As a prospective buyer of a short sale property, the first thing you need to know is that each short sale in unique. Some of the variables that make it unique are the lender(s), the amount that is short (how much the bank(s) stand to lose), how cooperative the seller is and how experienced the listing agent is, to name a few.
The term “short” does not refer to the amount of time it takes, but the fact that the seller is asking the bank to accept a “short” payment as a payment in full. So if the seller owes $500,000 on the property, but the value has decreased to $375,000, they are asking the bank to take a loss of $125,000 plus other fees like Realtor commissions, closing costs, etc.
If there is more than one bank involved, that can complicated things further. The bank that holds the 1st note on the property may agree to accept a certain amount as a short pay and offer a small amount to the 2nd note holder. The short sale can not go through without approval from both banks. This can delay a closing even further.
Although there have been a slew of short sales for the last several years, there is still not a uniform process in which they are handled. Each bank has its own procedures and they are all different from the next. There are some banks that have rolled out programs to streamline the process, and the government has implemented the Home Affordable Foreclosure Alternatives (HAFA) short sale program, to help regulate and speed up how short sales are handled. So they are making some efforts to reduce the time it takes to close a short sale transaction, but they can still take a long time.
One of the challenges short sale properties have, besides all of the above, is finding a buyer who is willing to wait it out. There’s no telling if it will take 90 days or six months to get the approvals needs to move forward with escrow. So if you are the type who likes instant gratification, a short sale property is not going to be an ideal choice for you, stick with a standard sale or even a bank owned.
For homeowners who are considering a short sale of their home, you need to take in to account the possible tax consequences. The best thing to do is consult with your CPA or a real estate attorney. Here is a link to recent clarification of tax implications in the state of California.
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