Thought about buying a short sale or pre-foreclosure in Tampa Florida? Savvy buyers have scooped up some great deals, but proceed with caution.
Short sales happen when home value has fallen to the point where a seller cannot payoff the underlying loan. Lacking funds from other sources, a seller will ask their lender to accept less than the loan amount to allow a sale. There are many reasons to consider buying a short sale in the Tampa Bay area, but here are 16 things you should know:
1.) The List Price might be a fantasy number.
Unless a lender has responded to a previous offer, Realtors and sellers have no idea if the lender will accept the list price, let alone anything under the list price. We see this time and again: list prices are set extremely low, and then a buyer offers 50,000 less than list price. This strategy is guaranteed to waste everyone’s time. Lenders will reject these offers after a protracted delay, and eventually the home will sell for within 12% of market value.
2.) Lack of Lender Motivation.
Are you able to pay cash? Can you close in 2 weeks? Most lenders do not care. Lenders are processing so many short sale requests at once that they do not behave like typical sellers. If the offer price is too low, there is little incentive for a lender to cooperate with a short sale.
3.) No Control over Closing Date.
Buyers, sellers and agents have absolutely no control over when a home will close. Lenders take from 60 to 150 days to decide if they will accept a short sale, though 90 days is more typical. Do not expect weekly updates. Lenders may not communicate for months at a time. Impatience and lack of lender communication cause most Tampa buyers to bail out of a contract by the 2nd or 3rd month.
4.) The Homeowner might not qualify.
You might wait 100 days only to learn that a homeowner does not qualify for a short sale. Sellers who are just upset because their home has lost value need not apply. Banks are only considering short sales if a homeowner has a legitimate hardship such as unemployment, divorce, medical emergency, bankruptcy, death, etc. Lenders require complete financial records from sellers before making a decision. Hiding assets from lenders is considered mortgage fraud.
5.) Don’t be a placeholder.
Inexperienced Realtors and desperate sellers often set list prices unrealistically low to attract an offer, any offer. If comparable homes are selling for $200,000 and a short sale is listed at $150,000, there is a reason. Agents will often submit unrealistic offers in order to start the long process with the lender. Once a lender responds to the offer, then the agents knows #1) that the homeowner qualifies for a short sale, and #2) what the bank’s bottom line is (at least on that day). By the time the bank responds, the first buyer is usually long gone. Do not let yourself be used as a placeholder for the second buyer. You can control this by not making unrealistically low offers.
6.) Homes Sell Close to Market Value.
Lenders are not stupid. Lenders will order an appraisal, or a BPO (broker price opinion), to determine the home’s market value. Many lenders are agreeing to prices that are 10% -12% below market value for Tampa homes, but they are not giving these away.
7.) Yours might not be the only offer.
Many Listing Realtors in Tampa submit multiple offers to a bank. We have seen some Realtors submit 10 offers to the bank on a single home, which is a clear signal to the bank that the home was under-priced. Some Listing Realtors keep the home in an “Active Listing” status even though offers have been signed by the homeowner and are pending bank review.
8.) Inexperienced Realtors could kill the deal.
The Listing Realtor might not be qualified to handle a short sale. There are thousands of Realtors in Tampa, and most sell just a few homes per year. Executing a short sale requires a high level of specific skill and experience that is rare among Tampa Realtors. You might waste 90 days waiting for a response from a lender if the Listing Realtor does not have the required expertise or does not submit a complete short sale package to the lender.
9.) Scam Artists Abound.
The risk for short sale fraud is high. Beware anytime you see language about options, assignability, simultaneous closings or flipping. Make sure all transactions are at arms length – do not buy from friends or family. All payments to the seller must be disclosed on the closing statement (HUD); there must not be any side deals for furniture or other assets. Mortgage fraud is a federal crime, and not one you want to be unwittingly dragged into. Tampa is an epicenter for mortgage fraud.
10.) Beware the New “Negotiator”
Most short sales take months to close. At any point in the process, the file may be re-assigned to a new “negotiator” within the bank. The new negotiator’s decision might not be the same as the old negotiator. The average case worker is processing 300-500 files per month. If the short sale package is not submitted with all proper forms, addenda and supporting documentation, then your offer has little chance of approval. Most banks have sold their loans to investors; hence negotiators pick the best short sale packages and meet with the investor to seek approval. There are often many investor groups, each with evolving business requirements.
11.) Last minute changes by a Lender.
Even after a bank has accepted a short sale, most reserve the right to renegotiate the terms until the last minute. The tremendous pressure on banks has resulted in frequent policy changes on short sales. There are no guarantees until the home is closed.
12.) The 2nd mortgage holder might not “play ball”.
If the homeowner has a second mortgage, then the 2nd mortgage holder must agree the short. While most 2nd mortgage holders will accept a few thousand dollars from the primary mortgage holder, some major banks are now requiring the homeowner to carry a deficiency judgment whereby the homeowner must agree to an unsecured note where they eventually repay the balance of the second mortgage. The first and 2nd mortgage holders might have conflicting policies that cannot be worked out by their respective negotiators. While rare, you might wait 3 months for a bank’s decision, only to learn that the homeowner will not accept a deficiency judgment and prefers foreclosure or bankruptcy.
13.) Higher Buyer Closing Costs.
Looking for a home warranty? Lenders will not pay for a home warranty. Want repairs made? A better option is to make an “As-IS” offer is contingent upon your inspections. How about a seller contribution toward a buyer’s closing cost? Lenders are less likely to pay these than a typical homeowner. If you ask for the seller to contribute toward a buyer’s closing costs and pre-paid items, keep the total less than 3%. SOme lenders are even balking at paying doc stamps and title insurance, which are common seller costs in some markets.
14.) Homes Sell “As Is”.
Most lenders will not agree to make repairs; and these homes are sold “As-Is”. You have the right to do an inspection and cancel if you not satisfied with the inspection.
15.) The Bank Might Say no or might counter.
When the bank finally responds to an offer, the answer might be no, or the bank might counter at a higher price. Be prepared to wait a few weeks for the bank to review your counter offer.
16.) No scuch thing as a “Pre-Approved Short Sale”.
Some Realtors advertise “approved short sale” if someone in the customer service department of a lender may have told a homeowner to try a short sale – this is very misleading. Lenders analyze and approve specific short sale offers. There is no such thing as a blanket pre-approval; as all contracts are approved on a on a case-by-case basis. While a recent contract approval might speed the process, there is no guarantee that the lender (or the investor who holds the loan) will approve the next contract due to changes in business conditions and policies.
As daunting as it might seem, informed buyers can benefit from short sales. These homes are usually in much better condition than bank owned homes (REOs), and they can be purchased for below market value. Call Team Bohannon today for more information from a Certified Distressed Property Expert (CDPE) who is trained to help you succeed with short sales. – by Dale Bohannon
