on the note. Because of most short sale listings being marketed at value or even sometimes below value to encourage multiple offers, even though the homeowner may want to accept one offer over another, all offers are submitted to the lender, and the lender will make the determination of which offer will be accepted by them. Make your offer contingent upon the lender(s) acceptance.

"If I am considering purchasing a home that is a short sale, what can I expect to happen once I make an offer on the home?"

First of all, try not to get too emotional about the property, and you must be very patient. The lender(s) will look at all offers, and they may or may not give more credence to offers with more substantial down payments versus a higher sales price. Instead of notification within 3 days whether your offer has been accepted, it may take 2 weeks or longer to hear back from the lender.

Also, most lenders will want a preapproval letter from a lender to accompany your offer to purchase. Remember, until the lender has approved your offer in writing, they can continue to accept and consider other offers. That is why I say, "Do not get too emotional about any one particular home until you are in escrow."

Whether or not a particular home to be sold in a short sale is a "good deal" will be predicated by many, many factors. An experienced Realtor will be able to consider all of these factors, including a Comparative Market Analysis, and present them to you in such a manner that together you can decide current market value and make an educated decision on what to offer for the home.

Even though the wait may be long before your offer is accepted, don't be surprised if the lender comes back with an addendum requesting your signature confirming it is an as-is sale (and other language) and possibly only giving you a 30-day escrow period. A lot of lenders are very slow to respond to offers, but once they hone in on one, they usually want a very quick close of escrow.

Once your offer has been accepted by the lender and the lender has signed the acceptance, the escrow will proceed much the same as any other escrow, but keep in mind this will be an "as-is" sale. Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest/termite inspections. The buyer will be required to purchase the property "as is," which means no repairs.

It is extremely important that a buyer obtain a home inspection and pay for other types of inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections. Do not waive your right to obtain these inspections, and make your offer contingent upon approving them.

I repeat, "The lender will not pay for inspections or repairs."

Its one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent.

An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.

Contact me via email or call me at (714) 269.5252 for more information on Orange County, California real estate, including short sales and REO's, or visit my Blog site.