The Short Sale
According to an article that appeared in Realtor Magazine several months ago, the short sale and Real Estate Owned (REO) transaction together make up 40% of all sales nationwide, and that number continues to grow. In some markets that are the hardest hit, the percentage is considerably higher. With the high foreclosure rate, lenders are becoming more willing to approve a short sale. The borrower has to be in arrears on their mortgage payments, and have a genuine, documentable hardship that will probably lead to a foreclosure. The documentation for the file may vary a bit, but the process is basically the same for all lenders.

Realtor Magazine also reported that lenders had recently been approving only 40% of short sales. Lenders however, are now becoming more receptive to the short sale, and have improved their ability to process these transactions. The end result is that the approval rate for short sales is increasing. To further stimulate this market, the Treasury Department has provided financial incentives to the servicing lender, to the seller and to secondary mortgage lenders that approve short sales. The Treasury Department's involvement will serve to make these transactions more main stream, and the approval rate should continue to increase. The seller can collect $1,500 for relocation and moving expenses with a short sale. This could provide additional impetus for the sellers to engage in a short sale rather than face foreclosure.

With a short sale, the lender collects less than the outstanding mortgage balance. The deficiency on the loan balance is either written off or the lender takes a promissory note from the defaulting party. The cumulative cost of a foreclosure including legal fees, repairs and other hard costs can make it more expensive and time consuming for the lender than a short sale. By the time the property gets back onto the market after a foreclosure, the lender may realize no more from an REO sale than from a short sale, and the transaction can be completed less expensively than with a foreclosure. A short sale presents its own challenges, but it can be one of the best home buys in America today. This is not a transaction that you want to attempt alone. You need pros on your team.

What then should a prospective short sale buyer anticipate, and how can they better prepare themselves? What is the profile for the short sale? The more you understand and the better prepared you are, the easier the process and the better the outcome. Some of the information in this section is also contained elsewhere in this book. It is presented here again for the reader that is only interested in this section.

Five Steps to a Short Sale
1. Be prepared for the process. Patience and diligence will be your allies and impatience can be your nemesis. Understanding the process will help you through it. The lender will not be rushed. Your experienced buyer's agent will know how to manage the offer and the correct parties to work through.

2. If you are not submitting a cash offer, ask your real estate agent about financing options. The lender may be in a position to permit a loan assumption and modification for a qualified new purchaser, or they may be able to offer new mortgage financing. The more steps that you have completed when you submit an offer, the better chance you will have of a quicker approval. Have your lender's loan application, information and requirements prepared. The lender will provide you with a package with their forms and requirements. Rely on your buyer's agent to assist you. There will be a substantial down payment required to have your Agreement approved. Other than for property inspections, there should be no contingencies in your offer. If you have to sell an existing home first, it is unlikely that a short sale will be approved by the lender. Line up your ducks. The more steps you have completed, the easier the process and the approval. Quick and clean will get you to your closing. You would be surprised at how many things don't end up in the right hands when they float in one at a time. The fewer times that the file has to be handled and the more complete the documentation from the beginning of the process, the better the result.

3. The lender will most likely want the property sold "as is." They will not be motivated to deal with complexities in the contract, particularly since they are selling at a distressed price. These require too many decision points and details that can hang up the approval. (Caveat Emptor) Buyer Beware: it is important to protect yourself. Have the property inspected. All the home's key systems should be checked out. Structural, plumbing, electrical, heating and air conditioning, fire place, swimming pool and equipment, roof and mechanical should be checked. If you are buying "as is," the risks assumed will be yours. If you have any concern, be sure that the home is checked for pest infestation, hazards such as, asbestos (if the home was built prior to '85), lead paint (if built prior to '78), and radon gas, particularly if it has a basement. If you have reason to believe that the area may be in a flood zone or known hazardous or toxic waste area, have it checked out. The title commitment will indicate if the property is in a flood zone. If you have concerns discuss them with your agent. A short sale is like any other real estate purchase, surprises after the closing are avoidable. Most of these items should be covered in the standard local board of realtor purchase offer Agreement. It they have to contend with a lot of complexity, they will probably just as soon that the property proceed to foreclosure where they have a process established.

4. Make sure that a legitimate hardship exists on the part of the seller. Don't waste your time with a seller that is testing the water. The lender won't approve a short sale unless a legitimate financial hardship exists. To qualify, the seller must be behind in their mortgage payments and unable to make future ones. In other words, if the lender does not approve the short sale, they are foreclosure bound. The lender is doing whatever they can to recover as much of the outstanding loan balance as possible; however, they need approval from the investor that owns the loan and any inferior lien holders before they can proceed.

5. Be prepared for the lender to alter or change your Agreement. The lender may want some of the terms of your Agreement changed, so the more straightforward and direct the offer, the less change you will likely encounter. Everyone wants a desirable outcome - the buyer released from the mortgage, the lender wants a solid performing loan, and the buyer wants the home at a less than comparable market price. Your buyer's agent will be able to advise and negotiate, if necessary, for you. ezinearticles