Short Sale Info
A short sale is when a property is being sold or offered for sale for less than what is owed. Most short sales are in the process of foreclosure but have yet to reach the foreclosure auction (i.e. “pre-foreclosure”). The homeowner, not their lender(s), is the driving force to initiate a short sale in an effort to mitigate the damage done to their credit.
Short sales require lien holder approval:
The lien holder(s) on the property have to approve short sales because they are taking the loss on their loan(s). It’s critically important that you understand that just because you see a short sale advertised at a certain price doesn’t mean the lender(s) has or will approve that amount. In fact, the vast majority of the short sales you see advertised have not yet been approved (if the short sale has been approved they will almost certainly advertise that fact because it’s a huge selling point).
When are short sales approved?
Generally, for a lender(s) to consider a short sale, a complete short sale package has to be submitted. This not only includes financial statements from the seller, hardship letter, etc. but also an offer from a buyer.
In other words, the seller has to secure an offer before finding out if & what the lien holder(s) will accept. From the time an offer is submitted on a short sale it generally takes 2-3 months for approval. However, depending on how many lien holders there are it can take 4 to 6 months.
How does the lien holder decide what they’ll approve for sale price?
The lender will want to know the fair market value (FMV) of the property and from there decide what they’re willing to accept. To determine FMV they’ll order a Broker’s Price Opinion (BPO) or an appraisal from a third-party not involved in the transaction. Don’t get too worked up about the asking price or writing a letter of why they should accept your offer or listing the repairs needed on the property. They’re going to look at the valuation from this third-party (that should take the condition & repairs into consideration).
Estimating the short sale approval amount:
Unless the price is already approved, there’s no way to know for sure what the lender(s) will accept. However, an experienced short sale broker should be able to look at the property and comparable data and come up with a reasonable estimate.
Should you pursue buying a short sale? As previously mentioned, most lenders take 2-3 months for approval but depending on the specific property it can easily be 4-6 months. If you are in no rush to buy and you are very patient then short sales can be a great route to explorer. Every short sale must be looked at on a case-by-case scenario to estimate both approval amount and time-frame. I’m well experienced in short sales and have dealt with most lenders. If you have questions or if I can be of any assistance please let me know.
This information is deemed reliable but no representation, warranty, or guarantee of any kind is made.