Real Estate Insights

As we enter our third straight year of a real estate market brimming with “short sales” it should be no shock to hear that these sales have become the source of much pain and frustration for many buyers and sellers alike. Just ask any realtor today and I’m sure that they will do anything to dissuade a buyer from pursuing a short sale transaction over an REO or traditional sale, even if the buyer has a chance to pick up the property at a great deal.

In fact, I once heard that less than 10% of all listed short sales actually close escrow successfully – this means that there is a 90% chance that a short sale will fail.  Now while I can’t admit that I truly believe that 9 out of 10 short sales are doomed, our offices have successfully closed well over 90% of the short sales that we have listed, but I can admit that there are some pretty big challenges that can lie in the way of a successful closing.

Here is a list of just some of the top reasons why a short sale may not make it to closing:

10. Seller will not qualify for a short sale as they have not suffered a true “financial hardship”

9. Seller is unwilling to cooperate with their lender’s requests to provide personal documentation

8. Seller may incur State or Federal income tax consequences, or even face legal liability from a short sale that may stop them from completing the transaction

7. The listing agent hired by the seller is inexperienced in handling short sale transactions – all lenders have different procedures for handling short sales

6. The Buyer is impatient and unwilling to purchase the Seller’s property in “as-is” condition and the seller is unable to pay for any repairs out-of-pocket since they are short selling their home

5. Seller’s lender may have hired a Mortgage Servicing Company that has ability to make decision regarding short sale approvals, and they may get paid more for managing the default servicing (i.e. the foreclosure) than the short sale.

4. The short sale may involve two different banks in which the second mortgage holder will not settle for the maximum contribution allowed by the first mortgage holder, and often the buyer is unwilling to make up the difference

3. The Seller may have additional liens filed against the property that his lenders will not cover, such as HOA dues, default property taxes, Personal liens and judgments.

2. Seller’s lender offers seller a loan modification or forces seller to try a modification trial period before approving a short sale

1. The seller’s bank(s) just couldn’t handle the request from the homeowner to grant a short sale in time to stop the foreclosure, they are just too overwhelmed and do not have the work force to handle the volume of distressed borrowers

Of course every real estate transaction has its own unique set of challenges, it’s just that short sales tend to have the deck stacked against them more times than non-short sale transactions. And this doesn’t mean that under certain circumstances that a buyer cannot get an incredible deal by purchasing a short sale, but the more informed and prepared the buyer is the better are the chances of making it to the closing table.