Short sale = long pain?
October 5, 2011 5:12 PM Subscribe
YANALFilter: Short sale: yay or nay?
Seriously, I'm not looking for legal advice - rather, I'd love to hear from buyers who've been through this before.
Am interested in buying a small 1-bedroom condo in Brooklyn which is listed as a short sale - broker claims (of course) that it's no big deal, that, with all the paperwork in place, a closing could happen in as little as 2-3 weeks.
Lawyers I've informally talked to on the phone tell me otherwise. Some facts:
- it is not a foreclosure: the bank is simply wiling to accept a lower sum for the outstanding mortgage;
- the seller has a judgment against him/her, which is what led to the short sale;
- everything from my end is in place, financially speaking (over 60% cash down payment, pre-approval for mortgage, excellent credit);
- I am a first-time buyer
What is the broker NOT telling me? Why are the lawyers so spooked? One flat out refused to take it on after I told him it was a short sale. Am I signing up for untold misery and prolonged agony? Please tell me what your experience has been like.
Seriously, I'm not looking for legal advice - rather, I'd love to hear from buyers who've been through this before.
Am interested in buying a small 1-bedroom condo in Brooklyn which is listed as a short sale - broker claims (of course) that it's no big deal, that, with all the paperwork in place, a closing could happen in as little as 2-3 weeks.
Lawyers I've informally talked to on the phone tell me otherwise. Some facts:
- it is not a foreclosure: the bank is simply wiling to accept a lower sum for the outstanding mortgage;
- the seller has a judgment against him/her, which is what led to the short sale;
- everything from my end is in place, financially speaking (over 60% cash down payment, pre-approval for mortgage, excellent credit);
- I am a first-time buyer
What is the broker NOT telling me? Why are the lawyers so spooked? One flat out refused to take it on after I told him it was a short sale. Am I signing up for untold misery and prolonged agony? Please tell me what your experience has been like.
My mortgage guy described buying a short sale as "potentially heartbreaking".
posted by goethean at 5:40 PM on October 5, 2011
posted by goethean at 5:40 PM on October 5, 2011
Sometimes a short sale isn't as simple as they let on. Short sales are usually the step before a foreclosure so it will have a lot of the same problems.
Usually, when a person is putting their home up as a short sale, they may have defaulted on other payments. Taxes, utilities, who knows what else. The owners could have used the property as collateral for some other type of loan.
The bank does not want to take a lesser amount for the home. They will take the lesser amount from YOU while the previous owner is still responsible for the remaining balance of the mortgage. Banks are in the business of making money, not losing money.
If the short sale is due to lack of funds on the part of the owner and there are liens on the property, then there is a lot of work to be done for the lawyers. Mainly your lawyer. He or she will have to comb through all of the debt and what is outstanding and what debt may attach itself to the property. It is possible for you to purchase the home and then become responsible for (for instance) the outstanding taxes on the property. In any case, a real estate lawyer may not want to do all of the work involved for their $500 flat fee.
As a first time buyer, I would suggest you purchase a home that qualifies for a SONYMA loan. You will be able to get a loan quicker, at a lower interest if your credit score is good and you will have benefits that someone who is not a first time buyer will not be qualified for. You can pre-qualify and close on a home within 30 days of signing a binder.
Good luck!
posted by Yellow at 5:53 PM on October 5, 2011
Usually, when a person is putting their home up as a short sale, they may have defaulted on other payments. Taxes, utilities, who knows what else. The owners could have used the property as collateral for some other type of loan.
The bank does not want to take a lesser amount for the home. They will take the lesser amount from YOU while the previous owner is still responsible for the remaining balance of the mortgage. Banks are in the business of making money, not losing money.
If the short sale is due to lack of funds on the part of the owner and there are liens on the property, then there is a lot of work to be done for the lawyers. Mainly your lawyer. He or she will have to comb through all of the debt and what is outstanding and what debt may attach itself to the property. It is possible for you to purchase the home and then become responsible for (for instance) the outstanding taxes on the property. In any case, a real estate lawyer may not want to do all of the work involved for their $500 flat fee.
As a first time buyer, I would suggest you purchase a home that qualifies for a SONYMA loan. You will be able to get a loan quicker, at a lower interest if your credit score is good and you will have benefits that someone who is not a first time buyer will not be qualified for. You can pre-qualify and close on a home within 30 days of signing a binder.
