Finding Short Sale Properties
Bank Approval Required
In a short sale, the seller must obtain the bank's approval for paying back less than what is owed on the mortgage. When the market value of the property falls below the total loan amount outstanding on the property, then the seller is faced with this situation. Even though a willing buyer may appear with an offer which the relieved seller accepts, both parties are subjected to the short sale process governed by the bank even though the bank is not a party to the transaction.
The length of time for the seller's bank approval and escrow to close is not usually within the 30-day period that buyer and seller might otherwise have agreed upon, it's usually at least 60-90 days in most cases. While some banks have become more efficient in this process, it varies from one financial entity to another, and also because of the volatile changes and bank mergers that have taken place which affect the personnel which handle the short pay approvals.
Other factors affecting escrow closing include whether or not the seller has timely submitted all the information required by the bank, whether or not the bank agrees that the seller's and buyer's agreed-upon sales price reflects an acceptable payoff amount for the bank (which is losing money on the original loan), the bank's internal communications, or the negotiations with the junior lien holder who often stands to lose most if its loan amount.
Other complications arise when the property is in pre-foreclosure and a notice of default (NOD) was already filed on the property before a buyer was found (an important fact to find out when submitting an offer), and then the property may continue into final foreclosure and trustee sale, even though all short pay package documents were submitted, because different departments within the bank are handling different issues for the same property, and not communicating with each other. The sale could possibly be reversed under the proper circumstances, but obviously it's not a desirable event for either the buyer who has been waiting patiently for the closing, nor for the seller who obtained a sale in order to avoid foreclosure.
Not all escrows with short pays go awry, in fact, many close successfully. In any case, the buyer should carefully review the "short pay addendum" with his offer and understand the contingencies and timelines involved.
This condition is not spread equally across all neighborhoods or cities, depending on the past sales activity where certain types of loans were originated, or the strength of the resistance of specific areas to the overall market downfall.
These transactions require patience and preparation for even the most experienced buyer and seller.