Short Sales…continued

3. What are some typical reasons for a Short Sale?

A short occurs because a seller needs to sell their home, but owes more on their home than they can repay. This typically happens in a depressed market where home values have dipped below what the homeowner paid for the home. Reasons for selling are varied, but the most common are as follows:

1. The homeowner can no longer afford the monthly loan payment(s). The usual reason for this is that they have a loan with adjustable rates that adjusts higher than their ability to pay.
2. Loss of income, either through the loss of a job, medical hardship, loss of benefits, pregnancy, etc.
3. Job transfer out of the area.
4. Divorce.

4. What are potential problems with a Short Sale?

1. Lenders typically do not have a department set up to handle short sales. Therefore, you will need to deal with the person(s) working for the lender who currently oversees the loan. They are very difficult to contact, typically do not have email and are notorious for not returning calls.
2. Lenders typically do not want to do a short sale. They want to renegotiate the loan(s) to try to mitigate their loss. As a result, the process is slowed down tremendously.
3. In some situations, a short sale will not be allowed by the lender. If a lender feels that the seller’s circumstances do not warrant a short sale, or if they do not agree that the seller is undergoing a substantial financial hardship, they will not cooperate. A seller is not allowed to sell just because they feel like it. There must be a compelling reason with which the bank agrees, such as a verified inability to continue making payments due to financial hardship (see Section 3 above).
4. Because many Realtors recognize that short sales are so difficult, they prefer not to show short sale homes to their buyers. This prompts many listing agents to lower the price of their short sale listings to artificially low levels. They hope that a low price will attract potential offers. UNFORTUNATELY, once in escrow, the lender will do a BPO (Broker’s Price Opinion) to appraise the value of the property. Once the current market value is determined, the lender will then most often renegotiate the price BACK UP to market levels. The may cause the deal to fall apart because (a) the buyer may not wish to pay the higher price OR (b) the buyer no longer qualifies to purchase the property. This can cause further delays in an already long process.
5. Due to the practice of some listing agents setting an artificially low price, some short sales can end up in multiple offer situations, with many offers submitted to the bank. The bank may choose to respond to one and not respond IN ANY WAY to the others. This can leave you hanging for a long time, not knowing if you have a deal or not.
6. Everything in a short sale will be negotiated by the lender, INCLUDING the commissions paid to the buyer’s and seller’s Realtors. Some Realtors, knowing that they may get a very low commission on a short sale, choose not to show short sale properties to their buyers.
7. A lender will most often not approve a short sale UNTIL the seller actually stops making their payments. Once payments cease, foreclosure proceedings begin. A Notice of Default (NOD) is served, and then the proceedings begin. Once proceedings begin, there is a limited time in which a short sale can actually occur before the home is foreclosed.
8. Once foreclosure proceedings begin, it is actually possible to have a short sale negated by an untimely trustee’s sale. When this happens, not only does the prospective buyer NOT get the home, a tremendous amount of time and effort has been wasted. In some cases, money has been spent on inspections, appraisals, etc. IT IS NOT POSSIBLE to get any reimbursement for any monies paid by the buyer for inspections, appraisals, etc. This is a part of the risk associated with short sales, and buyers should understand this up front.
9. The following is a foreclosure timeline that gives a ballpark idea of the amount of time a buyer may have to process a short sale. This depends, of course, on where in the process the buyer enters the picture. In addition, it depends on how many properties a lender may have in foreclosure at any given time. The more properties a lender has to process, the longer the process may take.

5. Short Sales are purchased “AS-IS”

Since the bank sets the terms for the short sale, they will not do any repairs of any kind. They will have you sign an “AS-IS” Addendum as a part of the contract. You will need to pay for any inspections required, with no guarantee that you will actually end up owning the house. This is one of the substantial risks associated with short sales.

6. Banks do not want to issue credits for closing costs

Banks want to set a price and then proceed with that price. They will not want to issue credits for non-recurring closing costs, repairs, etc.

7. Short Sales have significant tax and credit implications for the seller

This does not affect the buyer’s credit or taxes, however, it can again slow down the transaction while the sellers work out the implications with their accountants, etc.

Showing properties 1 - 5 of 7. See more Short Sales - Alameda.
(all data current as of 5/19/2012)

1. $469,000 : 3292 WASHINGTON STREET, ALAMEDA
   
   3 beds, 2 full baths

   Home size: 1,581 sq ft

   Lot size: 4,356 sqft
2. $389,000 : 61 MAITLAND DR, ALAMEDA
   
   3 beds, 1 full bath

   Home size: 998 sq ft

   Lot size: 5,500 sqft
3. $238,000 : 339 Broadway, Unit: 101, ALAMEDA
   
   2 beds, 1 full bath
4. $370,000 : 1147 Holly St, Alameda
   
   2 beds, 2 full baths

   Home size: 1,274 sq ft

   Lot size: 2,208 sqft
   
5. $450,000 : 1202 Silva Ln, ALAMEDA
   
   3 beds, 2 full, 1 part baths

   Home size: 1,622 sq ft

   Lot size: 3,049 sqft

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