|Pre-Foreclosure Short Sales
By Alex Baglioni, Certified Distressed Property Expert (C.D.P.E.)
What is a Short Sale?
A short sale is when a bank or mortgage lender agrees to discount a loan balance on a home due
to an economic or financial hardship on the part of the owner. The homeowner sells the property
for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the
lender in full satisfaction of the debt. In such instances, the lender would have the right to approve
or disapprove of a proposed sale.
How does it work?
The seller will hire an agent, and the agent will put the property on the market. Because the lengthy
process, agents often feel the need to substantially discount the price to be able to attract a buyer
willing to wait for the house. The asking price is an arbitrary price set by the listing agent, no the
bank, and is below what the owner owes.
The bank starts the short sale process once there is an offer on the table. The bank will order a
Broker Price Opinion a.k.a. "B.P.O." The BPO report will estimate market value. And the loss
mitigator, if everything else is in place, will approve the sale at market value.
Short sale lenght has improved substantially over the past few years. What it used to be around a
year wait, has been reduced to an average of six months. The shortest time I have seen an
"un-approved" short sale go through has been three months, and the longest 1 1/2 year.
The biggest challenge with "un-approved" short sales from a buyer point of view, is the "approved"
price. If the price was artificially discounted, the BPO will come at market value. This is when buyer's
get very disappointed. They had been waiting for a very long time, and now the price is $20,000.00
to $50,0000.00 higher than the agreed price. There is nothing they can do, and 56% of the time,
the buyer walks away.
Now that property becomes an "approved" short sale. But approved for the previous buyer that has
walked away. So the approval process has to start again now with your name in it. It is substantially
shorter time, and the price is approved. Much better than the previous scenario, and the time frame
to close is usually two to five months.
Here are my thoughts about short sales from a buyer's point of view:
I consider "un-approved" short sales a waste of time for the buyer, the main reason being the price.
If I was buying a home, I would not look into them. Approved short sales are ok, as long as you do
have time, nothing to lose, and patience with the overall experience. You can not have the need to
close by certain time, and it is not a gratifying experience.
I usually ask my clients after we have closed on the home if, knowing what they know now, they
would buy a short sale again. More than half say no.