“How long will it take to close?”

That is the question I hear almost every time I ask a buyer if they would consider looking at Short Sales. I’ve mentioned here before that there are some great deals to be had among Short Sale homes for sale here on Whidbey Island. But one of the issues that keeps many buyers from pursuing them is the uncertainty of how long it will take to close.

So, what is the answer? Well, it depends! I have had Short Sales close in as few as 3 months, and as many as 10 months from the time of the offer to the date of closing.

There are two key elements to a successful and quick closing for a Short Sale: 1) a cooperative seller, and 2) a cooperative lender.

The most important factor is a cooperative seller.  To approve a Short Sale, a lender will require the seller to provide every pay stub & bank statement from two months prior to applying for the short sale up through closing.  They will require the seller qualify for a Hardship (typically losing a job, major medical issues, divorce, death, or military transfer) and explain in detail the nature of the hardship in writing.  The lender will require the seller to provide a detailed breakdown of their everyday expenses, from food and house payments, to child care and gas expenses.  Every penny the seller earns and spends must be accounted for before the lender will approve the sale.  And typically the lender will tell the seller that they have everything they need, then come back two weeks later and ask for more documents!  If a seller is not cooperative, and doesn’t get the required documents to the lender quickly, than the short sale will be delayed, or even disapproved.  If the sellers are in the middle of a messy divorce, just lost a job, or had to move, sometimes getting the required documents to the lender can be a challenge!

The second critical factor is a cooperative lender.  If the lender is disorganized and doesn’t properly file the documents they receive from the seller, or is continually reassigning the sale to different processors or negotiators, it will slow things down.  If the lender does not assign a negotiator in a timely manner, or the negotiators are assigned too many files, than the closing can get delayed significantly.  But the biggest challenge is a lender which overvalues a short sale house, and causes the Short Sale to fall through because they have set an unrealistically high value, above actual Fair-Market-Value.

I have worked with a number of different lenders on Short Sales, and have found the processors and negotiators to be hard-working, conscientious folks.  But any big bank is a bureaucracy, and the checks and balances to prevent fraud result in understandable delays.  The result is a process that may seem enormous to many.  But it is not insurmountable, it is just enormous!

My advice to buyers:  If you can wait 4 months or more to get into your home, then a Short Sale is a good option to consider.  If you want a home in the next 45-60 days, it is probably unrealistic to expect a Short Sale purchase to close in that timeframe.

What are Foreclosures & Short Sale Properties?

Foreclosures are homes that have either been abandoned by their homeowners, or reposessed by the lender when the homeowner could no longer make their mortgage payments.  There are different types of Foreclosures, including Bank-Owned properties, and HUD and VA foreclosures.

A Short Sale is a home still owned by a homeowner who is trying to sell the home for less than the value remaining on the mortgage.  Since the mortgage won’t be fully paid off when the home is sold, the bank needs to approve any sale.  In many cases, the short sale homeowner is behind on payments, and may be on the way toward foreclosure.  It is usually in the bank’s best interest to allow the short sale homeowner to sell his home at a loss to the bank, since in the long run the bank will probably lose even more money if they proceed with a foreclosure.

Buying Foreclosures and Short Sale homes on Whidbey Island

Step 1:  Getting pre-qualified with a mortgage lender is usually the first step in buying any home, including foreclosures and short sales.  All foreclosures, and most short sales, will require the buyer include a  Pre-qualification or Pre-approval letter with any offer.  Getting pre-qualified is a simple process, and can be done over the phone.  I always recommend that buyers get pre-qualified with a local Whidbey Island lender.  Our local lenders understand the intricacies of dealing with local requirements, such as well and septic system inspections, and don’t charge the “junk fees” that some of the internet lenders or big-city mortgage brokers charge.

Step 2:  The second step is to contact a local real estate agent to help you find homes.   Foreclosures and Short Sales for sale on Whidbey Island are listed in our local Northwest Multiple Listing Service (NWMLS) of homes for sale in the Puget Sound area.  Any home that is listed for sale may be sold be any qualified agent on Whidbey Island.  So even if the property is listed by an agent off-island, a local Whidbey Island agent can help a buyer to see and write an offer on the property.  Certain types of foreclosures require that the agent be registered to sell them (all agents at Coldwell Banker Koetje Real Estate are qualified to sell all types of foreclosures, including VA and HUD homes).

Step 3:  The third step is to let the agent know what you are looking for in a home, and start looking!   We have a wide variety of foreclosure and short sale properties for sale on Whidbey Island.  Whether you are looking for a Condo, a single family home, a multi-family investment property, or a manufactured home on acreage, we probably have something that will make a great home or investment for you.

Other things to consider:

Foreclosure considerations - Sometimes as the homeowner is going through the process of foreclosure, they will remove the appliances, fixtures, wiring and any thing else they can sell.  Most sellers facing foreclosure are under a lot of stress, and some will damage the home in their anger at their lender.  As a result, foreclosures often are in need of significant repair.   If a foreclosure is in bad condition, or has structural damage, it may be extremely difficult for buyers to get bank financing.  While foreclosures may appear to be a good value, they may be in serious need of a cash infusion, and so buyers must have a financial plan for how they are going to pay for any needed repairs.

Short Sale considerations - Because a bank has to approve any Short Sale, there is an added level of negotiation in the sale.  Depending on the efficiency of the bank, they may take several weeks (or several months) to approve the sale, and they may add conditions to the sale.  If you are thinking of buying a Short Sale home it is very important that you hire an experienced short sale agent to represent you.  There are a lot of steps that are handled differently in a short sale than in a normal home purchase, and an experienced short sale agent will be able to properly advise you on your rights along the way.