Top 5 Reasons Why Short Sales Crash

Many real estate agents and real estate investors spend a lot of time, money, energy, and effort working short sales without having an Idea Why Short Sales Crash. In this article, we are going to discover the Top 5 Reasons Why Short Sales Crash.

Let's start with the basics. A short sale occurs when a seller and lender agree that a home owner may sell their property to a third party for an amount that is not sufficient to satisfy all the liens against the property. In the case that their are multiple liens, then all lien holders must agree to the arrangement (this can be tricky). Short Sales are advantageous to wise owner occupants and investors alike who desire to acquire discounted real estate. Lenders are open to the idea of short sales because they can actually save money in the process. They save money because it becomes incredibly expensive for the bank to repossess property and to manage the sale of that property. On occasion, it may make more sense for the bank to sell the property at a discount, rather than go through the trouble of repossessing the property.

However tantalizing buying a short sale may be, it can be very hard to get the transaction closed. Here are the Top 5 Reasons Why Short Sales Crash:

1. The Bank is not provided with a complete packet (to include, but not limited to); financial information, hardship letter, 2 Years of Income Taxes, last two bank statements, last two pay stubs, listing agreement, preliminary settlement statement, etc...
2. The Buyer is not committed. The short sale process is long. It can take banks 6-8 weeks just to make a decision whether to take an offer or not. This process has scared off more than a buyer or two. It takes a committed buyer to hang in there throughout the process. As a side note, make sure the buyer is well qualified before beginning the process. There is nothing worse than being well into the process before realizing that the buyer is not ready, willing, or able to close on the property.
3. The Bank Loses Your Packet. This seems to happen on almost every transaction. Sometimes the bank sells the loan to another servicing company. Sometimes the bank loses files when transferring the file between departments. As long as you keep good files (and copies), there is nothing to worry about. The problem arises when they lose something that you once had, but can no longer find!
4. The BPO is too high. BPO is an acronym for Broker Price Opinion. Before the bank will accept an offer, they will generally order a BPO or an appraisal to determine if the asking price is a fair reflection of the property value. Many times they will hire a real estate agent to do the BPO. The range of values reflected by BPOs can vary greatly. The bank generally believes the BPO, whether they reflect reality or not. This can kill the deal.
5. You run out of time. This happens for a variety of reasons. Sometimes, the bank will discover an encumbrance to the property that was not previously disclosed (IRS lien, Property Tax Lien, Home Owner Associate Lien). These liens can often change the lender's bottom line enough for them to kill the deal. In addition, you can run out of time when the first and second lien holders cannot come to agreement concerning how much is allocated to each loan.

Listed above are the Top 5 Reasons Why Short Sales Crash. When considering purchasing real estate, be sure to include short sales as an option to consider. Short sale buyers stand a chance at buying at a steep discount if they know what they are doing.

To learn more about buying short sales, then follow join me at my Short Sale Blog. The blog includes many free videos that outline different aspects of the Short Sale Process.

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