The term “short sale” is often associated with homeowners who may be facing financial problems and a good deal on a home, states Dean Graziosi. This is especially true for those who live in areas that have been hit hard by the recent housing crisis. But what many buyers aren’t prepared for is how long it takes these types of deals to close. To help you understand why the process takes so long, I have put together some information.
In order for a short sale to be listed, the bank must approve any sale before you can close on the purchase. There is a lot of paperwork involved in a short sale, much of which is used to determine the validity of the sale and whether or not it is beneficial for the bank. The bank must carefully evaluate each request for a short sale because they are agreeing to settle for less than what the owner owes. During the process the bank must determine whether a short sale is the right thing for them to do. They must prove that the seller is financially incapable of keeping their home and not able to make their monthly mortgage payment. They also need to settle on a price that is fair to both the bank and to the seller, banks are not interested in taking too big of a loss and will do everything in their power to avoid it.
Another reason why short sales tend to take so long, is that it is common for paperwork to get lost in the process. With so much paperwork involved on that part of the bank and seller, it may be unavoidable to lose some of it during the process. If any paperwork is lost during this time, either the bank will have to replace it or the buyer will have to submit another copy. Because banks are losing money on short sales, they typically do not allocate the same amount of resources as they do with a typical sale. This means that there is less attention and care being given to the documents.
In the case that there are two lenders involved in the short sale, the amount of time required tends to multiply. When two lenders are involved, the larger loan is being shorted while the smaller loan is simply wiped out. With the two loans being held by separate banks, each bank must follow their own guidelines that they apply to short sales. Dealing with two separate banks can complicate the short sale and lead to a very time consuming process. It may be months before the seller is able to come to terms with each lender.