Welcome to short sales 101
Let say that someone bought a house a few years ago at the top of the market and paid $400,000. They put little or no money down and took an adjustable mortgage. the house is worth $320,000. The adjustable mortgage has adjusted from 1.94% to 3.5%, their payments have gone to more than they can pay, they’ve fallen behind on the mortgage payments, they now owe (with back payments, late fees, attorney fees etc.) $430,000. And they need to sell. If they sell for $320,000 they don’t have $110,000 in cash to bring to the closing to pay the mortgage off so that they can sell.
They need to have a short sale. This is where they ask the bank to accept less than what the bank is owed in order to sell and get out from under the problem. The banks will often accept less than they’re owed because the alternative is to foreclose, which will create an even bigger loss for the bank.
Many people think a short sale is a bargain – and sometimes it is, but not always. We have one short sale listing, when they moved out they took everything that was not bolted down – then they started unbolting things. I went to show a short sale house to my daughter. We walked in, every appliance (washer,dryer,stove,dishwasher,built-in microwave etc) was lined up by the door waiting for the truck. The bathroom vanities and the toilet were next to them, then all of the ceiling fans and light fixtures. There were holes in the walls where the electrical outlets used to be. I recently saw one where they removed all of the copper plumbing pipe and took it to the scrapyard.
The bank wants to recoup as much of their money as possible – the homes usually sell for close to market value. As a buyer, here’s the bad news – if you make an offer on a short sale, the decision maker as to whether your offer gets accepted is the manager of the investment fund that actually owns the existing mortgage. I had a short sale where we made the offer on Friday, and it was accepted on Saturday. I have others where we’ve been waiting over 6 months for a reply. Until you get the reply yes or no, you don’t know if you bought a house or not.