Arizona Short Sale Issues

Short sales are anything but short and they are transactions fraught with many issues. Plus they are usually guaranteed to create frustration of even the most patient of buyers. For a buyer, short sales are homes listed in the Multiple Listing Service (MLS) that are still owned by humans and have not yet been taken over by a bank, but the bank is likely to take them over soon. The human owner owes more on the property mortgage(s) than the current real estate market will let the home sell for. (Example, a owner owes $400,000. on their mortgages and the current market comps only show the home is likely to sell for $200,000. – therefore the home is listed as a “short-sale”.)

Some things an Arizona home buyer needs to understand about Arizona short sale listings.

  • The price showing in the Multiple Listing Service (MLS) has not been approved by the bank(s) who hold the mortgage at the time the property is listed in the MLS. Banks will not “approve” any price until there are offers on the property and they, the banks have done their due diligence —  with appraisals and bank price opinions. A considerable amount of time, from the time the home is listed, will have elapsed before this happens. Also it is not uncommon that a short sale property may never close as a short sale at all. Instead they may ultimately foreclose. More the banks who hold the mortgage will demand more than the listed price for the home to close.
  • When an offer is made for a short-sale property, it can take weeks, or months, for the bank(s) to respond to the offer at all. Despite the government trying to make rules that the banks need to respond in a timely manner, it can still take months and months for a response. The reality is that even after all this much time that the economy has been in a difficult place and the market has seen foreclosures, many of the banks still do not have streamlined procedures in place and/or the staff is often completely short-staffed and the staff there is overworked with sheer volumes.
  • When a property is listed as a short sale the bank still has the right to foreclose on the property and sell it at an auction even if there are offers on the home — and in some cases even after they actually have accepted an offer. It is also not uncommon for the bank to sell the home at auction for less than the offers that have been made in the short sale process.
  • In a recent survey of short sales that did close while as a short sale, about three quarters of them closed escrow for the listed MLS price or above. The remaining properties that closed only showed a very slight discount from the listed MLS price. So if you are inclined to endure the frustration of making a short sale offer, please do not attempt to think a low-ball offer will have a chance of being looked at seriously by the banks.
  • Many of the homes listed as a short sale have two or more mortgages on the home. In many, many cases even if the bank who holds the first mortgage agrees to a short sale offer, the other banks will not. But the short-sale process can take months for the second or third banks to even say what they will do. If all the banks involved in the loans of a home do not agree to a short sale price and terms, there can be no sale of the property, regardless of what offers are made on the home.
  • Short-sale properties are sold “as-is”. The buyer can make inspections during their inspection period, however, there will be no repairs. The banks also will not do a termite treatment, if there is evidence of termites. If the buyer is paying with a loan, and there is evidence of termites, their lender will require a treatment before they make the loan. The buyer should plan for enough money figure to pay for this before they buy the home.
  • Many times items such as appliances, lights, fans and other amenities will change in the short-sale home from the time a home is listed as a short sale until the home is ultimately sold – or ultimately forecloses. The human owners in the home are likely in financial stress and often will sell off their appliances, remove lights, fans, water softeners and all sorts of other amenities before they leave the home. Sometimes the owners might even remove the air-conditioners. (No, it is not right that the human owners do this, but it happens – it’s the economy we all live in and people do what they have to do for money.) Sometimes the owners will replace the appliances with lesser quality appliances before they vacate the home. If you are a buyer who is trying to get a short sale home, do not expect the home to be in the same condition you saw the home to be in once the humans vacate the property. And remember the home is “as-is” —  there can not be any repairs requested or expected.
  • There may be back taxes that the seller has not paid, because the owners  simply do not have the money to pay them. The same may be true for past due HOA fees that the seller could not afford to pay. If the bank does decide to agree to a short sale, you, the new buyer may have to pay all these past due taxes, liens and fees in order for the sale to happen.
  • While it is commonly assumed that all the Buyer’s Agent fees will be paid by a seller, in cases where the home is a short-sale or foreclosure, sometimes the banks are not paying this entire fee. In a case where the seller is not paying the full buyer’s agent fee, the buyer will be responsible to pay the short-fall fees to their Buyer’s Agent at the time of close of escrow.

Short sales can be a problematic category of homes for buyers to become involved with unless they are extremely patient and do not have any needs to take possession of a home in a reasonable time-frame. And above all, buyers should remember that after waiting months and months for a short sale to be approved by the bank(s) the bank(s) may not approve the buyer’s offer at all – regardless of the offer price.

Also regarding short sale homes,  if you are a seller who needs to sell your home and it will need to be a short sale, we can make referrals to you of professionals who may be able to assist you. As a business practice we refer these transactions to professionals who are closely aligned with attorneys.