So, you read this siren call on the MLS listing that say “Pre-Approved short sale, quick closing possible”.  You get all excited; maybe this short sale will be different.  You get an accepted offer and 4 months later you are still waiting for that “quick closing”.  It happens to me all the time.  I have only seen 2 short sales close in less than 45 days.  So, why do agents put that on their listings?

Read my thoughts over at my Minnesota Short Sale blog.

Lots of people have been asking about when do you have to have a deal signed and then when does it has to close to be eligible for the $8000 tax credit.

I am not an attorney nor do I play one on TV.  This is what I have read and heard from my mortgage broker friends.

A buyer have a fully executed contract in hand by April 30, 2010 for the transaction to be considered eligible.  Then the deal must close by June 30, 2010 in order to take advantage of the first time home buyer tax credit.

The primary key here is that you need a “fully executed” contract.  The typical REO or retail sale that gets done signed by April 30 should have no problem skating across the finish line.  Conversely, I bet most short sales will not make it.

Many short sales will agree to your offer, sign it, send it to the bank for approval and then wait.  If you as the buyer do not receive a signed copy, you do NOT have a fully executed contract in the state of Minnesota.  The way to fix this is to demand that the seller sign the contract and give you a copy, but make it contingent upon bank approval.  The contract can still be “subject to bank approval” for it to be binding and fully executed.  That is simply a condition of the contract like an inspection contingency.

I know you don’t want to hear this, but I believe that it is already too late to make an offer on a property that is a short sale and get it through the bank’s short sale department before June 30.  Some agents may disagree, but every short sale I have been involved in takes at least 4-6 months to close.  You would have needed to get an accepted offer on one January 1 or earlier to feel good that it will probably close by June 30 (even then it is a crap shoot!).

Just when I thought I was out, they pull me back in.

-Michael Corleone

I have said it before:  I am done with Short Sales.  Unfortunately, I feel like Al Pacino in the Godfather III when he says:  “Just when I thought I was out, they pull me back in”.  I consistently say that I am not going to sell my customers short sales.  Unfortunately, the allure of the attractive pricing gets me every time.

Here are some pitfalls that I have seen amongst deals that have closed and many that have not:

• Listing agent calls 2 days before closing, says there is a $3400 Minneapolis water bill on the property and the seller is NOT going to pay it.  Listing agent asks if my buyer would take care of it!
• Buyer puts in full price, non-contingent offer on nice tri-plex in NE Minneapolis.  Listing agent does great job of communicating with us weekly.  Countrywide goes through 8 BPOs, 4 negotiators, and countless phone calls.  6 months later, my buyer finally decides to cancel when they ask for another BPO.
• A deal had previously fallen through (because of buyer’s financing) on a townhouse in Apple Valley.  Great agent does a good job of repricing the property at the previously accepted offer price.  My buyer pays full price, no contingencies.  Bank delays several times, sends someone out to do a BPO who promptly claims the property is worth 25% more than the list price (and 15% more than any recent sale in the neighborhood), bank cancels sale after 90 days in the process.
• Buyer is purchasing multi-family property.  Seller has stopped caring about property and not collecting rent.  Between the first showing and the offer being accepted, one unit becomes vacant.  As part of our due diligence, we get copies of the rent rolls and the leases.  None of the remaining tenants have paid any damage deposit and two are now more than two months behind in rent!
• Real Estate Agent markets property in Neighborhood with many foreclosures.  She never tells me this is in fact a short sale until well after we have an accepted offer.  At the closing, we find out the house was actually sold that morning to a land trust who in turn was actually the group selling it to us.  They make a $25,000 profit on a $115k sale!

Investment Property Short Sales can be great opportunities to buy investment properties at greatly discounted prices.  You just need to be prepared for anything as it seems like they are making it up as they go.