When you’re browsing through your MLS Listings, don’t fall victim to the “approved” short sale hype. In this article, I will feature one very important aspect of purchasing these types of homes that will help you determine if a particular home is worth pursuing. I’ve seen home listings on MLS that say “approved short sale” for three, four, even six months…they don’t stay “approved” for that long. In order to capitalize on a property that is being sold for less than what the owner owes to his/her respective bank(s), you must cut through all the “smoke and mirrors” in order to make it happen. As a real estate agent, many times I will come across listings that say “approved short sale” and buyers will inquire about these properties. An approved short sale is when an agent, owner and/or attorney has submitted some form of contract or purchase binder to the owners bank for approval. Now one thing to keep in mind is, short sales are extremely complex transactions involving multiple investors and many levels of approval, not to mention, issues with the home itself. Issues like certificates of occupancy, surveys, title, and mainly, the sellers ability to fully cooperate in a timely fashion. So an “approval” is all relative to many items. That piece of information is important in and of itself. Basically just having the knowledge of all the different variables/obstacles can make the difference between wasting your time and being able to move on from something because it’s just too messy. But I promised one piece of information that will be helpful for you when evaluating an “approved” short sale listing.

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Consumer protection is a very pressing issue in the real estate industry. Legislators and private organizations have pursued different measures in order to successfully advance such societal obligation. Then again, there are some details of real estate transactions that only the lenders have full knowledge about. Say in short sales, there are some areas your lender will not disclose with you. This is because banks and lending companies are not legally bound to divulge all the information of a particular transaction to their borrowers. They have the discretion to acquire their own steps in protecting their investments, and one way they can do that is to keep some details confidential. Short sales in particular are a type of venture where the lender can be in full control of the situation – from approval of a proposal from the homeowner to the disposal of the property. That is but natural as they want to still yield as much profit given the losses brought about by your delinquency. On the other hand, you are also entitled to be in the know of certain areas where lenders do not tell you about. Here are a few of them:
-Preferable contents of a short sale hardship letter – did you know that only one out of ten short sale applications is approved by most lenders? This is because there are some lenders have rather peculiar criteria such as ink color and paper used or that the letter is very compelling. Then again, the bank can easily sense if your plea has no substantial truth to it.
-Lack of concern for your property – the main concern for most lenders is how you will repay what you owed them. They particularly regard properties merely as investments, thus evaluated as assets or liabilities. Once a borrower falls outs of paying dues, the lesser interest the bank would want to keep the property, lest even pay a visit to the home. They can take on any measure to hasten disposal of your property. They are unlikely to disclose such disinterest as they want to keep the borrower attached to the property. Thus, the client remains indebted and obliged to pay dues.
-Discontinue mortgage payments – as mentioned above, you will be obliged to pay your dues in pursuance of the loan contract. However, you can opt to default on your mortgage. Note that not all cases of short sales reflect that the homeowner has defaulted on his mortgage. Meanwhile, if you take on this option, there are drawbacks you have to be prepared for. Your credit score will suffer as your property is looming to be foreclosed. As a result, you might encounter restrictions in buying another home.

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There are many things to consider when facing the possibility of foreclosure and deciding to short sale your property. Time and space to not allow me to get into every aspect of these transactions and all the possible nuances that might need to be dealt with, but I will do my best to cover, what I feel, are the most costly to over look. First let me say that I DO think short sales are great and do a lot of good for people who know they are their best option. I do these for people everyday and I’ve seen people’s lives get A LOT better afterward so the purpose of this article is NOT to paint short sale in a bad light, but rather to inform you of the whole picture some people in my industry WON’T tell you. Lets get to the point. You NEED to know whether a short sale is your best option: First off, you need to know whether doing a short sale is right for YOUR situation. You NEED to asses the situation YOU’RE in and make that decision. So how do you do that? Start by realizing that for the most part short sales help people the most if they CAN’T make their mortgage payments anymore due to a long term hardship. Long term doesn’t mean 20 years or anything, but at least 9 months. For instance getting injured and losing employment for an extended period of time, illness, divorce, etc are reasons most lenders will be ready to approve as a hardship.

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here are many rumors out there and bad information on what is and isn’t in today’s market. This is when a lender agrees to take less than what’s owed on the property. Most people are amazed when they see that banks will negotiate debt when a property is inevitably headed towards foreclosure. Borrowers do need to prove some type of financial hardship in most cases. Many people tend to think that foreclosures and pre-foreclosure properties are the same, but that is not the case. On a short sale the borrower or person in foreclosure is the owner of the property. BANKS DO NOT OWN SHORT SALES. This can also known as a pre-foreclosure sale. The seller is participating to avoid a costly foreclosure from appearing on their credit ultimately, which can be very damaging. A foreclosure will report to a borrower’s credit and will have negative effects for quite a while, many say up to 7 years. They can also avoid deficiency judgments by negotiating a settled account on their credit. Banks do not like short sales, but they prefer them over a foreclosure.
Banks are not in the business of foreclosing on properties, but in the business of lending money. The costs of the foreclosure process, directly and indirectly, are what cost the banks money. As long as a borrower in foreclosure can show the bank or lien holder that they will net more money accepting a lesser pay off vs. going to foreclosure, the majority of banks in this market will approve the deal. In our current market this is another way to mitigate the bank’s loss. They will encourage this option instead of foreclosing on the property.

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