Tell Me About Your Experience Purchasing a 'Short Sale'

My experience was nearly identical to Kimberly F's experience. Whenever I hear someone say they like a short sale house, I tell them to RUN!

Would you like to talk to a realtor who specializes in short sales? If so, I've got a good one for you.

A "short sale" is a home that is in the foreclosure process but is not yet owned by the bank. It is still controlled by the homeowners and their bank and their PMI/Mortgage Insurance (VA, FHA, Private, etc) company.

A "REO/Real Estate Owned" is a home that is owned by the bank and the foreclosure process is complete.

To buy a short sale you have to have the patience of a saint:
1. The bank has no incentive whatsoever to to take less on a house and write off part of the loan. It's easier for them to let the house fall into foreclosure and deal with it at that point.
2. With more people involved in the approval -the sellers, the bank, the insurers, the agents, etc- the longer the entire sale will take.

In my experience an REO property sells quickly comparatively. Short Sales are really just not worth the hassle usually. And get an agent that has written and closed contracts on several. Don't go with an agent who has never done one. You'll never get your offer to fly. GL.

Hi - I am an attorney and practice real estate law here in Chicago. I've handled many short sales for both buyers and sellers in the past 2 years. The best advice I can give you is that you have to be both patient and flexible. Patient because the process takes a LONG time. I've seen one close in 4 months, but most are in the 6-10 month range. You also have to be flexible because you don't know when it will close. It could be in 6 months or in 8 months. If you are trying to get into the house by a certain time, it likely won't happen and it can be a very frustrating process.

The other thing to consider is whether the lender has already started the foreclosure process, and if so, where in the process it is. Usually once a lender files the foreclosure lawsuit, it takes about 10-14 months for everything to be finalized and the bank to actually own the house. I've represented buyers before where we thought we had plenty of time to get the short sale approved before the foreclosure was finalized, but there were so many delays that the foreclosure sale went through and the bank owned it, despite the fact that we were so close to getting the short sale closed. Even though the same bank is the one that is proceeding with the foreclosure and that you are working with on the short sale, you are dealing with 2 completely different branches within the bank (and the foreclosures are typically farmed out to a local law firm), and so they really don't care. Doesn't make any sense, I know - you'd think the different departments in the bank would take to figure out what was best for the bank (get rid of the property through the short sale, or become the owner after the foreclosure and have to find a buyer and maintain the property in the meantime).

Finally, another wrinkle that will complicate things is whether or not there is a junior mortgage. If the first mortgage isn't getting in paid in full, that means there is no money left for the second mortgage holder. They will usually demand a minimum amount to release their mortgage lien, but they usually want 20% of the outstanding principal and the first mortgage holder will only allow them to have 5%. So then you have to get the two to come to an agreement. It just means more delays, less of a chance that the short sale will be approved, and longer turnaround time. Just something to keep in mind - ask the listing agent if there are two mortgage holders that have to agree to the short sale - or have your attorney look it up if you do go forward and sign the contract.

Just thought of one more thing - the two biggest factors that go into whether or not a bank accepts a short sale are: 1) appraised value of the house - if your offer is far below the market/appraised value, the bank will not agree because it feels it can get more money from another buyer. And the bank will have its own appraisal performed. 2) how much the shortage on the mortgage payoff is - i.e. if the seller owes $200,000 on the mortgage, and the offer, after closing costs, will allow the lender to gt $170,000, chances are great that the bank will approve it. If the lender will only get $70,000, they will likely reject it because they'll think they can get more money within another buyer, especially if the appraised value is higher. So make sure that your realtor is asking all of these questions to the seller's agent!

Good luck!

We are interested in one as well! Our Reatlors warned us that we may need to move into short-term housing if we sell or rent our house because it can take a while. They had one short sale that took 11 months. The people made the offer and waited and waited for the bank. The cool thing was that the house owners had moved out, so the buyers worked out a deal to rent the house for $500/month. It was comparable to others at $1000 and since the sellers were in pre-foreclosure and not paying on the mortgage, that money all went right in their pocket! The only problem was that if the bank had at any point come back and said they wouldn't accept the offer and were going to foreclose then they would have had to vacate immediately since they couldn't rent once it was foreclosed on. So there was a risk there, but it worked out and the clients did get to buy it.

Sorry I'm not more help...but if we end up trying for this house we want, I'll let you know how it goes:)

That can depend on where the seller is at with their lender. Most times you have to submit the offer then wait for the sellers bank to approve. There are cases though that the seller has already done some legwork with their lender and have an agreed upon firm price of what the bank is willing to let the property go for. The time frame can vary as well - two months is a good basis to start with but I have seen them take much longer. I have done mortgages for 13 years and the last two have been quite the learning experience. In order of ease of transactions/time frames to keep in mind while out there looking - 1) normal for sale homes are still priced low and can close 60 days or less 2) short sales - as above 3) foreclosures - can take longer than a short sale. Good luck!!
J. M

____@____.com

NO EXPERT OR ATTORNEY.

