It is hard these days to find a property advertised for sale that does not include the words "foreclosure", "bank owned", "repossessed" or at the very least, "short sale" in its advertising. A total of 31% of all sales in the nation in 2008 were of foreclosed homes and short sales according to Zillow.com, with some states having as high as a 58% of thse distressed sales.
The American Dream of owning a home has become an American nightmare, with about $3.3trillion in home equity being erased in 2008. American's highest and most precious asset is being lost to an economic crisis. During a crisis, when homeowners run into rough financial patches and would need to tap into their homes equity to pay bills, they find it impossible to cash out their equity (lenders won't loan more than the property is worth and many are reducing owner's already established lines of credit).
If you bought your homes five years ago, there is a 41.2% your home is worth less than what you owe on it.
So, when you have a home that is losing value with each passing day, you cannot tap into its equity and you cannot pay for it anymore, your most probable option is to sell it short. A good possibility at first, but the more and more people are interested in following this path, the slower the process becomes at the bank's end.
A typical transaction that is not a short sale and involves financing on the buyer's side should take 30 to 45 days to close, whihc means that from the time a buyer selects a home they like and the time they actually own it, 30 to 45 days have passed. In a short sale however, a seller's lender(s) must approve the sale before the buyer can even start their process, so that means that however long the lender(s) take to approve, should be added to those 30-45 days.
These days, lenders are taking anywhere from 60 to 180 days to approve a short sale.
Let me illustrate the problem with an example of one of my personal sales. I got a listing for a beautiful apartment in a prestigious area. We priced it right, competitive without giving it away. After about 40 days we got an offer at a very reasonable price.
In an ideal scenario, as soon as you have an offer, you should send it to the bank in what is called a short sale package, which includes seller's financial statements, bank statements, hardship letter and other documents. Once the package is uploaded into the bank's system (indeally 10 days after you submit the package), a BPO (Broker's Price Opinion) is performed on the property to determine whether the offer is at fair market value. Again, in an ideal scenario, the BPO is uploaded into the bank's system within 10 days and a negotiatior is assign, who should i turn accept, deny or counteroffer within 30 days. A total of 45-60 days in all. In most cases however, scenarios are far from ideal, so in our case, after 4 months of patiently waiting (most buyers would have walked after just a couple of months), the file was "closed in error" according to the bank's negotiator. The file had to be re-opened and because to much time had passed since the first BPO was performed, a new one needed to be ordered.
To my surprise, the buyers agreed to wait just a little longer, becasue according to the negotiator, this time it should be much quicker. Well, it wasn't and after 7 months, we finally got an approval. The problem with this approval is that it was for an offer 7 months old, which means that the value that the buyers saw in this property 7 months ago, was no longer there. We all know that in 7 months, the value of a home could drop significanlty and even if the buyers still want the home, if financing is invloved, the buyer's appraisal would come in lower that the offer, which would mean starting over from scratch.
We are now working on an approval for a new offer from a new buyer for $50,000 less than the original offer.
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