Short Sales: Worth it or waste of time?
Picture this: A newly hired short sale processor making $10 an hour, sitting in his cubicle with files stacked to the ceiling, the phone ringing incessantly and the fax machine pouring out sheet after sheet of paper all day long. He is so indundated that it's all he can do just to upload one complete file into the bank's computer system.
Such is the life of a short sale processor at most of the large banks these days, with hundreds of new files assigned to each processor each month, waiting to be shuffled down the line to an actual decision maker.
For those not in the know, a short sale (which some argue should be called a "long sale" due to the months of waiting) gets its name from the process in which the property owner's lender will allow the property to change hands "short" of what is owed on the mortgage. They allow this in order to avoid foreclosing on a home and then having to own it, maintain it and sell it.
This process might sound like a logical and easy way to get a great deal for the buyer and to save the homeowner from foreclosure. After all, the bank is desperate and highly motivated right? Not necessarily.
A Businessweek article describes short sales as a "fraying lifeline" for homeowners, as the banks pull back approvals and require sellers to hold deficiency notes. (Read the full article)
When banks needed liquidity more than they do now, they were more willing to approve a short sale relatively quickly and without penalty to the seller. Now that they are more stable, they are going after their losses, and some would say rightfully so. They also now have strict guidelines for sale price, usually requiring 90% of fair market value. The days of getting a "steal" on a short sale might be long gone.
On top of the new requirements, the process can be excruciatingly long. According to real estate attorney Lisa Strauss, who has closed over 100 short sales with Patch Reef Title in Jupiter, Florida, the banks have a record number of short sale applications coming through the lines. What used to take 60-90 days is now taking 6 to 9 months. If there are two loans on the property, the process can take even longer.
Here's the kicker: you can wait a year to hear a NO. Banks are in no way obligated to approve a short sale.
As of October 2009 in Palm Beach County, Florida, there were over 3,000 short sales marked Contingent in the Mulitple Listing Service. In most cases, this means there is an offer submitted to the bank for approval and are at various stages of the process, from being approved and ready to close, to floating around in bank outerspace never to be seen again.
So buyers and sellers of short sales, be prepared to be patient...very patient. And although you can usually pick up a property slightly below market value, the days of low balling banks is coming to an end. A short sale takes patience and diligence from all parties, as well as an attorney or real estate agent who knows the intricate ins and outs of naviagting the banks' systems.
So are short sales worth it? For distressed sellers - look into it if you want to avoid foreclosure. For buyers - I hope you really love that house.