Short sales ”” where the homeowner owes more on their loan than the home can be sold for ”” are popping up a lot. In the MLS, in conversation, and even in the Wall Street Journal.
Yesterday, the WSJ posted a good article titled, Why Lenders Are Leery Of Short Sales. The subtitle is fitting: This Foreclosure Alternative Helps Strapped Homeowners, But It’s Not Easy to Pull Off.
There is a fairly common misconception out there that buying a home in a short sale situation is a way to purchase a home for pennies on the dollar.
That simply isn’t true in the vast majority of situations.
Lenders are not real keen on forgiving debt. Mortgage investors want to make money, not lose it. This tends to make lenders and investors hesitant to approve short sales. No, they don’t want to foreclose on a home and carry the cost of that, but they also don’t want to lose money by selling short.
In the Phoenix real estate market, there are currently 5,468 properties tagged in the MLS as “Lender / Corporate Approval Required”. That is how all short sales should be flagged (as well as corporate/relocation owned homes), but that number has to be taken with a grain of salt as often agents don’t enter data correctly. (In other words, there are probably more than 5,468 current short sale listings in the Phoenix metro area).
Short sales are difficult transactions. They require extensive negotiations with the lender, and it can take months to get lender approval ”” if it comes at all. As such, the ”˜buyer pool” for short sales is small. Let’s face it, most folks buying a home can’t or won’t wait for weeks on end to get an answer. There are plenty of individually owned homes to chose from.
But if you are interested in purchasing a short sale, it can be done. Be sure to chose an agent that has worked short sales. One job of the agent is to convince the bank that an offer made on a short sale is a reasonable offer and will save the lender money over foreclosing on the home. Such negotiations are not for the faint of heart or inexperienced.
Just don’t expect the lender to accept an offer at 50 cents on the dollar. Different lenders have different criteria as to what they will accept, the costs they will pay, and the proof they require that the seller is in a position that demands a short sale. Some lenders will send short sale paperwork before a home is listed, some require a home to be listed for a period of time before a short sale will be considered, and some won’t even discuss a short sale until you have an offer in hand.
These various lender requirements make both listing and buying a short sale home tedious, at best.
Recently I’ve had a couple of discussions with people that are of the mind set that they don’t want to pay for a home that is declining in value. They are perfectly capable of making the payments, they just don’t want to make them. Well, that’s just not going to fly. It may sound harsh, but the lender doesn’t really care what you want or don’t want to do. You committed to making payments when you signed your mortgage, and they expect you to keep that commitment. Before any lender will accept a short sale, they will require financial statements and likely a “hardship letter” so they can determine if you can no longer make payments. The fact that you don’t like your payment is of no concern to them.
I’m not writing this to discourage people from selling short or buying short sale properties. It’s important though, to know what you are getting in to if you chose to sell or purchase short sale real estate.
Update: Jamie Geiger over at the Real Estate Cactus posted on short sales today, referencing the same WSJ article. Nice local stats included!
Looking for more information on short sales? Below is a link to all articles written on this site about short sales:
Phoenix Short Sales
Thinking about short selling your Phoenix home?
Just complete the form below for a no cost, no obligation consultation with one of our experienced short sale experts: