A Short Sale is one of many remedies for a homeowner in foreclosure. When a home owner is in foreclosure, one option is to sell the house to get out of the debt. But if the owner owes more money to the bank than what the house is worth or could sell for, then a process called a Short Sale is attempted. The owner (really their lawyer or agent) will try to get the bank to accept less than what is owed, coming up “short” of what is owed, hence a “short sale”. Banks are will to take less because they know that it will probably cost them more in the long run to take the house back and then put it up for sale again. Some people like short sales because you can get a great deal, and other people hate them because dealing with banks can be a nightmare. Each situation is different with each house. The biggest complaint is that they take a long time to complete. Sometimes 2-3 times longer than a regular sale. But again, some have closed really quick. It depends on the bank and how motivated they are to wash their hands of the property. Another issue is when you make an offer. In the past and still today, when a buyer makes an offer on a property in foreclosure, it is the bank who will make the final decision as to whether or not your offer is accepted even though the owner still holds the deed. This is because the bank will be accepted less money than what is owed to them. Now here is the tricky part. Most banks won’t give you an answer to your offer until you have signed contracts in full with the deed holder (owner). What this means is that you are locked into a property (your down payment, namely) before you even know if your offer is accepted, rejected or countered. For some people that is fine because they might be getting such a good deal. But for other people it is an inconvenience because the banks are notorious for take their sweet time to give an answer on an offer. If you had $10,000 tied up in a contract, waiting for an answer from the bank, (which in my experience, has taken up to 1 to 2 months), and while you are waiting for an answer, you find your dream house that is not in foreclosure. Only you can’t move ahead on it as fast as you would like to because your down payment is tied up on the first house. It will take some fancy footwork from your lawyer to get your money back, hopefully before someone else bids on the new house and gets it before you. Now some banks are getting better at this process. Some will give answers back on offers without going to contract, in as little as a few days. I have also negotiated with a bank through an online system where I received answers back within 24 hours. Each situation will be different depending on who the bank is.
I hope I have not turned you away from making offers on short sale foreclosures. They are a major part of the real estate business now and great deals can be had. If you have any other questions, please give me a call or make a comment.