San Diego Short Sale - Information for home buyers and real estate investors

San Diego short sale market has increased its share since the first recent wave of San Diego foreclosures.  Let's quickly define what a “short sale” is.  Short sale means that the mortgage lender is willing to accept less than the outstanding mortgage amount due.  Short sale is being used as a remedy by people who are in or about to default on their mortgage payments and who would like to avoid foreclosure proceedings.  This method offers the salvage of the home’s equity as well as leveraging the damage of personal financial records.  Other commonly used name for short sale is “negotiated settlement”.

In order for short sale to happen following criteria must be met:

  1. You have to have an owner of the property who is interested in selling his property at reasonable (lower that the current market) price which will interest a potential investor.
  2. This seller or the owner of the house must meet all the criteria required by the lender to accept an offer of the short sale.  It is largely based on the degree of financial distress and inability to continue with mortgage payments. Banks will not let you to walk away from your property just because you feel like it.
  3. Investor or buyer must have qualifications which are acceptable to the lender.
  4. The seller (home owner) has to present an offer which will be reasonable to a mortgage holder because after all it is the mortgage holder who will have to take a loss.

Despite its name short sale is not a quick process and usually takes about 3 to 4 months to accomplish.nbsp; It even may take years.  Banks don’t move quickly when it comes to accepting a loss.  Short sale only can happen when the lender agreed to it. Also, keep in mind that short sale proceedings do not stop the actual foreclosure.  It’s all up to the lender.

The goal of the homeowner is tool avoid foreclosure, recover from the property as much as he/she can, minimize the damage to their personal financial records and wipe the slate of home ownership clean.  Your credit score will be affected by the negotiated settlement but it carries less damage than foreclosure.

The usual goal of the investor or buyer is to purchase San Diego homes for sale below the market value while taking financial interest in the situation. 

And the goal of the mortgage lender is to minimize its losses before going into San Diego foreclosure.  Therefore, convincing a lender that taking a lesser amount of money now, before the foreclosure will eventually minimize their losses is important and is a part of a short sale negotiation.  Don't expect the mortgage lender to take your word for it.  They will do their diligence to find whether the short transaction terms are feasible.  Recent decline in pricing and the increase in real-estate inventory in San Diego real estate make lenders more lenient toward short sale option.

Short sales must be exercised with caution, any activity of prearranged quick resale of the property will be considered as fraud.  Everyone has to be extra careful in making full disclosures about the property in question and properly submitting all the documentation and therefore it is highly recommended to deal with a licensed experienced agent who does not represent investor’s interest.

Short Sale Process

The homeowner contracts an agent to assist him or her in the process of short sale.  An experienced agent will know the approximate guidelines for the set of circumstances that could be accepted by the mortgage lender while qualifying a seller.  But because these rules vary and changed often, there is no assurance that your proposal will be accepted. There is no “magic bullet” no matter what some unscrupulous agents may say.

An agent prepares what is known as “package”.  The package contains a set of forms and documents to be presented to the lender.  These documents include but not limited to an offer, real estate broker's price opinion, pictures of the property and hardship documentation.  Documentation requirements are stringent and it is better that your packages prepared by an experienced agent.  If your package is not complete or inaccurate it will result in delays or no reply. 

A San Diego real estate agent has to generate an offer on the house.  The easiest way to generate an offer on a house is to put it on the market at a very low price.  Since the owners goal is to sell the property as soon as possible, not for as much as possible, any offer will be found reasonable because the seller cannot sell the house before the bank will allow for real estate transaction to take place and the seller is not at risk by allowing their property to be listed below market value.

Then everyone ends up waiting for bank to give an answer. At this point the property is marked as “active” on MLS San Diego listings.  During waiting period the seller can decide whether they want the listings in San Diego to be public and take an additional offer which is called “backup offer”.  Therefore you must exercise the caution when you see Internet property listings.  You may see a great San Diego house at a great prize and you may wonder why is it selling so low?  However you will not find anything about short sale, it will not be included in the San Diego listings.

As I mentioned before, after a few months a bank will reply to an offer.  At this point the negotiation process will start.  If, after going back and forth, both parties will agree on a short sale price a bank will issue an approval and at this stage your listing is an “approved short sale” which is a term some real estate investors are after.  Most likely, the actual selling price will be different from what initially an agent had indicated in listings.  In many cases, the person who gave an initial offer will walk away from it because of the difference in the prize.  Some of the backup offers will be contacted as well.  Very often an agent will put a new price on the property and listed as an approved short sale to generate more offers.  Please remember, in the game of short sale the lender holds all the cards.

Call us with any questions you may have regarding short sales in San Diego. We can help.

David Newman