By Gina Pogol
Mortgage Credit Problems Columnist

Bob Asks: Dear Gina, I want to buy a short sale property, but I'm not sure what to offer. Do I have to stick with the sales price or can I go lower?

Gina Says:

Dear Bob,

"Short sale" just means that the market value of the property is less than the balance of loans against it. "Short sale" does not automatically mean "screaming bargain." Often, the price may have little to do with the property's value; listing agents can price it very low to generate a lot of offers and start a bidding war. According to Time magazine, that's happening right now in the Inland Empire.

Cash Is King with Short Sales

First timers in Southern California are getting beaten out by investors who make all-cash offers. If you are going to compete with them, you need to get approved for your home loan. For those with bad credit, mortgages are not so easy to come by. You need to resolve your credit problems and look at government home loans (I believe that Visalia qualifies for 100% USDA financing) or line up a bad credit mortgage before you start looking for a short sale to buy.

Short Sales Have Pitfalls

It's normal for the lender to take weeks to respond to an offer. And sometimes after all you go through you find that the owners have not documented a genuine hardship and the lender won't even allow a short sale.

I don't recommend jumping through the hoops of a short sale unless you really, really want the property or you can get it at a substantial discount. Otherwise you can often get a better and faster deal by buying real estate owned (REO) that is already on the lender's books. If you want to do a short sale, make an experienced short sale agent your new best friend. An expert knows the lender's quirks as well as particulars of valuing property in your market.

This is what you can expect to go through if you do start a short sale.

The Short Sale Time Frame

A short sale approve/decline can take 30-60 days from the date the offer is received and goes through several stages:

• Day 1: Legitimate offer submitted (legitimate means all needed documents are included, such as listing agreement, MLS listing, preliminary HUD-1 from the title company, hardship letter from the owner, and a signed purchase agreement).
• Day 2-15: Order appraisal.
• Day 15-25: Owner considerations. (Owner to provide needed documentation to determine hardship and ability to mitigate the loss; this time frame depends on current owner's compliance).
• Day 25-30: Negotiate delegated decisions. Non-delegated decisions take an additional 30-60 days. Investors like Fannie Mae and Freddie Mac and insurers (FHA, VA, MI companies) have to approve the short sale before it can proceed. Subordinate lenders (such as those who hold second mortgages) must agree to accept a reduced payoff amount to release their lien.
• Day 30-35: Approve or decline.
• Day 35-80: Proceed with sale until closing.

In short (no pun intended), offer what you are willing to pay for the property, taking into consideration the extra time and work involved. Good luck!

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