Short Sales - Long Process

Many of us in real estate joke that the phrase "Short Sale" is an oxymoron because short sales are anything but short. Of course, that's not what a short sale is.

A short sale is when the mortgage holder agrees to take less than is owed on the mortgage to satisfy the loan. In otherwords, if you owe $100,000 on your mortgage, but can only sell for $80,000 and your mortgage lender agrees to take that as payment in full, you are selling "short."

The most common question I get is why do short sales take so long. Its a complicated process to explain. When you get an offer for less than you owe on the property, the offer is sent to your lender or lenders if you have more than one mortgage, so they can decide whether to accept that amount or not. After an offer is submitted to the lender, the lender then has to assign it to a negotiator, or someone who will manage the process. This first step can take up to 90 days depending on who the lender is and the workload of each negotiator.

After a negotiator is assigned, they review the offer as well as all the financial documentation submitted by the homeowner or seller. They look to see if the seller has a true financial hardship and if the offer is reasonable for the property, geographic area and what is going on in the market there. If the negotiator needs more information about prices of similar properties in the area, they will order a BPO or Broker's Price Opinion which is basically a real estate agent's opinion of what the property compares at in terms of market value.

Now armed with this information, they will review the offer. Some negotiators must submit all this accumulated documentation to their superior or even a committee for review and a decision. Sometimes, they must even submit all this to the original or current investor who holds the mortgage for a decision on whether to accept, counter or reject the offer. You can see how this can bog down the entire process.

Finally, after getting the okay or responses from everyone they need to get approvals from, the offer is accepted, countered or rejected. This process can take up to 6 months, sometimes longer. Many of us are often surprised that the lender does not foreclose, but often it is entered into the system and taken out of or away from the foreclosure department while the short sale is negotiated.

It doesn't always take a long time. As lenders have had to deal with more and more short sales, some have developed a much more efficient system to deal with them, giving guidelines to the negotiators on what a reasonable offer would look like, terms, what they as the lender would be willing to pay for in costs for the buyer, etc. This can cut down significantly on the amount of time it takes to get a response from the lender(s) for a short sale.

Many buyers get tired of waiting for the response. In our market in Las Vegas, this time lag could cause a property to drop more in value making the offer made less than attractive. For example, I was involved in one short sale that between the time the offer was verbally accepted by the lender and receipt of the written acceptance by the lender, the property had dropped $30,000 in value lower than the verbally accepted offer. Of course, the buyer was not interested in paying $30,000 more for the property than it was now worth, so the buyer refused the counter. On the other hand, because a short sale property had already been assigned a negotiator, I completed a cash deal on a short sale in 8 days from offer to closing.

In the Las Vegas market, as I'm sure in other markets as well, there is a little less competition on short sale properties. The process deters many buyers as well as real estate agents who don't want to deal with the phone calls, documentation, and more.

If you are considering offering on a short sale property, do a little bit of homework. Talk to your agent about the process to decide how knowledgable they are on the subject. Find out if a negotiator has been assigned or if you're starting at the beginning of the process. Great deals still abound on short sale properties, but make sure you understand the process and how it may or may not affect your offer by the time it gets accepted.

If you'd like more info about the short sale process or short sale properties in Las Vegas and the surrounding area, I can be reached at LasVegasExpert@yahoo.com.