Short Sale = Long Wait Time
I currently have clients who have been waiting for an answer on their offer on a short sale property here in San Luis Obispo. They've been waiting a long time now; over two months. Two months. Long time to wait for a buyer. Especially a first time home buyer.
That's the thing about short sales for the buyer. They take a long time. No matter how I caution the buyer about how long the process takes for their offer to be accepted, or even acknowledged, they get sick of waiting and I don't blame them. Typically they tell me to threaten the lender that if we don't get a response, they'll pull their offer. Lenders do not care about this. They'll just wait for the next offer. Or foreclose. Whatever. Anyway, that's how they seem.
When selling your property for less than what is owed on it (definition of a short sale) and your lender is open to the idea of debt forgiveness for the balance of what is owed, there are lots of documents that need to be prepared and packaged for your lender. The lender wants to see some form of hardship and inability to make the payments on the loan. So, typically the lender will want a package of documents from the seller that includes:
Once an offer is accepted by the seller, typically the offer is bundled up with the borrowers hardship package and faxed to the Loss Mitigation Department. By the way, every page of the package has to have loan numbers printed on the top. After faxing the package, which can be an inch thick, the first period of waiting begins. Wait for the fax to get into their system. Typically, this is three days. I have called after this three days, only to be told that the fax was never received. So, I do it again. And possibly again. Yes, I've had to fax the package several times! I finally got it through along with a FED EX copy, because I just could not stand it any longer!
Next, we wait to be assigned to a negotiator. This takes at least 30 days, even though they will claim it will take 14 to 21 days. Then when the negotiator gets the package, I am told he'll have an answer in about two weeks. So, we're at 2 months wait time so far. I usually cannot contact the negotiator directly. The gate keeper (phone operator) just sends an email at my request, or just notates the file when I've called to see what's going on with the file. The buyers are usually fairly frantic at this point. I am just praying that their agent has cautioned them about the waiting and that they'll hang in there and that they won't go on to find something else that isn't such a pain to buy.
Eventually, we either get acceptance or the potential buyer receives a counter offer. Hopefully we will work out the counter offer and proceed with escrow. Normally the lender will not pay for any repairs to the property. So, the seller disclosures and the home inspections are VERY important. I would not let a short sale property close escrow without a home warranty either, by the way. That way, the buyer will have some warranty protection for all those little repair problems after the close.
But there are two real kickers for the seller when a short sale is involved. They are called Promissory Notes and Deficiency Judgments. Sometimes the lender will not close the escrow without the borrower accepting a promissory note (another loan), or without the lender reserving the right to come after the borrower at a later time for the difference. Yikes! As a seller, just when you think this will be behind you, they can come back after you for money. Maybe not tomorrow, but they can someday.
Finally, the other caution is that unless you are short selling your primary residence, the amount of debt forgiveness will be reported to the IRS and you will receive a 1099 form, and pay taxes on the amount.
Another caution is that if there is a second mortgage on the property, the holders of the second must go along with the short sale. Normally, they get very very little from the short sale. Sometimes they agree and some times they just won't play ball. I have seen deals just fall apart after all the waiting. Sad.
Short sales can result in great deals on property, but both the seller and the buyer have to be ready for a serious waiting game.