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Background: We are in the process of selling our current home and purchasing a different home in another state. We have a contract on our current house we were orignally told could close escrow yesterday, but in the original contract, the buyer had 45 days to close (our agent neglected to have an addendum drawn up to reflect the proper closing date, and we didn't note this in the rush to find a new home - our house went under contract much more quickly than we had anticipated it would). End result is that the buyer has one more week to obtain financing or the deal is done. They've asked for a 14 day extension, but we are not planning to sign that addendum.
The good news is that we had our agent place our home back as active on the MLS yesterday, and we had potential purchasers come by this morning, and they apparently want to make an offer on our house. They're coming in with a huge downpayment and can close quickly.
The problem: We placed an offer on a house in our desired area, and were supposed to close on that purchase tomorrow. We have requested an extension to match the date our 45-day escrow here could close. We're now being told that this will put the seller of our intended home into a "short sell" situation, which I gather means that the seller is upside down on their house (which is insane, because they should be making a pretty penny on it) and that they're going to negotiate with their lender so that the house sells at what they owe or for a loss to the lender.
I've been trying to figure out what this means to us. From what I've read (after learning about this earlier today), it seems that short sells seem to take longer to close than regular loans, and that, while they work for the seller, they're not really of any use to the buyer UNLESS the buyer is getting the home for lower than market value. We are NOT buying this house at a low price - we're actually a little worried that we're paying more than we should (just a little worried, not a lot).
Our agent tells us that we can still get this house, but we're now not sure what to do. We do have another house in the area that we'd be happy to purchase instead, so it wouldn't be the end of the world. The plain fact of the matter is that we have already had a TON of drama in this market (and I feel so sorry for those of you in real estate, because I know it must be worse for you than it is for me) and want to close quickly and neatly when we can.
So... do you have any advice for us? We're not sure how to deal with this at all, and our agent (who is wonderful) hasn't worked on many short sells in the past and while she's doing her best, I am hoping that someone else can help explain things and give us some idea of how this all would/should work.
The first thing your agent needs to do is to get you and her a copy of the estimated settlement stmt (HUD-1). This should show the payoff amount to the seller's lender. Also, the title company should be able to provide your agent with the amount owed on the home, i.e. primary mortgage holder and and any 2nd mortgage, etc. (It's actually best to find that out for before making an offer on a home. I usually run all that prior to negotiating the contract.)
From the sounds of things that the extension will "put the sellers into a short sale situation", it sounds like they're only short their monthly payment and some taxes or other fees. If it is a small amount, you may want to cover the extra costs associated with the 15 days (since it never was properly extended). I personally would look to my agent for at least some of those costs since, although she might be very nice, she nonetheless messed up in not getting that COE date changed.
Are you sure you could back out of this without losing your earnest money? As far as I can tell from your post, you'd be in breach of contract if you don't close this on the agreed upon date. But you really need advice from your local agent (or an attorney) on that.
Our purchase contract includes a contingency clause that our current home must close for us to be able to purchase the new home. Right now it does not look like our home will close within the time limit set, and our purchase offer will expire without us having finished escrow on our current home.
It is actually the home we're selling where we've been asked for a 14 day extension (which we are not planning on granting. There's been too much time lost already.)
I will ask our agent to pull the suggested forms. Thanks for that.
Do short sales generally go smoothly in your experience? We do not want to put the seller in a bad situation, however we have had so much drama that we're a little shy about any more. We were told that short sales generally take a while to close and that we might have to rent from the seller until we were able to close - we just want to get settled ASAP.
Thank you very much for the quick response, Gretchen!
Kosmo - a short sale in your situation would probably delay close another 2 weeks minimum. Basically, the bank (lender holding the mortgage - plus any lender holding a 2nd) must approve the short sale. The bank will not allow a short sale unless the owner is in default.
This whole scenario you've described seems a little bogus to me. Either the owner was already in default when they entered into this contract or not. Sounds like not, to me. Which may mean the owner either has not been making any payments since the contract date, or else will not clear enough now on the sale to pay off the existing debt.
Somebody (the two agents) need to know EXACTLY what's going on here and let you know ASAP. A bank can choose not to accept a short sale or may negotiate the costs (commission, etc) associated with a short sale. I doubt if this is actually a true Short Sale at this point.
Hopefully, the agents will step up to the plate and get this straightened out.
Oh, just had a thought. If you're in esrow with a title company, call them up and ask them to explain the situation to you. That might get your questions answered much more quickly. Just tell the escrow officer what you've been told, and let her clarify your situation.
Short sales are taking about 45 - 60 days around here. Of course you can have those horrible nightmares (like the one 2bindenver had) that take much longer. However with your 15 day extension, plus another 2 weeks, you'd be at about 30 days (60 days total). Since all the title work is done and your funds are available, I think you stand a pretty good chance of closing within 30 days of your original COE date. . . . but you never know til somebody talks to the bank. And that can be a challenge, making it through the roster of bank personnel and finally getting to the person that can actually make the decision about this particular loan. It's not as simple as calling up and saying, "I'd like to talk to the person in charge of short sales." I've heard of agents talking to a particular loan officer, thinking they're getting the straight answers, only to find out after a month of conversations that person knew squat about the loan in question.
Really, though, I wouldn't panic quite yet. First see what the real situation is here. If this truly is a short sale then the realtors involved really dropped the ball. They should have done their homework to find out the seller's financial situation.
Our purchase contract includes a contingency clause that our current home must close for us to be able to purchase the new home. Right now it does not look like our home will close within the time limit set, and our purchase offer will expire without us having finished escrow on our current home.
It is actually the home we're selling where we've been asked for a 14 day extension (which we are not planning on granting. There's been too much time lost already.)
I will ask our agent to pull the suggested forms. Thanks for that.
Do short sales generally go smoothly in your experience? We do not want to put the seller in a bad situation, however we have had so much drama that we're a little shy about any more. We were told that short sales generally take a while to close and that we might have to rent from the seller until we were able to close - we just want to get settled ASAP.
Thank you very much for the quick response, Gretchen!
The few short sales I have been involved in and/or heard about, never go smooth. They always take longer than the buyer wants. I just closed one last week where my borrower/buyer had to live in a motel for 8 weeks waiting for bank approval.
If there is a 2nd mortgage on the property...it could make things worse. I would always purchase an owner's title policy on a short sale.
Thanks for all the information. We're trying to find out as much as we can about the reality of the situation!
The "never go smooth" part worries me. We're looking for smooth.
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I've heard of agents talking to a particular loan officer, thinking they're getting the straight answers, only to find out after a month of conversations that person knew squat about the loan in question.
