Short Sales, the Short and Long of it

In the last 5 years people have thought Short Sales were the best way to find bargain real estate. Agents took classes to become “Short Sale” specialists; classes for investors could be found on every street corner or real estate website. So, are short sales really all that great?

A Short Sale is defined as: “A sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan and costs of selling. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.”(Wikipedia)

No doubt there can be some good deals found through the short sale process, but as the buyer/investor you need to know what you are in for.

Here are just a couple of stories that give you a glimpse at the negative side of a short sale.

“I will never ever go through a short sale nightmare again in my lifetime,” said buyer Lynn B. Her dream short-sale fell through when the seller cancelled without telling anybody; they refused to move out and wouldn’t even come to the door. This, after Lynn, with all her belongings in a trailer, traveled 1000 miles for her final inspection and move in. She, of course, had some legal recourse but who knows how long that could take.

Christine tells how “my broker negotiated with the bank and owner for 5.5 months. The stress on both of us was incredible, the deal fell through. The idea of starting that process all over again is unbearable.”

What are some of the things to look out for if you are going to continue down the short sale road?

1. Understand that short sales are often priced ridiculously low. Banks aren’t going to accept an offer at the asking price or lower. They are priced that low for a couple of reasons: 1) so the listing will receive multiple offers 2) To get the property into escrow to stop and/or postpone the trustee sale. 

1. Ask how many loans are recorded on the property. A second or third mortgage lender will receive peanuts as compared to the first. These other mortgagors can really stall the process. 

1. A completed and complete short sale package is one of the big keys to a successful closing.

Short Sales are not for the faint of heart as you can see. So, what are some other options for finding good deals?

In our classes, I teach ways of finding “off market” properties. These give the investor the advantage of getting to a property before the competition and buying directly from the seller. There is more of an opportunity for a good deal and less of an opportunity for the deal to go south.

As Always, I welcome your questions and observations.

Learn to Trade Now