For many people, the primary goal for declaring bankruptcy is to hold on to important assets like a car or home while restructuring debts. But in some cases, keeping their home simply isn't feasible. For homeowners facing foreclosure on a home valued at less than what is owed on the mortgage, a short sale might be the answer. And for buyers looking for a great value on a home, a short sale might make sense as well.
A short sale involves the homeowner entering into an agreement with the mortgage lender regarding the sale of the home. It is different from a standard home sale in that the bank agrees to accept a price for the home that is less than the amount owed on the mortgage note. While this results in the bank taking less than what is owed, it is typically a better return than a foreclosure would bring. Short sales make sense for homeowners as well, as it gets the buyer out of the underwater mortgage without having a foreclosure on their credit report.
Because of the agreement to sell for less than the loan amount, a short sale can often offer substantial financial savings to a home buyer. But it's important to understand that the short sale process has its drawbacks for buyers as well.
The Short Sale Process
As a buyer, much of the process will look no different than with a traditional sale. You will look at houses, choose one, and put in an offer. But instead of just hoping the seller accepts, there is far more that goes into a short sale. That's because the sale doesn't just hinge on you agreeing on a price with the seller. The seller's bank must also sign off in order for a short sale to be complete.
Once an offer is made and accepted by the seller, it is the bank's turn to decide if they will agree to the short sale or not. This is the part of the sale that is anything but short – the bank will do their due diligence to ensure that the sale isn't fraudulent and that the sale price is the best they're going to get. There is no hard and fast rule on how long this process can take, but it is typically one to three months before the bank will respond. It can take longer sometimes, however, especially if there is more than one mortgage on the property or other liens, such as HOA liens.
The primary tool a bank uses in valuing a home is a broker's price opinion or BPO. During a short sale, the bank will order a BPO from an independent realtor to determine what the fair market value of the home is. If the BPO comes back higher than the price you agreed upon with the seller, the bank may ask that you up your offer. If the bank is ultimately happy with your offer, they will sign off and allow the short sale to go forward.
The Benefits of Buying a Short Sale Home
The obvious benefit of purchasing a home through a short sale is the potential for a steep discount compared to buying a home through a traditional sale. Because of the lengthy process, there are far fewer interested buyers which can help to keep the sales price low. A short sale also has benefits over foreclosure sales. While a foreclosure may also have the same low price, they also come with the potential for having to remove the seller from your new home.
The Drawbacks of Buying a Short Sale Home
The biggest drawback of a short sale from a buyer's perspective is the length of time it can take. Banks are notorious for moving slowly, and it could be close to a year before your sale is finalized. There is also a great deal more paperwork for short sales which can be confusing to process. Finally, you will be unable to arrange for financing until after the seller's bank approves of the sale.
How a Lawyer can Benefit a Short Sale Buyer
The short sale process can be lengthy, frustrating, a wrought with delays. But with an experienced short sale attorney by your side, it can put you in a home that would otherwise be out of your budget. To discuss the short sale process, contact Vohwinkel Law today.