Why, you ask, am I saying to hang tight if you have contract on a short sale? Well, if you are trying to purchase a home that is a short sale, you are going to need to! No, not all of them are difficult. But many of them are, and some of them are beyond difficult! Many of them never make it to closing. In the beginning only 10% of the homes that were sent to the banks were approved. This has improved quit a bit, but many of them are still not getting approved. Even if the sales price is in line with the current market values, they don't always get approved. Some of them don't even get looked at before the home gets foreclosed on. Others just can't get past the negotiator for the bank. Who knows, maybe they were just having a bad day when they were reviewing the file. (Sarcasm intended)
Here's a scenario: You find a home that you love and then you proceed to write a contract on the home. Knowing all the while that this is a short sale. Your Realtor has explained to you that the short sale process can be difficult (hopefully). If you go into this unaware that the process can be long and frustrating, then you are going to be in for an unpleasant surprise!
The seller signs the contract, so far so good. Time to celebrate? No not yet. Then the file has to go to the seller's lender for the lender to approve the sale. Why? Because being a short sale means that the seller is selling the home for less than they owe on the property, and the seller's lender must agree to allow this to happen because they are the ones taking the hit on the home.
Now, when I say the file has to go into the seller's lender, I do not mean just the purchase contract and addendum, but the lender has a whole checklist of items that they want from the seller. Part of this checklist involves a hardship letter (if there is not a real hardship the lender may refuse the short sale), copies of tax returns, w-2s, 2-4 months of bank statements, financial statements or a budget worksheet, copies of statements for all mortgages, HOA contact information, any letters regarding delinquencies, etc, etc. If the seller has a business then the list includes items for the business which includes a profit and loss statement as well.
If you are following me so far you are beginning to see that some issues can develop. Let's say in your case that the seller gets all of the required documents to the bank right away. Most of these lenders won't accept the file at all unless everything they want goes over at one time. And to make our scenario easy, let's say that everything is in line and there is good reason for the hardship. Okay, now 2-3 weeks have gone by and you haven't heard anything. At this point your Realtor checks on the process with the listing agent and that agent states they haven't heard anything yet. Now if you don't have the patience to hang in and realize this may go on for months then a short sale may not be for you. I know of agents that said they had short sales where a negotiator wasn't assigned for a year. The process seems to be better now, usually they run between a couple months to six months. But no one knows how long it will end up taking.
Now, let's say 4 months down the road (being optimistic) the bank approves the short sale and gives you 30 days to close (I had one that gave us 11 days to close). And let's say that the seller is okay with the terms the bank has put in the approval letter (yes they have the right to reject it and not sell the home), and let's say that your lender can get the loan done in the time frame given them (no they don't always), and let's say that the utilities are still on for the inspection (no the sellers don't always have the money to keep them on), and let's say your inspection goes well enough that you still want the home (because the seller is selling the home as is), and let's say that the appraiser does appraise the home for what your offer price is (no they frequently don't), and let's say that the appraiser doesn't note on the appraisal some conditions in the home that have to be corrected (there usually is something and the underwriter will want to make sure they are corrected, which means getting them fixed and then the appraiser has to go back out to the home to make sure they were done and this can take 7-10 days on average), and let's say that the time it takes to correct anything that the appraiser noted is done in time (allowing enough time to get the report back into the buyer's lender and have it go back into underwriting), and then let's assume that your loan is approved and that your loan docs get to title prior to close of escrow and the closing goes off without any problems. Well then you would have successfully purchased and closed on a short sale property. (I think you can see that there are many issues that can cause the process to fall apart and then you have to start all over again.
Don't be discouraged! We have had many clients buy or sell a home as a short sale. Many have only taken a couple months. But, you just really need to be aware of the process so that you can survive them, especially the difficult ones! Knowing that the process can be long will help you to not become frustrated, or at least not as frustrated!
If you need someone that is knowledgeable in the short sale process to either buy or sell a home, give us a call, we would love to help you in this process!
Ron & Brenda Cunningham
WEST USA REALTY
1640 S Stapley #124
Mesa, AZ 85204
*Recognized in the Phoenix Business Journal as One of The Top 50 Realtors in the Valley