Good luck!
posted by Yellow at 5:53 PM on October 5, 2011
I have been investing in real estate for years. I started in Bay Ridge, Brooklyn years ago. I live in FLA now, and have been buying tons of foreclosures. I am currently in contract on two.
I won't do short-sales. They take forever. The bank oversees every step of the process in an annoying and meddling way. The bank moves at a glacial pace.
During the entire process, the bank will continue to pursue a better deal for itself. You could ride out a long and painful process, and have it taken out from under you in the last minute.
Personally, I think there are enough foreclosures around - and the banks are dying to get rid of them. Banks are looking for the best deal possible on a short-sale.
One key piece of advice I will tell you about buying any real estate - keep your emotions out of it. Do not "fall in love" with a piece of property. Have your list of requirements, and approach it like a cold hard business deal. The only reason to go through the torture of a short sale is because you love the property.
Find a foreclosure instead.
posted by Flood at 5:57 PM on October 5, 2011
I won't do short-sales. They take forever. The bank oversees every step of the process in an annoying and meddling way. The bank moves at a glacial pace.
During the entire process, the bank will continue to pursue a better deal for itself. You could ride out a long and painful process, and have it taken out from under you in the last minute.
Personally, I think there are enough foreclosures around - and the banks are dying to get rid of them. Banks are looking for the best deal possible on a short-sale.
One key piece of advice I will tell you about buying any real estate - keep your emotions out of it. Do not "fall in love" with a piece of property. Have your list of requirements, and approach it like a cold hard business deal. The only reason to go through the torture of a short sale is because you love the property.
Find a foreclosure instead.
posted by Flood at 5:57 PM on October 5, 2011
I purchased a house on a short sale last year. We made the offer in August, closed on Oct. 15. It took some time, but was well worth it. If you're in a hurry, this is not the way to go. If you have the luxury of being able to wait out the process, you'll be glad you looked into.
A title insurance will make sure there is no lein against the property.
posted by HuronBob at 6:00 PM on October 5, 2011
A title insurance will make sure there is no lein against the property.
posted by HuronBob at 6:00 PM on October 5, 2011
I'm currently searching for my first home and working with a buyer's agent. I told him I wanted to avoid short sales, and he practically jumped for joy. He said that less than 10% of them actually close, and that hearing back from the bank (even if it's a rejection) in anything less than six months is a gift. It's worse if you're dealing with Bank of America. I agree with Flood, look at foreclosures, it's not like there's a shortage of them right now.
posted by Violet Hour at 9:47 PM on October 5, 2011
posted by Violet Hour at 9:47 PM on October 5, 2011
It really, really depends. My purchase went fine. Offer in late Dec, close in late April. I had a very complicated mortgage product on my end that added to the time. There were a few hitches, like the house had a city lien for code violations.
Their mortgage was with Wachovia. A realtor told me that Wachovia is good, B of A is the worst, and others are in the middle. (However I'm on the West Coast, so the branch offices would be different, to the extent that these issues are management issues vs. corporate policy issues.)
The biggest concern I've heard is that at any point, if the person is behind on their mortgage, the bank might foreclose. So you could have spent 3 months on it and then have things fall through. Also, deals can just fall through because banks do not think like realtors, and they may not respond within reasonable timelines or respond in a troubleshooting fashion to problems that arise. A key question to ask is whether the bank has signed off on the price or whether your offer will just be the opening salvo in a negotiation between the bank and the owner about what price the market will bear. Good luck.
posted by slidell at 10:02 PM on October 5, 2011
Their mortgage was with Wachovia. A realtor told me that Wachovia is good, B of A is the worst, and others are in the middle. (However I'm on the West Coast, so the branch offices would be different, to the extent that these issues are management issues vs. corporate policy issues.)
The biggest concern I've heard is that at any point, if the person is behind on their mortgage, the bank might foreclose. So you could have spent 3 months on it and then have things fall through. Also, deals can just fall through because banks do not think like realtors, and they may not respond within reasonable timelines or respond in a troubleshooting fashion to problems that arise. A key question to ask is whether the bank has signed off on the price or whether your offer will just be the opening salvo in a negotiation between the bank and the owner about what price the market will bear. Good luck.
posted by slidell at 10:02 PM on October 5, 2011
You might want to check out the broker, inasmuch as its possible, I know in NYC it can be tough. The banks are complete dicks about short sales, and if the person handling it has only done one or two they'll have to deal with a distressed sales department that makes Dell tech support look like Morgan Freeman in the Batman movies. They lose documents, files get bounced around between different case managers, stuff gets shoved into the bottom of the pile and never heard from again --- and if they sale drags on for a few months or something about the homeowner's status changes they make them submit all their financial info over again. I read a survey recently of realtors in my state --- about a quarter said their shorts where averaging less than 25% of realtors in my area reported an average close time of less than 4 months, and 7 % reported that their shorts were taking over a year to close.
