Over the last 4-6 months we have started to see an increase in the amount of short sales and foreclosures here in the Santa Barbara area...especially in the Goleta and Carpinteria areas. Almost all of these have predominantly fallen into the price point from $250,000 to $800,000.

Question - Is a short sale a great opportunity to buy a home for cheaper than market value?

Answer - It can be if you have the time, patience and the wherewithal to deal with a lot of potential frustration, uncertainty and waiting?

What is a short sale? - A short sale is simply an unfortunate situation where the current owner of the property owes more on the loan than what the going market value for the property is or can be sold for. For a buyer, this can be an opportunity to purchase a home at a definite discount. But it is not as easy as it seems on the surface.

Steps taken for a short sale:

1) The owner has to first contact the lender to let them know that they have learned (via comps and/or their Realtor) that the market value for their property is less than what they owe on the property. The seller then lets the lender know that they can no longer make the payments on the home and thus need to sell the home as a short sale. Lenders are obviously not excited to hear this and will do all they can to encourage the owner to keep making the payments if possible. Only once the owner finally says that they will not be able to continue to make the payments and need to sell, is it then determined that the home will now be a short sale.

2) The owner now has to market the property for sale, but herein lies the Catch-22 and the start of the waiting and headaches. At what price do you market the property for sale and at what price do you "accept" an offer since no one knows the exact price the lender will accept. To officially go into escrow, the lender has to approve of the purchase and the terms of the contract. If you then call the lender to talk about this, they will give you absolutely no guidance. Here is where the headaches start to manifest....the cart before the horse.

The lender will only respond to you about pricing, terms and the sale of the property once you have:

• an explanation letter and proof of the hardship of the situation of the owner
• an "accepted" purchase contract
• proof of the buyer's ability to purchase the home
• copy of escrow instructions
• estimated closing costs
• previous tax return slips from the seller
• employment paychecks from the seller
• copy of a TDS
• past bank statements and potentially several other documents from the seller

And here is where the headaches continue. Once you have all this documentation you have to fax it into the lender. There is still no point person for the entire transaction. Just fax it in to the number given and hope all goes well. The waiting now builds. After about 1 week you will most likely get a call from someone at the bank who lets you know that they have received all the correct documents that they need and a negotiator has been assigned to your case. Say thank you if this happens. If they don't have all the correct documentation, one missing signature etc., you then have to obviously get this to them and then again wait for several days for a response. Finally they have everything and the real wait begins.

Over the last 6-10 months, the amount of short sales and foreclosures has increased so drastically for the lenders that it can take 5-9 weeks to get an accepted offer. Usually the listing agent will be called within 2 weeks after submitting all documentation to simply be notified that the case is progressing and a negotiator will call you "soon". Finally after around 3-5 weeks they will send out an appraiser to do an official appraisal. This then will take another 1-2 weeks at least. Once the lender then determines that the appraisal is OK and the price and terms that the seller has "accepted" is OK, the lender still has to get approval from the investors who will be buying the loan. The investors ultimately determine whether the price and terms are acceptable and whether you now officially go into escrow. If they do not accept the terms then they will counter the buyer and you go from there.

Note* - During this entire 5-9 week period of waiting, any other offer(s) can be submitted at anytime and the bank will look at these. The potential buyers have no idea of whether their offer is acceptable or not, or whether one buyer has written only $1,000 higher than the other. The banks then have no obligation to accept either offer, or to counter one offer vs. the other.

If you do get your offer accepted after a general 5-9 weeks of waiting, then you have roughly a normal 30-45 days escrow to close on the property. And...the property is sold as is. Hopefully now you will not discover during a home inspection any repairs that are needed that are not acceptable to you based on your offer. Additionally, the buyer will have to stay in contact with their lender during this time to make sure that the loan they were "getting" is still a go. Most lenders can only lock a rate for 30-45 days and so your loan situation might change during this entire waiting period.

So...yes, if all does go well and you can deal with the waiting and potential headaches, you most likely will get an accepted offer at somewhat below market value.

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