The other evening on our local news there were two stories about buyers who were distraught and disappointed in buying houses with short sales. One woman had made an offer on a short sale in one of Portland’s bedroom communities.  She waited 6 months with no response from the lender.  The story continued to say how traumatic it was for her and that she’d never do that again.  The other was a story about how the buyer got all the way to the closing table and the lender pulled her offer to accept a better offer at the last minute.   The reports went on to suggest that their situations were unusual.

Their situations are far from unusual.   Short sales require a tremendous amount of patience by all parties. Particularly if you are on a deadline, a short sale may not be the right option for you as there are no guarantees it will ever close or close on your timetable.  If you are a buyer wishing to take advantage of the current first-time buyer tax credit you may be running out of time to make the deadline as short sales can take up to 6 months, or longer, or not at all.   I think short sales are catching buyers off guard because they don’t fully understand what a short sale is and how the process works.

A short sale basically consists of two agreements. One is the buyer’s offer accepted by the seller and the other is the agreement between the seller and his creditors/lender(s).  Just because your offer was accepted by the seller doesn’t mean the lender will accept any loss or a reduction of the seller’s payoff at closing and your transaction is at the mercy of the lender.   The lender is not a part of any agreements between the buyer and seller. However, if the seller has negotiated successfully with his lender and/or creditors, closing should occur.  As you know, however, not all lenders want the loss, or they want to lessen their loss and in many cases haven’t negotiated with sellers at all. And, yes, some lenders aren’t even responding to offers.  I personally feel one of the problems has been that lenders are swamped by requests and have been unable to handle the backlog resulting in lots of problems and headaches for all involved.  The negotiations between the lender/creditors and the seller, and not in the sales agreement negotiations with a buyer, are where most of the problems develop.  It speeds up the process when the seller and/or their listing Realtor® has accurately prepared and submitted the short sale package required to the lender in advance.

Buyers seem to misunderstand that once they’ve made an offer and it has been accepted by the seller, that it’s a “done deal”.  The lender doesn’t have to consent to a short sale and can withhold consent up to closing.   Most houses with short sales continue to stay on the market and receive multiple offers.  The short sale contingency only gives the seller time to negotiate any loss with his creditors/lenders. Whether or not the house closes depends upon the successful completion of negotiations between the creditors and the seller and the seller’s satisfaction of that agreement.  Lots can happen before the deed gets recorded and ownership is transferred to a new buyer in every day transactions.   When there’s a short sale, agreements between buyers and sellers don’t guarantee the transaction will ever get to closing or that transfer of title to the buyer will occur.

Buying a short sale can be a stressful experience.  A short sale needs to be monitored by all parties to result in a closing.  I have taken the CDPE – Certified Distressed Property Expert – classes and have sold short sales.  Make sure your agent has the experience and education required to successfully close a short sale transaction for you.

Source: Oregon Association of Realtors®.

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