We have been closing a lot of purchase loans on short sale properties. Although the news is reporting 35% of all San Diego listings are short sales and REOs (bank owned properties/foreclosures), it seems like a far greater percentage than that. The process in purchasing a short sale has improved greatly in comparison to even just a year ago. The banks are being incentivised by the government to work with borrowers on selling their home and many lenders have streamlined the process. This is not meant to make you believe a short sale purchase is suddenly a smooth and easy process, I am just stating that improvements have been made and it is rare, rather than the norm, for the process to drag out for 6 months or longer. The improvements can be attributed to several factors, primarily it is because listing agents have a much better grasp on how to speed up the process. If you are considering purchasing a short sale, please make sure your realtor asks the listing agent what groundwork they have done with the lender(s)/seller so you have a good expectation of the time it may take to get an accepted offer and close.
Some questions that need to be asked include:
1: How many liens are on the property?
-if there is more than one lender on title, you may get an accepted offer from the lender in 1st position and still need a month or two to get an accepted offer from the lender in 2nd position.
2: Has the seller been pre-approved for a short sale?
-unfortunately there are still listing agents putting short sales on the MLS without submitting the seller's approval documentation. Most good agents won't do this, but you should ask and be prepared for a long process if they have not.
3: Is the property vacant, owner-occupied, or tenant occupied?
-a good indicator that a seller is motivated is if they have already moved. Many seller's are listing their homes to avoid foreclosure but hoping the lender will approve a loan modification instead. It is not unacceptable to ask what the seller's moving plans are to get a better idea of how motivated they are. If the house is full of boxed up items and they have a rental truck coming at the end of the month, they are motivated. If it looks like business as usual, they may not be. If the house is tenant occupied there may be legal complications with an eviction. Your realtor should contact the tenants and ask what their plans are for moving. Hopefully they won't get a blank stare and ask why they would be moving.
4: What type of financing will the lender accept?
-Unfortunately this can be a tough question to get a straight answer. In most cases the seller (the bank) will not care how you are getting financed, as long as you are approved. Often, the listing agent is the one who is trying to avoid FHA, VA, DAP, or HomePossible financing because they are afraid the escrow will take too long or the property will not appraise. Be sure to have a pre-approval before you make an offer and if the listing agent is not accepting your type of financing, find out wny. We can fund FHA and VA loans almost as fast as conventional.
5: If you are purchasing a condo, ask the listing agent to provide a Condo Cert.
-Condos are heavily scrutinized for owner-occupancy and HOA delinquency and there are restrictions on the number of units financed through FHA as well as the number of units owned by one party. With a Condo Cert we can easily identify potential problems before escrow begins, rather than getting a week or two into the process before red flags start flying. Seasoned listing agents will see the benefit and readily provide a condo cert. Remember, they don't want to start an escrow that isn't going to close either.
Avoiding short sale listings altogether is not the best way to handle the current real estate market, being prepared and asking the right questions is. If you want more advice or greater detail on my specific experiences please do not hesitate to give me a call.
Mark Chrisman
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