A short sale can occur prior to an actual foreclosure if the bank agrees to sell the property and receive less than what it is owed. The homeowner still holds the title and is the technical owner, however all communication must go through the bank for approval. This process makes a lot of sense if the net proceeds from a short sale are greater than what might be received from a full blown foreclosure. The foreclosure process takes more time and involves several months of lost interest, followed by the costs of attorneys, real estate brokers, and holding costs until the property is actually sold. This strategy has become popular with the onset of the 2007-08 mortgage crisis, although it has been used for years.
The Big Drawback
A major liability of this process is the response time for the bank to answer an offer to purchase. Currently, an answer from the bank takes one to three months, and there is a lot of inherent uncertainty. Most buyers find this waiting game hard to stomach. Yes, a good deal can be obtained through a short sale, but the purchaser needs to be very patient. Today February 3rd, 2009, legislation is being considered which would greatly shorten the time a short sale response takes and would help to facilitate short sales in order to keep more homes from going into foreclosures. We will keep you updated on this legislation as it happens.
Why the Big Delay?
In an environment where a lot of properties are in distress and headed toward foreclosure, the banks loss mitigators who are responsible for processing these accounts become overwhelmed. Plus, the amount of paperwork needed to prepare for and submit a short sale is complex. Many times the seller has not produced all the required documentation to even begin the process. After an offer is presented, a rigidly structured short sale package must be delivered to the loss mitigation. Often this package does not have exactly what the loss mitigation is looking for and it goes back to the bottom of the pile without any correspondence as to what it was missing.
Conclusion
So while the short sale makes sense in creating a win-win for bank and owner, there are many hurdles to overcome in order to make the process succeed. It can be a win for the buyer too, but the uncertainty can be frustrating and often another property comes along that seems more appealing. Because of the deluge of upcoming distressed properties, short sales may become more preferred, but banks will need to make the process more streamlined and friendly if it is to succeed.
.jpg)
