What is a Short Sale? How do I buy a Short Sale?
When shopping for a home in this current real estate market you may notice that certain listings are labeled as “short sales” or “pre-foreclosures.”
A Short Sale is when a homeowner sells a home for less money than is actually owed on the mortgage(s). This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the mortgage balance to allow the sale. If the sale is approved, the mortgage lender(s) will actually take a loss on the mortgage. If a lender approves the discount of a mortgage, the home can be sold for a price lower than the amount owed without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.
The Process of Buying a Short Sale
1. Hire a Realtor Experienced in Short Sales
Short sales are more complicated than traditional sales and there are many legal implications involved. It is imperative to be represented by an agent who is familiar with the in’s and out’s of the Short Sale process. Suzanne Watts and her team of professionals have successfully facilitated over 100 short sales and will protect your interest as the buyer.
2. Get Preapproved for a Loan
When looking to purchase a Short Sale, preapproval is mandatory. You must submit a Loan Status Report (LSR) with your offer to the seller and to their lender(s) stating that you were able to obtain financing, for what amount, the type of loan, and describing some of the terms.
3. Make an Offer
When you have identified the home you want to buy, Suzanne Watts and her team will quickly prepare a written offer.
In a short sale you will also need to submit a Short Sale Addendum to the Purchase Contract along with your LSR. The Short Sale Addendum states that the contract is contingent upon lender approval and it addresses the time periods, the earnest and escrow money, and other terms and conditions of the short sale.
Your offer will first be submitted to the homeowner, the seller. If the homeowner accepts your offer and signs it, the fully executed Purchase Contract will then be submitted to the lender(s) for approval. Along with the Purchase Contract the seller will submit their financial information, their hardship letter, and other documents as part of the short sale packet.
Sometimes in a Short Sale scenario the buyer will deposit earnest money that will be non-refundable for 60 or 90 days, whichever is stated in the Short Sale Addendum, while the seller waits for approval from their lender(s). If approval is not received within that amount of time the earnest money becomes refundable.
4. Short Sale Approval
Once the lender(s) has the completed Short Sale Packet they will assign the case to a negotiator. This negotiator will review the paperwork and order a Broker’s Price Option (BPO) to determine the price the lender will accept on the property. This process usually take anywhere from 60 to 90 days depending on the lender.
The lender is able to counter your offer and negotiate the terms of the Short Sale with the seller. When the lender approves the Short Sale they will issue an approval letter. When you, the buyer, receive this letter – or notice that the letter was received - then traditional escrow begins. See Short Sale Timeline
5. Close on the Property – Get your new Home!
If you have the time, patience, and will to see it through, purchasing a Short Sale can be a great opportunity. Suzanne Watts and her team of professionals will be there to walk you through every step of the process and represent your interest as the buyer.
