Buyers in Utah County are continually asking me about how to buy a short sale.  It is not a simple as it sounds.  Let me explain it like this.  Image going to the mall and choosing an item you would like to purchase.  You take this item to the cashier and the cashier says, "sorry, you can't buy this item and this time".  You then go and sit in a waiting room with a few other people trying to buy the same item.  After a few hours the clerk comes into the waiting room and tells you the item has been incorrectly priced.  The price must now be raised about 25% and you can't buy it for another two months.  You are now frustrated and no longer wish to buy the item.  This is an example of what happens with unapproved short sales every day in Utah County.  The key is to look for approved short sales in Utah County.

In a short sale, a home is sold for less than the outstanding balance of the mortgage. This is often used as a means of preventing foreclosure. But in rare instances, a short sale may take place even if the borrower is up to date on his payments.

The idea behind a short sale is to recover as much of the money owed as possible and avoid the expense and hassle of foreclosure. It is up to the lender whether or not a short sale is allowed. If they believe that the proceeds from a foreclosure minus the costs will be less than the proceeds of a short sale, they will usually allow it. Otherwise, they will go forward with foreclosure.  A short sale usually delays the bank foreclosure process.

Step 1. Short Sale (Subject to 3rd party approval).  This is often referred to as unapproved short sales. – The seller is experiencing a financial hardship and they need to sell the home. The seller lists the home with a Realtor to find out they owe more on the home than it is worth (hence the term short-sale). The Realtor or the seller communicates with the bank and lets them know they are going to try to sell it short. The bank will usually not elude to what they will be willing to sell it for until an offer is on the table. The bank will say… “show us an offer and we will talk”. These homes are listed at a price that usually will not be accepted by the bank. Homes are listed to encourage offers and can be a bit misleading. When an offer is received and sent to the bank, it can take a couple months for them to respond.  Typically homes have multiple liens on the property and ALL lien holders must agree before the home can be sold. Listings with this status can take up to a year to close on depending on many factors.  I personally buy rentals in Utah County.  I completely avoid looking at or making offers on unapproved short sales.

Step 2. Short Sale (Approved by 3rd party) – The bank has received an offer and has responded with either an acceptance OR with a “We won’t take this offer price, but we will take $XXX,XXX”. If the original offer was not accepted,  the first person to put in an offer at the approved price often gets it. If you put in a lower offer then the bank will need to review offers again which could take weeks or even months for a response. After a bank approves a price you could close in a matter of weeks depending on the bank. If the price is approved, the bank usually has acceptance from the junior lien holders to sell the home as well.

Step 3. Foreclosure – The home never sold as a short sale and the home goes up for auction at the county steps. Junior liens are wiped out and if nobody bid on the home at the county steps, the home goes back to the bank. The bank hires a Realtor to market the home and generally prices it for a quick sale. The bank is usually quick to respond and wants to close ASAP.  Banks often price the home for higher prices than the short sale price.  I think bank foreclosures are much better to buy than a short sale for several reasons. 

I suggest not even looking at short sale homes that have not had the price approved.  Wait until the price is approved or the home is a bank foreclosure.  Consider short sales with bank approved prices.  I think about 75% of short sale prices are not approved and 25% of short sale prices are approved.  This advice will save you a considerable amount of time searching for a home.  My clients tend to watch the bank foreclosures.  If you look at the history of the price drops on a particular bank foreclosure you can gauge an estimate of when the next price drop is coming.  It can be very predictable.  If you would like me to help you hunt for an available bargain in Utah County give me a call.

If you would like to read more about short sales in Utah County visit this link:  short sales in Utah County