I am Buying a Short Sale Property – Why is it taking so long?
You have found your new home and it is on the market as a short sale. Short sales are most often priced below market value and can be a good buy. You make your offer, the seller accepts your offer and you think all is good. But is it? You will now have to sit back and wait.
“What am I waiting for?” you say. The seller agreed to the price so why must I wait? You must wait because even though the seller has agreed to your price, it may be the only offer the seller has received, the sellers lender must decide if the price you are willing to pay is acceptable to the investors that own the loan on the property.
Let me start by defining what a short sale is….. a short sale is a sale of the property in which the proceeds of the transaction are insufficient to pay off the debt of the borrower. The creditor/lender must agree to accept less than what is owed and release the lien on the property for the short sale to go through. In some cases the creditor may accept the short payoff as full satisfaction of the debt, but this is not always the case. They may ask the seller to sign a promissory note to pay off all or part of the deficiency after the transfer. The promissory note is not attached to the property so it does not put a lien on the property for the new owner. The seller has the right to agree or not agree to this demand, and this may affect the outcome of the deal.
You ask “How long is that going to take? and doesn’t the lender want to get rid of the property?” “if the lender does not accept my offer won’t they wind up with the property in the end through a foreclosure?” “The lender does not want to be a property owner or do they?” The answer to these questions is “it depends.”
The length of time that the answer from the lender will take will have a lot to do with the diligence of the person who is handling the short sale on the sellers side. It may be an attorney, a third party, or even the listing agent/broker for the seller. No matter who it is, it needs to be someone with the time to put into the tasks needed to get the response from the lender. There is a myriad of paperwork pertaining to the seller and their financial situation that needs to be provided to the lender in order for a decision to be made. Most lenders adhere to strict guidelines for submission of the documents, and not receiving documentation timely can set the process back weeks.
From time to time, a lender may request additional information from the buyer. Make sure that you provide that information as soon as possible. A delay on the buyers side can also set back the file.
There are certain types of loans that have been mandated to respond in a certain timeframe. The clock for the response time will not start until a complete file is received. The response, once received may come in the form of an acceptance, a denial or a counteroffer. If accepted, you will be on your way to a closing. If denied, you can reoffer or just go find another property. The reason for denial may play a role in whether or not you try again. If you reoffer, the clock starts over. If you receive a counter offer then the file is still open and you can try to negotiate with the lender. Providing support for your price can help in getting the lender to agree.
In an ideal world, the lender will receive the offer and all supporting paperwork timely, a response will be provided in 30 days or less and the buyer will close within 60 days of an agreed upon price. How often does that happen? More often than you think. We only hear the “horror” stories about how a buyer waited six months or more for a response and then the offer was denied.
If you are buying a short sale, do your homework. Find out how much experience the person on the seller’s side has in short sale negotiation. Try to find out how cooperative the seller is with their representative. Find out where the seller is in the process of the short sale. Has the seller started providing documents to the lender? Is there a pre-approved (not really approved) short sale price? Pre-approved does not guarantee approval but chances are increased.
Don’t make a crazy “low-ball” offer as the lender will do an appraisal, so they know what the value is. Do provide as much back-up for your price as you can. Expect that the decision is going to take time. Remember that a previously approved deal has no bearing on your offer or timing of an approval as each offer is looked at individually. Finally, hold on to your seat as you may be in for a long ride! The wait may be worth it!