Short Sale Buyers Beware
INDUSTRY NEWS, REAL ESTATE PRACTICE
October 5th, 2009
Time is running out to take advantage of the federal tax credit for first-time buyers. Buyers who are in escrow on a short sale may want to ponder their options now before the tax credit expires in November. Escrows average 45 days and can take as long as 60 days so time is of the essence. A local lender reminded agents at this week’s Shasta MLS meeting that they may want to counsel clients expecting the $8,000 federal tax credit about their options. Real estate agents should not be surprised if buyers back out of properties sold pending lender approval. These approvals take at least several weeks and can even go 6 months or longer. Buyers desirous of using the tax credit should stay away from short sale listings.
Short sales were a rarity prior to the current recession. Now they are a significant part of our business. Real estate agents are learning the process as they go. Depending on the bank involved, the amount of money the property is upside down, and the strength of the buyer’s offer, these factors can make or break a deal. Once a purchase offer is accepted by the seller, it is forwarded to the bank’s loss mitigation department. Here, a negotiator is assigned to the file and the process begins. Assuming the borrower has submitted a hardship package and the lender has given the green light to a short sale, one or more Broker Price Opinions (BPO’s) is ordered. Once these are returned, the negotiator compares the BPO values to the offer in hand. If they are reasonably close, the sale is usually approved and the escrow closing date is set.
This process sometimes gets bogged down when there is a second loan on the property or the buyer tries to negotiate repairs. If the seller is uncooperative, the short sale will come to a grinding halt. Banks typically request pay stubs and bank statements to confirm the seller really is in dire financial straits. If the seller has given up on the property, the home may be auctioned off before a short sale can be completed. Out of the more than 500 homes currently in escrow, about 150 are short sales. There is no way to tell how many of these buyers are first-time buyers counting on the tax credit. If you know someone that is, pass this information along.
Other roadblocks include lender requirements that the borrower sign a promissory note to the bank so they can try to recover some of the loss at a later date. Most sellers balk at this demand. Other times the negotiator must seek approval from the investor that purchased the loan from the originator. This process is cumbersome and slow. In some cases, the property value has fallen significantly during the lengthy short sale process. The buyer’s lender may want to have a review appraisal done to confirm the value has not dropped. If it has, the whole process starts over with new BPO’s or fee appraisals ordered by the bank. Expect a delay of several more weeks.
Buyers may want to find a home to buy that is not a short sale if they want to take advantage of the federal tax credit. Many bank repo’s and well-priced homes are available that are not subject to the frustrating short sale process.
530-941-7492 or 530-224-6767
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE SALES EXPERIENCE
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