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Secrets to a Successful Big Bear Short Sale: Buying A Short Sale Home

Fact:  1/3 of all Short Sales do not close escrow.  There’s either too many liens on a property, the bank won’t accept the short sale, or the buyer backs out because they’re tired of waiting on the bank to make a decision.  Below are a few things I would recommend if you’re considering making an offer on a short sale home to help make the process go as smoothly as possible from the buyers’ side of the transaction:

1).  Has the Short Sale been Approved by the Lender?  If the bank has already accepted the price and accepted the sellers conditions, you are in great shape.  Usually this isn’t the case.  Usually it’s easy to get the seller to approve the short sale but difficult for the lender to approve it.

If the price hasn’t been approved by both the seller and the bank….

2).  Can You Justify the Price to a Lender?  Many agents drop the asking price below market value to get activity so they can present something to the bank to initiate negotiations….which is great!  But if the price is too low to justify, the bank won’t accept it.  Make sure there are comparable sales that support a fair price, otherwise you are fighting an uphill battle and it will be difficult to persuade the loss mitigation department to accept your price.

3).   Pre-Qualify the Listing Agent.  If you are working with a local agent in Big Bear they should be able to contact the listing agent and ask the following questions:

  • What’s the status of the file?
  • How many liens are on the property?
  • What is your plan to satisfy the lien holders?
  • Can the Seller prove hardship (either marital, medical, or financial hardship)?

4). Present your Offer with a Pre-Approval Letter. You want the bank to know that you’ve already spoken to a lender and they’ve approved you for a loan. You don’t want to send over a pre-qualification letter, but a pre-approval letter. There’s a difference. A pre-qualification letter states they think you’ll qualify for the loan, whereas a pre-approval letter is more detailed and shows they’ve ran your credit report, they’ve looked at your financials, and they can substantiate an automated approval which shows you have the financial wherewithal to perform.

5). Give the Lender a Deadline.  Make sure you submit the C.A.R. (California Association of Realtors) Short Sale Addendum Form (SSA) with your offer. There are two very important reasons to do so.

  • Paragraph A of the Short Sale Addendum clearly identifies the time period for getting a response back from the bank (you write the date in on the form). If you don’t get a response back from the bank by the specified date you have the right to cancel the agreement in writing. I typically suggest a 30 day time period to create urgency on the part of the bank. It can always be extended if necessary.
  • Paragraph B of the Short Sale Addendum identifies when the inspections, contingencies, and other obligations begin….I normally advise my clients to check the box that states that time periods “shall begin the Day After Seller delivers to Buyer written notice of Short Sale Lenders’ consent”. That way, no time has been lost and no unnecessary inspections have been paid for until the bank approves the sale. You can also request that your good faith deposit be held uncashed until the seller’s lender provides written consent…so it’s important to include this form.

6.  Conduct your Inspections just like any other Purchase.  Even though the short sale lender will emphasize that the property is sold in “as-is” condition make sure you do your due diligence.  Generally speaking, a lender won’t want to pay for termite problems, a buyers home warranty, or any buyer credits but this shouldn’t prevent you from doing all of the necessary inspections. You want to know exactly what you are buying.

Mike Wochner

This is part 2 of Secrets to a Successful Big Bear Short Sale. To read Part 1 regarding “The Application Processclick here.

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