What is a Short Sale?

 


What is a Short Sale? A short sale is a transaction in which a lender allows the Home securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan. This is generally the result of the borrower's inability to make the mortgage payments and/or a home value which is currently less than the total amount owed on the mortgage(s).

Typically, a lender will not consider a short sale unless the borrower has stopped making payments on their loan and has in hand an actual offer to purchase the subject property.

Why Are Some Short Sale Listings Priced So Low?  When you see a short sale listing far below other homes in the area it is usually because the lender has not yet agreed to accept a short payoff. A lot of lenders will not even negotiate on as short sale until there is an offer on the property. The listing or selling agent will price the home lower and lower, just to get an offer that they can bring to the lender.  Rarely will the lender agree to these offers.The biggest obstacle is when there are more than one lenders involved. In lot of these short pay situations the borrower (home owner) has taken out an additional loan on the home.In this case it is very difficult to get the lender in second position to let the borrower walk away from their obligation because there is usually nothing left to pay them after the primary loan is paid off.

This is why you will see "Subject to Lender Approval"

How Do I Buy a Short Sale Listing? Typically on a short sale listing you will see that the listing agent has added the now required disclaimer that the sale of the property is contingent and "Subject to Lender Approval". The first thing that you do when buying a short sale listing is to make an offer to the seller.Once buyer and seller have agreed on a price, an escrow account is opened, and it is then sent to the lender to approve the short sale. This can sometimes take up to 3 months to get a response. You will need to be very patient in dealing with a short pay situation.  It is also wise to have your real estate agent (hopefully Us) check out the current loan situation on the property.  If there is only one lender on the property, your chances of actually buying a short sale will be better.

Neil and Claudia's
Typical Short Sale Listing Example "A"
(Might Have a Chance of Working)

Asking Price of Home For Sale

$500,000

Amount Owed on Home

$625,000

Current Market Value

$585,000

   In example "A" you see a typical short sale scenario.  The listing agent has priced the home way below comps in the area at $500,000.  The seller currently owes the lender $625,000.  The other homes in the area of similar size and condition are selling for $585,000.  Now, lets say that the listing agent gets an offer for $500,000...The seller accepts, and escrow is opened. The listing agent now has to go to the lender and present this ridiculous offer, and explain why they should accept this short payoff of $500,000 (minus commissions) on a loan of $625,000, when the market value of the home is currently $585,000. This is not an easy sell as you can imagine.  Most likely if the lender is willing to agree to a short payoff at all at this point, they will suggest a counter offer much closer to current market value. 

Now...here is what actually happens...The buyer thinking they could actually buy the home for the $500,000 asking price is disappointed and not willing to listen to the counter offer even though it probably is a great offer...The listing agent is happy, because they now know what the lender is willing to accept...and the seller is still in a very bad situation.

Neil and Claudia's Moral of this story...If you are going to look at short sales...make sure that they are within reason, and even better yet, find out if the lender is on board with the proposed offering.

We will be happy to do all of the legwork
and investigative work for you, just give us a call.


Neil Singerman Claudia Hansen
CalBRE 01097970  CalBRE 01155245
(310) 571-5470

Neil and Claudia’s
Typical Short Sale Listing Example "B"
(No Chance of Working)

Asking Price of Home For Sale

$500,000

Amount Owed on Home

$725,000*

*Seller Owes Lender A

$600,000

*Seller Owes Lender B

$125,000

Current Market Value

$585,000

In example "B" you see a typical short sale scenario that will not work.  The listing agent has priced the home way below comps in the area at $500,000.  The seller currently owes two different lenders a total of $725,000.  The other homes in the area of similar size and condition are selling for $585,000.  Now, lets say that the listing agent gets an offer for $500,000...The seller accepts, and escrow is opened. The listing agent now has to go to lender "A" and Lender "B"  and present this ridiculous offer, and explain why they should accept this short payoff of $500,000 (minus commissions) on a loan of $725,000, when the market value of the home is currently $585,000. This is not an easy sell as you can imagine.  Lender "A" and Lender "B" most both agree to release the seller from their loan obligation.  Even if Lender "A" is ok with accepting less than the $600,000 that they are owed, with Lender "B" getting nothing on the sale of the property it is highly unlikely that they are willing to play along.

Neil and Claudia's Moral of this story...If you are going to look at short sales...make sure that they are within reason, and even better yet, find out if the lender is on board with the proposed offering.

We will be happy to do all of the legwork
and investigative work for you, just give us a call.


Neil Singerman Claudia Hansen

CalBRE 01097970  CalBRE 01155245
(310) 571-5470

 

If you have further questions about short pays, short sales, foreclosure, or if we may help you in any way, please call us.  We are always happy to help you.
Neil Singerman and Claudia Hansen
at 310-571-5470.

 

 Sherman Oaks Short Sales and Homes For sale in Sherman Oaks, CA.  Tarzana Homes for Sale and Short Sales in Tarzana.

 
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