The first thing I learned as a transactional real estate attorney was the only sign of success to the parties involved is a successful closing. For many years the fact that the buyer and seller both signed the contract was an assumption of success. I was always confident that I could resolve most issues with the other party?s consul under the attorney review provision of the signed contract. In the last few months this has changed and there are no longer any assumptions of success until the deal is closed and funded.
More and more the factors influencing a closing are affected by third parties?not the contract and its principals: the buyer and the seller. I have found one of the biggest pitfalls to a successful closing has been short sales, a relatively new type of transaction to even the most experienced real estate agent and mortgage professional.
The Problem is Closing Short Sales
Although the buyers are hearing it is a ?buyers market,? in a short sale the advantage for the buyer is presumably the price. Where these deals are falling apart is as a result of the rest of the factors of the transaction. The buyer nor the seller is in control of the closing date. The bank controls not only the minimum price, but the closing date as well. My experience has been the closing date can be set anywhere from 90 days to 8 months after the contract is signed. It is not just the purchase price agreed to on the contract and what the property appraises at, but the seller?s financial situation and the bank?s investors that come into play. There is no rhyme or reason to how each transaction is evaluated by the bank.
What Can a Buyer Do?
The buyer needs to be educated before the contract is signed. This means they have to understand that a short sale is subject to leinholder/bank approval. What differentiates this from a foreclosed property is the seller still owns it. The property is sold ?as is,? so once the contract is signed there is no negotiation on inspection issues. This is a major issue if the buyer is obtaining a loan and even more of an issue if the buyer will be using FHA financing. In many cases the buyer (not the seller) must be prepared to take care of any inspection items prior to closing or the mortgage will not be funded.
Delayed Closings Cause Lending Problems
With the ever changing loan guidelines and the length of time from contract to closing, many times the mortgage program the borrower relied on in executing the contract has been modified or is no longer available. Typically these issues can be resolved with the lender. Some situations I have come across are either where the transaction fails to close when the bank increases its down payment requirement where the buyer was approved many months back or when the buyer has suffered a change in income or credit history during the pendency of the contract, making the borrower ineligible for the loan by the time the transaction is ready to close.
Buyers Must Be Flexible and Patient!
When the deal is good enough, a buyer should be flexible and stay focused on the big picture?getting an exceptional price. If you are purchasing a short sale property, be prepared for the deal to take a while. Lenders are overwhelmed and these transactions can take months to complete.
We would like to thank It’sGreg for kindly sharing today’s photo via the Creative Commons License.

June 3, 2009 at 2:39 am
I agree, the buyer must be flexible, patient, and educated when buying short sale properties. Or if needed, before doing some action, the buyers should ask advice from the expert.