What are short sales? How does it work?

Short sales or short pays are transactions in which the banks are selling the properties for less than the owners' loan amounts, ie selling them short. They do not mean the transaction time will be short. In fact short sales typically take a much longer time than normal sales, about 3-6 months before you hear back from the bank. Given that said, the banks are finally getting a little better with these transactions, and we have seen short sales close in 2 months.

If you want to sell your house in a short sale

You should have a genuine hardship such as divorce, job loss or death that would make you unable to pay for your mortgage. You do not short sale simply because your house is now only worth 1/3 of what you paid for 3 years ago. You need to qualify for short sales.

The short sale process doesn't start until you receive an offer from some buyer. After you have an offer, your real estate agent will put together a package to be sent to the bank, explaining why you have no choice but to sell the property. This package typically contains:

• a letter explaining your financial situation and hardship
• last 2 years of tax return
• evidence of unemployment or latest paystubs
• letter authorizing real estate agent to be your negotiator with the bank
• financial statements

Be sure to send in a complete package, because any missing document will slow down the process even further. Negotiation begins when the lender eventually assigns a negotiator to your file.

When the short sale is finally approved, the buyers made the offer 5 months ago might have walked away. In the meantime, you should continue to make payments so your property won't be foreclosed on.

Short sales will hurt your credit for about 12 months, as opposed to a foreclosure which will hurt for 3-4 years. By being hurt I mean you won't be able to get up and buy another property.

If you want to purchase a short sale property

You will submit a normal offer in standard CAR forms, but be prepared that it will take 3-6 months before you hear from the lender, although we have seen it improved recently.

In most cases the lender will not agree to repair requests. You might be able to negotiate to get some credits if the inspections are really bad.

Be prepared to submit your highest and best offer when the short sale is approved, if you are still interested.

If your offer is the lucky one to be accepted by the bank, you might have shorter contingency period to perform (the standard is 17 days, but the bank might only give you 7 or 10). So be sure to act quick to do your inspections and get your loan in place. Although the bank might not do repairs, you should still do inspections so you know what you are buying.

If you are considering buying or selling a property through short sale, please email me or call me at 858.382.1805 for more information. I'd be happy to assist you.