There are brokers who specialize in shorts, however, and they're usually better at knowing exactly how to submit a package to get it approved and who, by name, to contact at the lender to hurry things along. If the broker handling the sale is of this kidney, then maybe he does know what he's talking about when he says it can get approved that quickly. See if he advertises his services as a short sale specialist, and ask to speak to other clients that he'd handled shorts for. You don't say if you have your own agent --- sounds like you don't --- but it might be worthwhile to make a few inquiries and find out if the broker has a rep among his fellow agents as someone who can get this stuff done --- call a few other shops in the neighborhood and ask if they've heard of him.
posted by Diablevert at 10:29 PM on October 5, 2011
There are brokers who specialize in shorts, however, and they're usually better at knowing exactly how to submit a package to get it approved and who, by name, to contact at the lender to hurry things along. If the broker handling the sale is of this kidney, then maybe he does know what he's talking about when he says it can get approved that quickly. See if he advertises his services as a short sale specialist, and ask to speak to other clients that he'd handled shorts for. You don't say if you have your own agent --- sounds like you don't --- but it might be worthwhile to make a few inquiries and find out if the broker has a rep among his fellow agents as someone who can get this stuff done --- call a few other shops in the neighborhood and ask if they've heard of him.
posted by Diablevert at 10:29 PM on October 5, 2011
Buying real estate is a complicated process. Buying a short sale shouldn't be any more complicated on your end, and really only slightly increases your odds that there will be a snafu.
I would suspect that the more troublesome anecdotes are from situations where the seller's bank may not have been completely on board with the short sale, and that the seller didn't kick off the process until they actually had a contract of sale.
I would tread cautiously, but if you have some flexibility with when you need to close and have a good lawyer to check all the documents.
(As for hidden liens, that's what title insurance is for.)
posted by gjc at 3:49 AM on October 6, 2011
I would suspect that the more troublesome anecdotes are from situations where the seller's bank may not have been completely on board with the short sale, and that the seller didn't kick off the process until they actually had a contract of sale.
I would tread cautiously, but if you have some flexibility with when you need to close and have a good lawyer to check all the documents.
(As for hidden liens, that's what title insurance is for.)
posted by gjc at 3:49 AM on October 6, 2011
The best way to approach this is to think about the part the bank plays in the process. Specifically, that whichever bank has approved the short sale has to approve every step in the entire transaction. And they know they are going to take a loss on the sale. Now, picture the guy who is in his office, overseeing dozens or hundreds of such sales. Think about his job satisfaction. Think about how little pressure he is under from his superiors to make sure that these complicated sales that will lose money for his employer. Think about how motivated he is to keep your sale process moving briskly along. Contrast this with the normal role a financial institution takes in a sale, which is to get you approved as quickly as possible so that you pay your closing fees and start paying interest.
That is what you are working with (against?). It will be an agonizingly slow, incredibly frustrating process that has a flat chance of failing at every step. However, it could also save you a ton of money, so if you're in no hurry and won't be heart-broken if the sale gets to step 19 out of 20 and then falls through because of some meaningless technicality, then go for it!
posted by Mayor West at 5:31 AM on October 6, 2011
That is what you are working with (against?). It will be an agonizingly slow, incredibly frustrating process that has a flat chance of failing at every step. However, it could also save you a ton of money, so if you're in no hurry and won't be heart-broken if the sale gets to step 19 out of 20 and then falls through because of some meaningless technicality, then go for it!
posted by Mayor West at 5:31 AM on October 6, 2011
This is second-hand, but some friends of mine bought their house on a short sale. Because of the various complications that came up, they had to move out of their old house before the sale on the new house was finalized. They ended up living in the new house for months as renters, never knowing if they would be able to stay. Repeatedly they were told that everything was in shape, and the closing would be on X date, only to have it pushed back again when some new complication arose. They told me that based on this experience, they would never buy on a short sale again. Of course, I have no idea how typical their experience is.
posted by not that girl at 6:11 PM on October 6, 2011
posted by not that girl at 6:11 PM on October 6, 2011
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posted by potsmokinghippieoverlord at 5:26 PM on October 5, 2011