Different area, but perhaps I can shed some light. When you are purchasing a short sale, you want to be diligent in checking the public records yourself, EVEN if you have an agent and go through escrow.

Check your county recorder's records to be sure all liens are cleared. Check with your county Assessor or Treasurer to be sure all taxes are current and ask if there are any Special taxes or Special Improvements on that property.

Even though you are working with an agent. You have to imagine you are buying a property from someone who can no longer afford to pay for it and possibly other items. Were they in the middle of adding a pool or landscaping when they lost their job or received a pay cut? If so, the company would have more than likely placed a lien on the property to start the work and then released the lien when they were paid in full. People often confuse special assessment or improvements with tax. They are two different things (in our county and often others). You will also want to be sure the Homeowners Association (HOA) is current as well. That is another bill that very easily goes by the wayside and they will foreclose. When you are looking for the special improvements, you want to be sure there are no "Certificates of Sale" out. In our county what that means is the bill was not paid and investor (certificate holder) has come along and paid the bill off and is now earning interest. The certificate holder also has the right to pay the tax and earn interest off of that. Our certificates are 24 months for improved land (property with a house), which means, if the county foreclosed on it 12 months ago and there is a certificate holder, in 12 more months he can submit paperwork to the District Attorney to request the deed. You would lose the property if the DA sided with the certificate holder (CH). Some CH's are more aggressive than others. Some have more money to pay the tax, some only want the interest and are not interested in the home itself, and some may want the home. It is hard to say.

As well, the sanitation and water reclamation (trash & sewage) can be delinquent and may have a lien filed. Our sanitation used to file a lien and now they just tack it on to the real property tax.

Anyway, I don't mean to scare you, but the old saying Cash is King...in your case, Knowledge is King! It seems these sales are possibly going "As Is" and people are not informed about what is involved in the sale.

I don't know why they call them short sales, they take SO long!! Lets see, we put an offer on a short sale home in November of 2008 and didn't even hear a response from the bank on our offer until March (2009) The response wasn't good either, it took them that long to tell us they couldn't accept our offer because we were first time home buyers and they weren't accepting FHA loans. We were warned that it could take a really long time to even hear anything back from the bank. We ended up getting into another short sale home, but this time we were told it would be a lot quicker because they had already had an offer on the home but the people who put in the offer backed out. We put in our offer in April 09 I believe, it was accepted within a few weeks, and we were moved in by mid June 09. We got a really good deal, so it was worth it. Just be prepared that it may take a while. Good Luck!!!

Be patient, use a realtor who's done it before... We've been trying to sell ours short-sale for a year and a half. Got an offer two months ago and haven't heard any movement since....it's all on the bank, esp Bank of America which is one of the slowest.

As you've undoubtedly gotten the idea by now from other posters, short sales take forever. The bank has little to no financial incentive to act, and those at the bank who oversee short sales are flooded with them, so the paperwork - including offers - tends to pile up on their desks without any attention to them.

A year ago, we made an offer on a short-sale home for the full asking price, and despite both the real estate agent and our attorney constantly calling the bank, the offer was never acted on even after 6 months of waiting. Because you don't want to have an offer "out there" on more than one property at a time, the dilemma becomes at what point do you finally withdraw your offer and move on? The longer it's been, the more invested you feel since you don't want all that time to have been lost for nothing, but be prepared for that decisionmaking point to come.

Perhaps decide in advance what your time limit is so that you won't have to agonize over it as each day ticks by. We finally withdrew our offer after 6 months. Good luck to you!

The last real estate investment my husband and I made was through a short sale. We flipped the property. It was very lucrative but it was a twelve month nightmare. We both had attys attending the closing. However, the
sellers atty represented the owner he was not present.. He later claimed that he never agreed to a shortsale. The title company sent the title to the shortsale property by mistake while the previous owner was still occupying the property. While we were in the process of evicting the owner. He forged our signature and quit claimed the house to himself. A currency exchange operator notarized the paperwork. We were in the process of refinancing when our loan officer discovered the discrepancy.
This gentleman was in the process of obtaining a mtg on our property.
Lesson learned ( check with city to make sure none else has purchased
revenue stamps on the property after you have acquired property.
This person took us to court after the sherriff removed him & belongings frm property. The judge ordered us to pay thousands for an alleged bike
that was under a tarp in the yard. He had no receipts or evidence of a bike.
The judge also ordered that we give him the appliances out of the house. He also wanted thousands for jewelry that he said we took during the eviction. The judge threw that out because we had a report frm the police
that showed he filed a report saying the sherriff took his jewelry when they removed him frm the home. Lesson # 2 make sure that an official can be present during the entire removal of tenant. It is very difficult in our county e because you will not know the exact date or time the sherrif will arrive.
In our county the sherriff no longer removes items frm property. They post a notice of eviction. You are responsible for the removal of items .
Note: If anyone else is receiving mail at the shortsale address. They
can claim they live on the property, which means they have squatters rights.
In that case you would still have to go through eviction precedings.

