Short Sales, REOs, and Multiple Offers
What is a short sale?
I am hearing that question a lot…short sales have become such a part of my vocabulary in this market, that I forget that they may be a new concept to some people. When a property is listed as a short sale, it means that the owner owes more to the bank than the house is worth—and that the owner doesn’t have the money to make up the difference after the sale. The owner is asking the bank to “forgive” part of the loan.
Banks don’t want to own real estate, so the bank may agree to this in order to avoid the expensive foreclosure process. However, sellers should be very careful, and consult with an attorney and/or a CPA about the tax ramifications and potential for a deficiency judgment.
A seller in this situation will write a hardship letter to the bank explaining the situation: lost job, death in the family, whatever the cause for the misfortune that resulted in the inability to pay the mortgage. If the bank agrees to “work with the seller,” this puts a hold on the foreclosure process.
However, the bank will not say at this point what offer they will accept, so the seller puts the house on the market hoping to get offers. Once there is an offer, the bank will evaluate the offer, examine the hardship letter and evidence, inspect the seller’s financial situation, and make a decision. This can take months: the Short Sale is a Long Process.
For an investor hoping to get a good deal, this process may be worthwhile. For a buyer looking for a home to live in, this process is generally unbearable. I have had short sale experience from both sides: clients of mine interested in moving to Danville fell in love with a home that was a short sale. I explained how unpleasant the process was likely to be, but they were in love and wanted the home. So we submitted an offer. Weeks went by with no response from the bank. My clients wanted to time their move with the sale of their home in another city, and had no way of knowing when it would be the right time to put their house on the market.
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