Four Questions to Ask Before Purchasing a Short Sale

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A lot of attention is given to the seller side of a short sale transaction, and rightfully so. The bulk of the complexities involved in a short sale take place on the listing side. The correspondence with the lender in order to obtain approval is the driving force of the transaction.  But, selling agents and buyers should be equipped prior to entering in to a contract with a seller involved in a short sale. A buyer that enters into a contract on a short sale listing can quickly get frustrated because expectations aren’t set from the beginning. Here are four questions to ask before submitting an offer on a short sale: 

1. Has the seller initiated the short sale process, and if so, how far along is the process?

A typical short sale takes at least four months from the time of offer to obtain approval. A large part of the process involves the seller submitting financial documentation to the short sale lender prior to submitting the offer.  If the seller has already started the process with their lender, this could reduce the time to approval once the contract is submitted.  I’ve also seen situations in which a buyer releases and the new buyer is able to close sooner because the lender simply needed to received a high enough offer as everything else was already complete.

2. Is the seller being responsive to document requests?

Perhaps this is an unusual question, but it’s very applicable to the process. This is also not confidential. When a seller is not “on board” with the short sale process, then the process can and will take a long time. A huge component of getting the short sale approved quickly is submitting all documentation as soon as possible to the lender. There are also regulatory implications as the lenders have to comply with certain guidelines once documents are submitted. Short sales can come to a halt when the seller is unresponsive and/or slow in submitting documentation.  

3. How many liens are on the property?

Even though a title search can answer this question, it will save some time and expense to simply ask the listing agent and/or the seller’s settlement agent.  This is not confidential information and they should disclose.  A typical short sale only has one mortgage. However, it’s not uncommon to have a second mortgage in addition to liens and judgements.  The important thing to remember is that every one of the liens and judgments will need to be accounted for at or prior to settlement, whether it’s a payoff or other release of the lien. Often times, it can be more difficult to obtain lien releases from the junior liens compared to the senior liens (primary mortgage).  HOA and Condo association dues can also be considered junior liens that have to be paid off. Simply put, the more liens means the more complicated and longer the short sale process may be.

4. Is the short sale being professionally negotiated? 

A lot of listing agents will already note this in the listing, however, if it’s not already listed then ask the agent. A professional short sale negotiator will facilitate the process and cause it run more smoothly and quickly. Much of the process involves repeated followups with the short sale lender and seller to make sure everyone stays on task. Having a third party facilitate is invaluable.

If you are interested in having Hanger Law negotiate a short sale, please contact us. 

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