The Short Sale Process
Apr 16, 2012 Real Estate Profit Tricks
Buying a home through the short sale process is not an exact science. Each lender may have specific rules they play by. Still, there are some common steps that go along with the process.
When you’re dealing in a short sale buy, there are two main types of situations you can run into. The first will require a little more work. It involves finding your own potential purchase by looking at impending foreclosures. In this case, you’ll have to initiate the short sale process. The second buying option involves dealing with a homeowner and a lending institution that have already geared up for the short sale process. In terms of difficulty, the former will require more elbow grease.
Starting With The Lender
If a home has not already been listed for a short sale with preapproval by the lender, the process to buy will take more work on your part. While there’s no guarantee the homeowner or the lender will consider a short sale, the possibility is there so it can be worth pursuing if you’re interested in a particular purchase.
The steps you can expect to have to take to initiate the short sale process and get a property for less than is owed on the loan include:
- Contacting the lender directly
This can be a bit frustrating, but it if results in a great purchase, the work will pay off. To cut to the chase with a lender, seek out the bank that holds the deed directly when foreclosure is looming or already in process. The lending institution’s name can often be found in public court records within a county. Just look up the parcel by address, or use the owner’s name if you know it. Once you have the information, you will want to deal with representatives of the bank or lender’s loss mitigation department directly.
- Obtaining an authorization to release information
This document must be signed by the homeowner to enable the lender to speak with you about the mortgage. To properly negotiate, you will need to know the details of the loan and how much the bank is still owed. Short sales cannot be considered if the property owner does not agree. While many are interested, some will hang on through foreclosure in hopes of coming up with a way to save their home.
- Obtaining a sign off by the property owner
The lending bank cannot sell a home out from underneath the property owner in a short sale. In order to gain the benefits of this type of purchase, the homeowner must agree to the process. During this phase, the existing homeowner will have to fill out forms, justify hardship and basically prove that they cannot pay the mortgage even if foreclosure is threatened.
- Getting an appraisal
Even if a lender and homeowner agree to pursue a short sale, some other work is necessary before a bottom line price will be set for the property. The lender will likely want to obtain what is called a “broker’s price opinion” to gain a real understanding of a property’s value. The lower the price happens to be, the more likely it is a lender will approve a short sale. You’ll also very likely want to order your own appraisal, but only do so after you know the bank and homeowner are serious.
- Making sure your financing is in order
Unless you are funding the purchase in cash only, you will also have to satisfy the terms set forth by your lender to close a deal.
- Obtaining the settlement statement
Before a final sale goes through, the lending institution will want to look at such things as commissions going to real estate agents, your financing arrangement, other expenses associated with the sale and the estimated date of closing.
Once a lender agrees to a short sale and its price, the process will move like most other real estate transactions.
Working With A Preapproved Short Sale
In today’s market, it is not uncommon to come across short sales advertised as such. In these cases, the lender and homeowner have already come to an agreement and have decided to pursue this option to prevent foreclosure. The process involved in this type of short sale will be abbreviated greatly and will move forward almost like a regular sale with a few caveats to satisfy the lender.
You will still have to:
- Approach the seller;
- Get your own appraisal and home inspection, if desired;
- Put your financing together;
- Negotiate on the price if there is wiggle room included in what a bank is offering. Both the lender and the homeowner will have to agree to the price. The bank is your biggest concern, but the homeowner will want to satisfy as much of the loan as possible. Owners are often liable for the taxes owed on the difference between the outstanding loan amount and your offer. They want the gap closed as much as possible, obviously.
Preapproved short sales speed up the process and are much easier to deal with. There can be some time delays involved as lending institutions go over an offer and determine if it is in their best interest to take it. Remember, lending companies often have shareholders to answer to, so they will go over their options with a fine-tooth comb.
While it is generally more advantageous to find a pre-approved short sale deal, striking out on your own to find properties can also net some great purchase. The truth is both scenarios, can be very beneficial when it comes to the bottom line. The reality is short sales can provide a much bigger pricing discount that even foreclosure auctions because of the timing involved in the purchase.