Process of Buying A Short Sale Home

If you are looking for a home these days, you probably better brush up on the process of buying a short sale home.  If you look on the available homes in your local MLS, you will probably find that many of them are listed as a short sale.  (Short Sale is when the owner is selling it for less than what is owed to the bank or banks.)

Lets talk about the process a bit.

First, the home is usually in default or in position to be in default.  Usually called a pre-foreclosure property.  If the sellers don’t see a way to keep the home or get their loan modified, they can list the home with a local real estate agent to see if they can sell it.  With the downturn in the real estate market, many sellers can’t sell their homes for what is owed on the home or more, so they have to sell it as a “short sale”.

Second, the real estate agent lists the home and discloses to the public or to the agents that the home is a short sale listing.  They usually price them fairly agressive on the MLS to get looks and eventually offers.

Third, home buyers look at the home just like a typical home.

Fourth, the sellers receive and offer and typically will sign it unless they feel the offer is way too low and the bank won’t accept the offer.

Fifth, the listing agent will compile a short sale package which includes the signed offer, seller financial statements, bank authorization letters, the listing agreement, and more to the bank in 1st position and to the bank in 2nd postition on the home if applicable.

Sixth, once the complete package is submitted to the lender or lenders, it is a waiting game in most cases.  The banks must calculate their proceeds of the short sale vs the proceeds if they have to foreclose on the home.  Keep in mind that they have to work with the 2nd lien holder and mortgage insurance as well to get approval.  Some of the large banks are taking up to 4 months for this process.  It is a real stressful time if you are a buyer putting your search on hold waiting for an answer from the bank.

Seventh, the bank either approves, rejects, or counters the offer.   If there is acceptance of the short sale offer, you should expect to close within 30 days from the acceptance.

The banks and the US government are working to streamline short sales this year so that these homes can be purchased faster and in turn help the economy get a jump start.  We will see what happens.

I personally try to find my buyer clients REO properties instead of short sales upfront to help lessen the stress.