Short Sales
Short sales in Beaverton Oregon
We never had the term Short Sales when I became a Realtor in 1987. The number of home owners who owe more than their property is worth skyrocketed during our recent economic downturn. Asking the lender to take less than is owed rather than using the foreclosure process has become commonplace now. Lenders will often agree because they can make more money in the long run with a short sale than by taking the property back in a foreclosure. But that doesn’t mean the short sale process is easy. No, far from it.
It will be a happy day when there are no more short sales and I can take this page off my web site.
A short sale (also called a pre-foreclosure) happens when:
1. A seller accepts a purchase offer for less than is owed on the home
2. The seller is has no money to pay the difference at closing to satisfy the underlying loan(s)
3. The lender(s) agree to accept less payoff than is owed on the home
Hardship requirement
Most lenders require a borrower to demonstrate “hardship” before they will accept a short sale situation. The borrower (home owner) must show why they must sell the home and why they cannot sell it for enough money to pay off the loan(s) in full.
Difference between Short Sale and Foreclosure
In a short sale situation the buyer has a purchase agreement with the home owner that is contingent on the lender agreeing to take less money than is owed on the property. The buyer and seller/owner agree to terms and conditions of the sale. Then they wait and wait for the lender to approve the sale.
In a foreclosure the buyers purchases the home directly from the lender who has taken the home back from the previous owner who was unable to make loan payments. Many homeowners in difficult financial straits try to sell the home as a short sale before the lender forecloses.
As a buyer, short sales offer some of the lowest home prices in today’s real estate market. But this benefit is not without its downside. Keep reading.
Is a short sale right for you?
Do you have lots of time and no firm date when you need to be in the new home? Negotiating with the short sale owner is the easy part. Then the lender will need to approve the sale. This negotiation is between the seller of the property and the company holding the loan(s). This can take anywhere from 2 to 3 months to well over a year. Most lenders are not eager to take less than they are owed. Many times the lenders wait to see if a higher offer will come in. If there is more than one lender involved, the process gets even more complicated.
Is your financing in order? In purchasing a short sale property cash is best. Most people don’t have it. Lenders of short sale properties want the buyer to be pre-approved and have a substantial down payment (15-20% of the sales price).
Can you make a non-contingent offer? If you, yourself, have a house to sell before you can buy the short sale, the lender will not consider approving the short sale. If you need to close by a specific date, beware. The short sale lenders use their own clock and calendar.
Pitfalls of short sale offers for buyers
Rejected offers – Sellers of short sale properties often receive multiple offers which they submit to the lender. It can take a long time for the lender to accept or counter one of the offers. If you make an extremely low offer, you may wait months and months to find out that your offer has been rejected.
Bad terms – Having the lender agree to your short sale offer is no guarantee that you’ll get the house. Often the lender requires the seller/short sale borrower to pay back the amount that is “short” to the lender by some future date. If the seller refuses, your short sale transaction can fail, again after months of waiting for an answer.
As is - Usually no repairs are done to a home bought by short sale. The seller has no money from the sale and the lender is already taking less than is owed. Getting a good price on the short sale house will have to be enough.
Short Sale Facts (From the National Association of Realtors)
Sixty percent of short sale transactions approved by the lender do not close. Either the buyer has lots interest in waiting or the seller refuses to remain liable for the “short” amount.
Over all, lenders tend to accept 10% less than current market value but not less than that.
For buyers with patience, time and nerves of steel a short sale may be the way to buy the lowest priced property on the market.
Do you have a short sale question?
Call me (503 320-3163) or email me. I’ll get you the answer.
