When I published my help article on Short Sale 101 for homeowners I got lots of requests for advice people who want to buy a Glendale short sale home. But first, some basics.
What is a short sale?
A short sale means that the homeowner can’t sell the home for enough money to pay off the bank. Therefore, the bank must agree to take less money than they are owed – or foreclose on the property
Why would the bank do this?
Often, it is less expensive for the bank to accept a short sale rather than to foreclose. A foreclosure takes longer (and time is money), the property is often trashed by the departing occupant and the home is ultimately sold to a wholesale buyer at a deep discount.
That being said, it is never a sure thing for a bank to authorize a short sale. All parties involved have to convince the bank that
- The home owner will walk away an d let the bank foreclose if they don’t get short pay approval
- The prospective buyer is qualified and bone fide
- The offer is the best the bank will likely see
It often takes a bank 2-4 months to approve a short sale.
Why bother buying a short sale?
There are too few homes on the market to ignore short sales all together. The home has often been neglected or has major renovation that is incomplete. There is often, though not always, one major factor inhibiting it’s potential resale value such as small yard, poor location or hard to fix floor plan problems.
However, there are gems along the way and a smart buyer who has taken the time to learn the inventory can really scoop a deal.
How do I find a short pay property?
There is the hard way and then there is the easy way. The easy way is to find an agent who has short sale experience and ask him or her to notify you of short sales on the MLS. The more specific you are about area the better results you are likely to get from the agent.
The hard way takes a lot of time and dedication on your part, but is likely to lead to better results in the long run. There are a number of paid subscription services that will tell you what homes are in default on their payments. This means that the homeowner has missed some mortgage payments but hasn’t been foreclosed on. These homes are your prime candidates for a short sale. However, since they are not listed, you will need to do all the legwork to find out what the seller will do and to help them get qualified to get short sale approval.
Now I’ve found it, what do I do?
Get a pro to help you. The next step is not for the novice and I strongly urge you to move forward with an agent experienced with short sales or an attorney. Not all home owners are going to qualify for a short sale and you must determine, first, if the home you want is one on which the bank will negotiate.
Do the research. But, let’s assume that it is. Have your professional determine how much is owed to one or more banks. This will tell you what you can offer. For example, if there are 2 banks, you’ll probably deal with the second bank. If the first bank is owed $500,000 and the second is owed $100,000, you know the second will not approve anything under $500,000 – they will be wiped out.
Write an offer. Next you will submit a written offer. Include a strongly worded pre-approval letter from your lender and a copy of a decent earnest money deposit check. You will submit it to the seller first, to get their approval, but the real approval comes from the bank. Once the seller signs the offer have your agent submit the offer, the pre-approval letter, copy of the earnest money check and a list of comparable sales that supports your offer. Remember, the bank needs to understand that your offer is a better deal than going through a foreclosure.
Give them a deadline. If you don’t, they will linger forever. I’ve had banks take up to 8 weeks to approve a short sale and it was sheer hell on everyone. The banks seem a little smarter this time around, but I make sure that the deadline is clearly communicated and that my buyer is truly willing to walk away after the deadline. I typically give banks 2 weeks, but every situation is unique.
There you go. I never said it would be easy, but it is possible. Like any good deal, you need to do the legwork and be patient.