It is worth it if you have the time & the PATIENCE. It helps to not low ball the offer especially if it is already a great sale price.

We bought a short sale at the end of July. It was quite the experience! We became interested in it and wrote the offer at the beginning of December '09. So, it took almost 9 months to get done. Timing was our problem. The sellers had 2 mortgages, which was our problem. We would get an approval from the first lien holder and then the day before the agreement was to die, we'd finally get approval from the 2nd lienholder. Then, we had to go back to the first for an extension to close because there wasn't enough time. This went on 3 times before we finally got it done. As it was, we didn't know we were going to close for sure until the day before we did. By that time, we had invested months of time and effort and money in inspection and appraisal. The other major problem for us was that the seller's attorney was pretty inept. They either weren't interested in really getting the deal closed or they had some other factors on the other end we were unaware of. It took forever to get them to do their jobs! The final problem was that at the last moment the 2nd lienholder decided to change their minds and not agree to the short sale. Took some last minute wrangling with the higher ups at the bank to actually get it done. Oh, also the sellers were still in the house and they didn't actually move out until the day after we closed on the house. Plus, they took 6 hours longer than we had agreed to for them to get out. But, at least the!y did get out. So, long story short, they can be a good deal. But, I would recommend trying for a short sale that only has ONE lien! The 2nd mortgage thing made it a total nightmare! Good luck!

When we started our house hunting process I seriously thought the term "short sale" meant it would be a quick process. Let me put it to you this way. We looked at our house first when our daughter was 4 months old, we moved in when she was 14 months old. There were numerous problems with the owener not submitting paperwork, and then because of the reason he was selling the bank was not sure they would approve the short sale. All sorts of problems. The last problem that popped up was that he had fines with the city over the property, which if we took ownership we would have been responsible! Arrrgggghhh. It was super frustrating. Here's the thing though, in our price range we didn't have a ton of options, there were more short sales that were decent then there were forclosures that were tore up, we put several bids out at one time just to get a foot in, and in the end it was worth it, we got our house. Thats just my experience though. Good Luck!

We bought a "short sale" home a little bit over a year ago. I wasn't really involved in the process as my agent handled all the details. It did take a long time for everything to go through. I think with a short sale they are more careful about everything and they probably are more strigent in checking your credit history etc....I think it takes longer because with a short sale you are also working with a bank and they seem to take forever to approve things. That is my experience via my agent's help.

I am not sure if this is the case in all "short sale" homes but I think you just have to be patient and don't give up during the waiting period.

Good luck and hope you find a wonderful "short sale" house soon.

I belive you need to work with a good Realtor in your area. This person needs to know how to work a short sale. It is a great deal of work for a realtor. If you trust inthem and let them do their jobs you can be succesful.

Hello - I work for real estate attorneys that specialize in short sales. I've handled files from the seller's and buyer's perspective. The number one thing we try to drill into our buyers is PATIENCE. Patience to understand this is not a regular deal, the sellers are getting nothing out of the transaction, and their cooperation level could be very small. Patience to wait to get your offer approved. Patience to consider the bank's counter offer. Then if the offer is accepted, patience to understand you now need to jump and run to get your loan approved and closed ASAP because the short-sale bank usually gives an expiration date of 30 days or less. Often you can ask the sellers to request an extension of that, but then you're again at the bank's mercy as to whether they'll agree...and they don't necessarily respond with any sense of urgency.

Be sure to use an attorney that is experienced with these transactions. I'm not trying to sell our office (but we are in the Chicagoland area...), just make sure the attorney you are dealing with knows what to do. You shouldn't invest money in the deal until the short sale's approved. After reading the comments one more thing - DO NOT CLOSE until the Seller is out. If you do need some help feel free to message me and I'll get you our contact info.

Good luck!!

We have had several short sale homes in our neighborhood over the past 3 years now. Each has had constant contracts - but not one has yet to actually close! A couple have gone to foreclosure in this time as well, and those have closed before the short sales! The banks make it difficult. Patience is key!