East Bay Real Estate

Realtors are sometimes referring to “short sales” as fake listings!

So, we have two “short sale” listings in our inventory.  The only reason why we agreed to take on these two projects is because the owners are friends of ours. And, because I had managed “short sales” as a Realtor when the worst recession in California history started in late 1989 and lasted for about four years.  Boy, has the “short sale” world changed since 1989!

The economic condition of the mortgage meltdown this time is not just in the East Bay and California, it is a national experience.  A “short sale” refers to a seller who does not have enough money to pay off their mortgage given the price of the home in today’s real estate market, and they don’t have the money to even make the monthly mortgage payments.  There are several keys for Buyers to consider if they are going to submit a purchase offer on a property listed as a “short sale”.

1. 1.  A “short sale” is only possible if the mortgage holders are willing to sell it for less than is owned to them.  The banks are the ultimate decision maker, not the current owner.
2. 2.  It is critical for a Buyer to know as much as possible about the ability of the Seller to actually have the mortgage holder agree to the “short sale”.  The current statistics show that only about one out of 20 “short sale” purchase offers ever make it to closing because the banks will not approve a “short sale” if the borrower still has money stashed in other places, such as savings.
3. It is also important for the Buyer to check out the experience the Realtor has who is representing the “short sale”.  Do the Realtors involved know what they are doing?
4. Has the process with the mortgage holder progressed to having an appraisal done on the home?  If the process hasn’t progressed to this stage it could be months for this step to be completed, if it ever is.
5. 4. The Buyer needs to understand the poor odds of closing escrow, and the amount of time it will take to work through the process - typically months.  5.  If the Buyer is able to make it through the “mine field” of the mortgage holder’s decision process they may get the deal of their life.  But remember the statistics that only 5% of them ever close.
6. A Buyer also will need to typically sign bank agreements letting the Buyer know the bank is selling the home in an “as is” condition, and the bank will not be doing any repairs that may be discovered in a home inspection.

The Buyers also need to be aware of the difference between a “short sale” and an “upside down” Seller.  The difference is BIG!  If an “upside down” Seller must sell their home, the mortgage holder will expect the Seller to take every last cent they have in their savings, 401(k), and even see if they can borrow money from their friends and family to make up the difference of the loss that the mortgage holder will be taking.  The bank won’t approve it if the Seller has cash available anywhere! ( One of the lenders on the “short sale” that we represent even asked ME to consider contributing money to them AFTER the close of escrow in order to minimize their losses!  This was a first for me - a demonstration of what type of desperate measures lenders are taking to see if it makes sense for them to take a BIG loss.)

 An added hurdle is when a property has a second deed of trust holder as part of the mortgage package.  The second deed of trust holder can nix the deal because of not agreeing to have their portion of the mortgage wiped out. ( Usually, the second deed of trust is the one that takes the biggest hit on a “short sale”.)  Also, a bank may want to take the risk of just foreclosing on the property and see if they can get some of their losses back from private mortgage insurance. 

 As you can see, it is very risky for a Buyer to enter into a “short sale” mess and come out the other end of a completed home purchase.  If you are one of these Buyers who are even considering the purchase of a “short sale”, make sure you select the most experienced Realtor you can, and then cross your fingers and pray a lot.  Until next time…your East Bay real estate detective is on duty.

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