Thoughts on Short Sales

[Alejandra Tapia]

I've come across several properties that are short sale on the MLS. Could anyone provide me with their own insight or knowledge of these in terms of pros and cons or the general process? Thanks in advance!

-Alex

[Charlie MacPherson]

@Alejandra Tapia Short sales are called "short" because the lender isn't getting full repayment, so they're coming up "short".  In terms of how long they take to close, they're exactly the opposite!

If a short sale is presented as "bank approved price of $XXX,XXX", you can still offer less but the bank has said that number is one they'll accept.  If there's a price that the bank has not yet approved, it could just be a shot in the dark.  Those will often include language in the listing that says "lender approval required" or "third party approval required".

Banks typically are not very cooperative or easy to deal with.  They'll set up all sorts of hoops for you to jump through RIGHT BLOODY NOW, but when you want answers from them, don't hold your breath.  They'll get back to you when they feel like it.

The last short sale I did took 9 months.  I've heard other Realtors say they've seen them go out to 3 years.

In my last one, the first lien holder was BofA and the second was Chase.  BofA agreed to a price of $399,000 and Chase agreed to $3,000, which came out of that $399,000.

As we were getting close to closing, BofA pushed the closing date out 5 different times without discussion or explanation.  And at the last moment, Chase changed their mind and said they wouldn't settle for $3,000 - they demanded $8,500 to release their lien.

Normally, you would think that you would add the additional $5,500 to the loan, but if we did that, BofA would just take it because they're in first lien position and were still coming up short.  My buyers had to bring that $5,500 in cash to closing to pay Chase.

In this case, it worked out.  My buyers were not selling their primary residence as part of this transaction.  They were going to rent it out after moving into the short sale property, so the closing date wasn't an issue like it would be for most buyers.  They also had the $5,500 available and it was still a decent deal even with the added cost, so we actually ended up closing.

A newer trend I saw in Massachusetts is for the attorney who is negotiating the short sale to require a $5,000 fee at closing for his services. I saw one last year where the attorney demanded his $5,000 fee UP FRONT and was not refundable if the deal didn't close.  Thankfully, these trends have not caught on in Maine where I now practice.

On top of all that, short sales are often abandoned.  That presents its own set of problems, especially if the utilities are turned off.  Mold, basement moisture that rusts the breaker panel, inspection difficulties, etc.  Sometimes the copper has been stolen and the property vandalized.  Some will allow you to reactivate utilities at your expense, some will not.

I've even see a few where the home is occupied and there are no interior or exterior inspections allowed.

Bottom line: If you don't mind the significantly increased hassle factor, uncertain closing dates and final price, you'll love short sales.