May 11, 2009

Why Buyers hate short sales

Short sales are a pain. They are complex, take an unreasonably long amount of time and are frustrating for everyone.
I've been working with a ready, willing and able buyer on a short sale since January. That's right, we made the offer in January! And we still don't have a closing date. I should start by noting that the bank involved is Countrywide - the worst bank when it comes to short sales.
If you're thinking of buying a short sale, here are a few reasons why you may hate the process too:
  • You will be negotiating with the seller and the bank that holds the loan on the house. Lenders are in the business of lending money and collecting money. They are not in the business of selling homes. Thus, they aren't very good at it.
  • They do not have to respond to your offer. They may say yes, they may say no, they may counter or they may just not respond. There is no set time in which they must respond because there are no standard rules for lenders in the short sale process.
  • In order to get to first base, the seller must have complied with all lender requirements, such as documenting the reason they can not meet their mortgage obligation. If the seller's file is not 'complete' the lender will not move forward with the deal. Of course, they don't disclose the reason for the delay. You'll just have to wait ... and wait ... and wait. If the seller doesn't participate in helping the process move forward, you are out of luck. The seller may be using the short sale process just to stall a foreclosure.
  • You must be extremely patient. They work on their own timeline. However, you must be ready to respond and move quickly. Have either cash or a lender who can close quickly.
  • You may get to inspect the property but they probably won't fix anything. You can modify your offer after inspections, but nothing is guaranteed.
  • Your offer may be rejected even if the price is right. They can only handle a certain number of short sales each month.
  • Just because its a short sale, doesn't necessarily mean you will get a 'great deal'. Buying a property for less than what is owed on it doesn't mean its a bargain. What the seller paid or owes now has nothing to do with what it is worth today.
  • Threatening to walk away won't help. Neither will begging, cajoling or intimidating. They are overwhelmed with tens of thousands of files. If you go away, that's fine with them.
  • The lender may withdraw their cooperation at any point and not sell you the house. The loss mitigation departments can be fickle. This can happen up until the day of closing.
  • Beware of second or third mortgages, tax liens, mechanic's lien, state liens, etc. Purchasing from the lender does not necessarily take care of these other liens.
  • Be aware that few short sales are successfully processed. Buyers usually succumb to the frustration and find something else.
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