The short sale house you saw online may be the best you’ve seen so far. The features are great and the neighborhood is good for the children. But check out first the following realities because they could prevent you from buying your dream home.
Short Sale Documentation from the Seller
Lenders require a minimum set of documents before they review and approve short sale proposals from their troubled borrowers. They lose money from these short sale deals so they want to make sure they’re cutting their losses by short selling as opposed to foreclosing on the properties.
You have greater chances of buying the short sale house if the seller has submitted the following: financial statement, bank statements, tax returns, payroll stubs, W-2 forms and a hardship letter. The hardship letter describes the current difficulties of the borrower and the reasons why he or she can no longer make the monthly payments. What the borrower says in the letter should be supported by the financial documents. The lender does not approve the short sale if the borrower has substantial savings.
Mortgage Loans, Amounts and Lenders
If the mortgage covering your desired short sale house has been sold to mortgage securities investors, then the short sale process will take a long time – longer than the 2 to 4 months normally spent to complete the short sale process, or the short sale may never happen at all because the lender no longer owns the mortgage. Just the work of tracing where a particular mortgage document has gone takes weeks, as shown in the many complaints of homeowners applying for loan modifications. Additionally, if there’s a second or third lender involved in the mortgage, short sale negotiations will take longer.
Amount of Short Sale Offer
Experienced realtors say that lenders ignore offers that are only 20 to 30 percent of the loan amount. While some buyer’s agents base their offer on pending sales prices and others use comparable sales, lenders will likely accept offers nearer market values. Oftentimes, listing agents post lowball short sale listing prices solely to attract multiple offers.
Role of the Short Sale Listing Agent
Even if your short sale agent is experienced in short sales transactions, the success of the short sale depends largely on the negotiation and decision-making abilities of the listing agent. Your agent can’t negotiate with the lender because it is the listing agent that submits the short sale proposals and the one dealing with the bank. There are also listing agents who do not submit the best offer to the bank, which is a clear violation of the agent-seller agreement.
On the whole, despite the challenges of buying a short sale house, you can find short sale properties in great conditions, much better than those of foreclosures.