By Daniel Manzano
RISMEDIA, September 10, 2010—Anyone that works in the real estate industry knows that a short sale transaction can take months to be approved and closed. While short sale approvals can be completed in a short timeframe, the reality is that short sales usually take three to four times as long as a regular sale to finally get to the closing.
From the time the Realtor actually gets the property under contract to the time the lender approves it, it could take anywhere from 30 days to 6 months, depending on how fast the borrower provides critical information for both lender and investor approval. Even then, you still have one more variable to account for which is the buyer waiting all this time to get the contract approved by the lender. To account for the numerous variables that accompany a short sale transaction, it is crucial for real estate professionals to set clear expectations before beginning the short sale process.
Buyers who make an offer on a short sale property need to know that lenders have to “reverse underwrite” a short sale and make sure they are allowing the sale to happen close to market value. By reverse underwriting, lenders will look for “un-affordability” instead of determining the home’s affordability. They will check the seller’s financial documents to verify that they can’t afford the house anymore and consequently, they will order a broker’s price opinion (BPO) from a broker or certified appraiser to make sure the house is being sold close to market value. If the offer is too low compared to what is owed, it will make more financial sense to the lender to just foreclose the property and re-sell it as an REO (Bank-Owned Property). All this will happen while the buyer is still waiting for a response, so it is very important to set the expectations correctly from the beginning to avoid losing the buyer close to the end of the process.
On the other hand, it is important to also educate the seller and set the expectations with them from the beginning. They need to understand that the lender takes their time while responding, but when they do, they usually give a 72 hour timeframe to respond or provide the missing documentation. If the documentation is not provided within the specified timeframe, it usually ends up in a closed file. Another common situation that is happening very often is borrowers being served with foreclosure paperwork from either the lender or Homeowner’s Association while the short sale is being processed. It is crucial to let the seller know that this might happen so they are prepared and receive the documents knowing they are in the best hands. Foreclosures and short sale are parallel processes and one does not cancel the other. Sometimes a short sale might delay a final sale date, but it will definitely not stop the lender from starting the foreclosure proceedings.
Daniel Manzano is Managing Director of Best Beach Title in Miami.
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