Short Sales…AKA “LONG SALES”?
July 14th, 2009 categories: Buyer Resource, Seller Resource, Short Sales
Some of our clients are lured into making offers on short sale properties because the prices of Real Estate are getting to be so low. There is certainly a risk and reward at play here…what are the risks and what are the rewards?
Let’s start with the reward. A short sale can be a great deal for the buyer…and the seller. The buyer can purchase a property at a price that can be largely discounted from the rest of the market.
The reward for the seller…when a short sale closes, the seller avoids foreclosure, and their credit report is widely believed to benefit (relative to a foreclosure) as they cooperated with their lender in an equitable solution.
The Risks?
The Buyer is risking being tied up in a contract that can take months. With short sales, buyers are at the mercy of the lenders/banks who must agree to accept less (usually far less) than they are owed to settle a debt. Where is the risk you might ask? As the market moves along, filled with easy to purchase foreclosures, REOs, Bank Owned Homes, other short sales, or even well priced traditionally sold homes with no sale conditions; a dream home may pass you by while you are tied up in a contract for a short sale. TIP: Short sales with only one lender/lienholder offer a traditionally much smoother escrow process than short sales involving multiple subordinate lienholders who must agree to accepting pennies on the dollar.
Are there risks for the sellers? There are risks in a short sale for the sellers as well. We have heard horror stories that the sellers have later received a 1099 form from the lender after their short sale closed. The amount the bank lost has, in some cases, been passed back to the seller, as income…in the form of a 1099 AFTER the short sale transation closed. Wow…is that right? Right or wrong, it has been found in the fine print of some mortgage loans, and apparently is right, again in some rare cases. This, as well as every other detail of the closing should be disclosed in the short sale package the seller must sign prior to closing.
There is also frustration for almost everyone in the short sale transaction. One transaction we are currently involved in is experiencing delays due to the fact that one lender acquired another, and the transition process is seemingly out of control…computer system transitions/upgrades have taken weeks instead of days, and people cannot access files needed for short sale approval. This adds to frustration for the would be buyers, would be sellers, and the agents on both sides of the transaction as well.
To summarize, a short sale can be a great thing if you have patience, and time. Most people have tended to avoid them due to horror stories they have heard. Each situation is different, and each buyer/seller have different needs and timelines. If you are a buyer with the patience to get a great deal, then you should consider a short sale.
If you would like to learn more about Sonoma County Short Sales, please feel free to contact us.
