Ever wonder why purchasing a home through a short sale takes so long? Aside from issues related to the required paperwork necessary, and third party involvement by the bank, there are other factors which can potentially delay the finalization of a sale that many people may not know. A short sale is a sale of real estate where the homeowner is asking the lender to accept an offer on the home that is less than the mortgage amount due. Buyers and sellers can become easily frustrated in a short sale because the length of time it takes to close the sale can stretch into several months, even up to and beyond a year. One of the factors affecting the length of a short sale is that the lender typically has someone else to answer to in the sale. The “lender” is often just a servicing company that has its own liability to the original lending group. That lending group is what they refer to as their “investor.” About 80% of the time in today’s market, the “investor” is Fannie Mae ( Federal National Mortgage Association) , Freddie Mac (Federal Home Loan Mortgage Corporation), USDA, VA, or HUD. Fannie and Freddie are set up to be a combined private corporation and government entity. In practical terms, they are getting government funding to buy up mortgages from large well known banks, like Chase, Bank of America, PNC, Regions, etc., who in turn get a fee to process the loan applications, and a commission or fee to close them.
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When a seller defaults on the original home loan (which is often the case in a short sale scenario), the servicer is under a legal obligation to meet certain protocol so that they do not breach their contract with the “investor” on the loan. The lender is responsible for qualifying the loan for loss mitigation and write-off. Sellers often have to jump through other regulations and requirements to qualify for their home loan to be approved for a short sale. When a loan is owned by private investor groups, it can be hard to obtain approval for the short sale. Private investor groups are not always set up in a way that allows for the investors to review and approve the sale. In simply terms, with private investors, there is no point person to approve the write off of the loan in a short sale. The only legal move left for the investor is foreclosure as this will clear all of the liens on the home, providing the lender with a clear title if they are the only bidder on the home at foreclosure sale.
If a buyer is considering purchasing a home through a short sale, it is important to find out who owns the loan. If a loan was originally one where there was little or no down payment, the loan is likely owned by Fannie Mae, Freddie Mac, USDA, FHA, VA, or HUD. When a home loan is owned by one of these government entities, the short sale package must go through a separate approval process. This additional process can take up to 30-60 additional days beyond the original loss mitigation paperwork, assignment to a loss mitigation representative, and assignment to a short sale negotiator – which alone can take several months. If you or anyone you know is interested in purchasing a home through a short sale, brace yourself for a lengthy process. You can arm yourself with some knowledge about the original holder of the mortgage loan, and this alone can help you determine what to expect in terms of the approval process. Go to www.makinghomeaffordable.gov to search for whether or not the loan is owned by Freddie, Fannie, FHA, VA, USDA, or HUD. If the loan is owned by a private investor group, the buyer should be prepared for the possibility that the short sale will never reach the point of approval.
Baldwin County Short Sales information provided by Jessica Ryan of The Ryan Realty Group 251-509-5100.
