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Discover the Truth Behind Short Sales and Foreclosures

Taliah Karim March 17, 2022
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Is all this positive real estate news good for investors? Prices are increasing, houses are selling faster at the speed of light, and foreclosures are gradually becoming harder to buy. Less distressed housing inventory carries the next challenge for real estate investors–finding and purchasing cheap properties.
One primary source of distressed housing appears to remain strong: short sales. The challenge sometimes is that short sales can turn worse and other times, they’re just plain ugly to deal with.

A short sale is a property deal where the earnings from the sale do not satisfy the payoff of existing mortgages, hence the popular name “short sale.” A mortgage lender may endorse this assuming the borrower has a legitimate hardship and owes more than the house’s worth.

First, Let’s Uncover Some Short Sales Goodnews.

It can be favorable that they can short sales several months to the process, get authorized, and close. With prices skyrocketing and appreciation setting in, the short sale upside could be that houses under contract today might be worth more when finally approved after several months or even years.
It’s also possible that other investors are not seeking short sales for this precise reason. If you put a short deal under contract, be sure that it meets your investment criteria.

Now Take a Look at the Bad.

So what could be the negative side of investing in short sales? It’s the amount of work required to get these deals approved.
In today’s complex market, I suggest you work with a Realtor and let them run the process. They work hard for their commission earnings and deserve to endure the complicated short sale process between the bank and the seller and keep the buyer’s focus until approval is completed.

Boring Documentation

Here are three components of documentation that factor into getting short sales approved.
1. Offer – A buyer will offer to buy a short sale naturally using a standard MLS contract prepared by a Realtor. The buyer and seller (usually the homeowner) will sign and ratify the contract. The listing agent will relay the approved agreement, proof of funds, and money deposit to the respective mortgage company.

2. Process – The mortgage company will inspect the offer and the borrower’s financial outlook to ensure eligibility. Once that is authorized, the bank will verify the buyer’s details and work towards determining the property value, then either reject or approve the offer.

3. Package – A detailed financial package is required from the borrower. Commonly this includes financial statements, documentation of the hardship, and other financial information needed for the mortgage company. Recently, short sales have become highly regulated, and organized fraud is carefully monitored.

Now the Worst.

Short sales are “as it is” deals, so the houses are sold “as it is.” Short sales are heavily regulated now, making it quite difficult to legally wholesale. Inspections are for informational purposes only.

It Can Even Get Ugly.

How about the extreme frustration of enduring the process only to find out that the bank would not approve the offer? The entire process is bureaucratic, with bankers, loss mitigation departments, lawyers, and the government regulating the whole procedure.
Typically, the Short sale process is long and sometimes painful, but it can be downright ugly when an investor waits months to purchase an apartment and then gets the strange news that the bank “will neither accept the short sale offer received nor approve it.”
All that work and planning can be lost months after the process starts, which isn’t pleasant. When an offer is not approved, everyone involved loses.
What has been your experience with short sales? Are they good, bad, or even ugly? What is the longest you’ve waited for a short sale deal approval?

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