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What Is a Short Sale?
How Does the Bank Handle a Short Sale?
Who Can Buy a Short Sale Home?
Financing the Purchase of a Short Sale Home
Time Frames in Buying a Short Sale Home
Physical Condition of Short Sale Homes
What Is a Short Sale?
When a home owner, for whatever reason, needs to sell his or her property but owes more than it can sell for, what does the owner do? Well, there are three choices:
1. Walk away. Some owners are so emotionally distressed that they just pack up and move out. Of course, this leads to a foreclosure and the bank repossessing the home.
2. The owner can rent the house. A lot of times, this is not an option because the monthly payment on the loan is more than what the owner can rent the house for.
3. The owner can do a short sale.
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How Does the Bank Handle a Short Sale?
When a bank is contacted about the borrower (the home owner) requesting a short sale, the seller is referred to the bank's Loss Mitigation Department. This department will only consider granting a short sale if the borrower already has a contract to sell the home. The bank will require a host of documentation from the seller to consider whether or not it will grant the short sale.
Short sales can affect the seller in a variety of different ways. There are a lot of factors and questions that are involved in determining the impact on the seller. The following are only a few of the different items that the seller needs to take into account:
1. Is there more than one loan on the property?
2. Is the property seller current in the loan payments?
3. Is the property in foreclosure?
4. Will the bank forgive the debt or will the bank pursue the seller in civil court?
All of these questions and more will determine the outcome and potential impact on the seller. No two short sale situations are the same.
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Who Can Buy a Short Sale Home?
Any qualified purchaser can offer to buy a short sale home, regardless of race, color, religion, sex, national origin, handicap, or familial status. We abide by all U.S. Fair Housing standards and guidelines, as well as all state and local laws regarding discrimination.
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Financing the Purchase of a Short Sale Home
Any short sale property may be purchased for all cash or with conventional, FHA, or VA financing, subject to the lenders requirements for that type of loan. While some short sale homes are "move-in-ready," some will require repairs and may not pass an FHA or VA appraisal for condition. For details about different options for FHA and non-FHA financing, please visit our Helpful Links page for information on how to contact a local lender.
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Time Frames in Buying a Short Sale Home
There is no special contract for buying a short sale home. The Arizona Association of REALTORs, however, has designed a special addendum that members can use when negotiating in a short sale situation. Because the bank's Loss Mitigation Department will need time to review all documentation from the seller to determine if it will approve the short sale or not, there is an extra step in the time frame for buying these types of homes. Whereas a normal purchase has an average escrow time of three to five weeks, a short sale usually requires five to seven weeks for escrow. The reason for this extra time is for the bank to consider if it will grant the short sale or not.
If the buyer stipulated in their purchase agreement that inspections do not begin until the bank approves the short sale, and if the bank approves the short sale, then the buyer begins the inspections and appraisal process. If the short sale is not approved, the buyer moves on to looking for another home but has not spent any money or time doing these investigations, again if the buyer had negotiated this in their contract. Whether a short sale or not, a buyer is advised to seek council and advise from a licensed real estate agent and/or an attorney before entering into any agreement to buy or sell a property.
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Physical Condition of a Short Sale Home
The buyer of a short sale usually has ten (10) days after the approval date of the short sale to have all inspections made. The majority of short sale homes are sold "as-is" because the seller does not have any resources left to pay for repairs. This is not the case every time, however, because if there is a health or safety issue discovered, the bank may amend its short sale approval to pay a company to perform the needed correction. The reason for this is that if the bank has to foreclose and re-sell the house, it will probably have to make that correction anyways.
If there are issues the buyer wishes to have fixed and the bank and/or seller are unwilling, the buyer can still use the results from home inspections as a basis for cancelling a sale, as long as the buyer's cancellation is in accordance with the contract and the time-frames specified in that contract.
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This information is solely advisory, and should not be substituted for legal or other professional advice. Any and all contract decisions and actions should be made with the advice and counsel of a qualified licensed real estate agent and/or attorney.