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what is involved in buying a short sale?

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May 04 2013 - McHenry
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First to understand how to buy a short sale let me explain what it is.  For anyone that does not understand the term "short sale" it is a home that is being offered at a fair market value and for less that the seller owes on the mortgage.  The term "short" means that the net proceeds from the sale of the house are going to fall "short" of what is owed on the mortgage.  When a home is sold that has a mortgage it is paid off during the transaction, the seller receives whatever is left after mortgage payoff, commission and escrow fees are paid and the buyer assumes a new loan to purchase the house.  In a short sale there aren't enough funds to pay the mortgage completely, but agents will earn a commission for marketing the house, securing a buyer and closing the transaction.  The transaction starts the same as any transaction would by having your agent write the offer to purchase.  The offer goes to the listing agent who presents it to their seller and the seller can either agree to the terms, counter the terms or reject the terms.  When the offer gets accepted and confirmed by both the buyer and seller an escrow can be opened. Sometimes the sellers agent will ask the buyer to put the earnest money deposit into the escrow and is fully refundable to the buyer if they decide to cancel the contract before the bank approves the short sale. So now lets talk about the bank.  After the offer has been accepted the listing agent will present a short sale package to the bank.  The process in my personal experience has taken on average 2-3 months before the bank approves the short sale.  I have heard of transactions taking longer but have not been part of one personally that has taken over 3 months. There are going to be further documents that the banks will ask the buyer and agents to sign during the short sale approval process and time is always of the essence.  It is critical to keep things moving along. I will point out that even after all the steps that I have mentioned have been taken, the short sale approval is not guaranteed.  Some things to keep in mind on a short sale property is that the owner often times has stopped making mortgage payments and or tax payments leaving the property in a position of possible foreclosure by the bank.  Most often times in my personal experience any back taxes owed come out of the bank proceeds and are not paid by the buyer.  I have experienced short sales that got approved by the bank and in the contract it as written that the close of escrow shall occur by a solid date, no contract extensions will be given. and if close of escrow does not occur by the given date the house will go into foreclosure.  Buyers, agents and sellers come out with nothing after spending months trying to complete the transaction.  Shorts sales are time consuming and in the end they benefit everyone involved.  When the bank approves the short sale the transaction is business as usual with the goal to close escrow.  I have had experiences where the bank after spending two months to get an approval countered the buyer for more money.  I have also seen a bank with backup offers aka buyers in waiting counter all buyers for a price over the original accepted offer price.  The barriers to a short sale are many.  I know agents that wont get involved in them because they require a lot of work, usually have a reduced commission and are not guaranteed to work out.  If you are interested in a short sale make sure you have an agent such as myself that has been through the scenarios that I mentioned.  They require someone who is on top of their game, who has strong follow up and knows how to see things through.  I would love to talk more about the process with anyone interested.
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May 15 2013
Patience!  You need to know that you will have to wait 30 days or more for an approval... and then you will need to act fast to close within about 30 days.
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May 15 2013
Have lots of Patience!  It can be a time consuming process and there's no guarantee the bank will accept your offer without countering higher.  I am finding that banks are countering at market value and the days of getting a "screamin' deal" are almost non-existent with short sales.

Short sales are sold as-is, so don't ask for home warranties or repairs because the bank nor the seller will be willing to pay for them.

On the other hand, short sales can be a win-win situation for buyer and seller.  The seller is avoiding foreclosure and the buyer is getting the home they want at a decent price.

Good luck!
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May 15 2013
Hardly room to really answer that question in depth here, there are books on this, and the rules change daily. Here is what I tell my clients- 1. They are not short. They can be long, unpredictable and demand a patience. 2. You need to have a flexible time line for a closing and a move. 3. You need to have rock solid financing, whether it is a loan or cash. 4. Be ready for the unexpected. Nothing is certain until you close the purchase, have the keys in your hand and walk out the door of the title company. 5. Despite the many challenges, you can find excellent values in short sale properties, and be well rewarded for all you endure to get the purchase done. 6. Work with an agent who knows the landscape of short sales. It is not something to trust to a broker who is not up to speed on the latest nuances of the market. They need resources for advice and experience to get you through the short sale process.
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May 15 2013
Short sales are as is because the seller has no money for repairs.
You submit your offer the same as a regular offer accept it not only has to be accepted by the seller but also the sellers bank.  The sellers are selling the home for less then they owe on the property so the accepted contract by the seller then has to be accepted by the sellers lender.  It can be a lengthy process and the buyer needs to be patient and be aware that after a lengthy wait for a response from the sellers bank the bank may counter your offer higher then the original accepted price.  There is nothing sure in short sales. 
All parties have to be pro-active to complete the sell.  

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May 04 2013
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What money is involved if not accepted or I decide not to wait and find something else ?
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May 04 2013
Once the seller accepts your offer the contract needs to be approved by the lien holder because the price will be less than the balance on the mortgage. The lien holder typically takes 2-5months to do their 'homework' on the seller before they are ready to make a decision as to whether or not they will acceot the contract. They might also just counter the price if they think it is too low. If the lien holder does not agree to the contract the deal is dead and you wasted lots of time and money.
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May 04 2013
When purchasing short sale the home owner is trying to sell the home for less than what is owed on the mortgage. This must be approved by the lender. All offers on the home are not just up to being accepted by the home owner but must meet the net dollar amount needed by the lender.
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May 04 2013
Very similar to a normal transaction to start
**Get pre-approved from your lender or have proof of funds (If Cash)
**get with your agent to prepare the contracts

The difference lies with attached addenda to a contract.  Also, a third party (Sellers Mortgage) will need to approve the sale.  If it's one of the big banks, they use an online system called Equator to submit all contracts.  Using an agent that is familiar with this system is to your advantage as the submitting the contract will generate "tasks" and have a limited time to complete or the transaction will go away.

Short sales can take some time since the bank must approve the sale.  I've personally had short sales that have taken 6-9 months.  If the sellers cooperate with the bank and get approved for a short sale before they start marketing the home, the process could take 60-90 days.
This is just my experiences her in Houston.  Best of Luck
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May 04 2013
 
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