What does pending short sale mean?
When buying a house, you will come across multiple listing statuses. One of these statuses is a pending short sale. In short, a pending short sale status means that the seller of a short sale has received an offer on the property and the sale is not finalized yet.
A pending short sale is very important as it informs buyers who are interested in the property that the seller has received an offer. Because the sale is a short sale, this status can stay active for a very long time. This is because the lender must accept or deny the offer before the seller moves forward.
How does a short sale work?
When you get a mortgage, you will have a contract between you and the lender about the mortgage payments, terms, etc. Every month you will make a mortgage payment that will cover the principal amount, interest, tax, and insurance or PITI in short. Sometimes, the HOA fee, mortgage insurance, etc (if applicable). will be included in your monthly payment depending on your lender’s requirements.
What if you can no longer afford to meet your payment requirements? Let’s say that you lost your job and have no other means to cover the mortgage payments.
Well, you will fall behind and the lender will not be happy about it. In response to your missed payments, your lender will file a notice of default letter to the local county or court where the property is built. You will also receive a copy of this letter. The letter will simply inform you that you have fallen behind on your payments.
The letter will also urge you to take proper steps toward resolving the issue and avoid penalties and consequences governed by your mortgage terms and conditions. Other information you will find in the letter include but not limited to the deadline for you to meet your lender’s requirements and what will happen if you fail.
>>MORE: Notice Of Default: Basics And Definition
What should you do after receiving the notice of default letter?
After receiving the notice of default letter, you must try to meet the mortgage requirements requested by your lender. From this point on, one of the following options can take a place.
(1) You can come up with money to catch up with your payment (if the lender allows it) or
(2) Refinance the house which will be difficult because you don’t have an income or
(3) Request a permission from your lender to sale the house.
Options (1) and (2) will only work if you have a source of income. Since you are not working, option (3) will most likely be the best one to consider.
If the lender lets you put the house on the market, it will be listed as a short sale. A short sale means that the owner of the house is selling it in an attempt to recover the lender’s money after defaulting on the mortgage.
Lenders allow short sales because they are much better options compared to foreclosures.
Why are foreclosures bad?
First, foreclosures affect borrowers negatively. Not only that homeowners lose their homes, but also, the foreclosures leave a serious derogatory mark on their credit profiles and wreck their credit scores. As noted by Nerd Wallet, a foreclose will stay on your credit report for seven years and you can expect your credit score to drop more than 100 points.
Second, lenders lose a lot of time and money through foreclosures. To legally take the house from the homeowner, a lender will go through court. After getting the house, the lender will attempt to sell it through an auction. If the house is not sold through an auction, the lender will add the house to his portfolio as a real estate owned(REO) property. At this stage, the lender will have two options: (1)to sell the house directly to his clients or (2) list the house on multiple listing services and other listing websites.
This whole process is not easy, takes longer, and cost the lender a lot of money.
In the end, there is no guarantee that the lender will recover all the remaining balance.
>>MORE: Loss Mitigation: What Is Loss Mitigation?
Pending short sale
Like any other properties on the market, a seller of a short sale house will receive offers. However, since the purpose of the sale is to recover the lender’s money, the seller must submit this offer to the lender.
The lender will be the one to accept or deny the offer. Lenders usually take their time. You know how banks, credit unions, and other lending institutions work. They are not in the business of selling houses and have other priorities.
For this reason, it can take months before the lender responds to the offer. Two things will happen. The lender will either accept the offer or deny it. If the offer is too low and the lender is losing a lot of money on the house, the offer will be denied. Otherwise, the offer will be accepted.
During this waiting period, the offer will be updated from short sale to pending short sale. Meaning that the seller of the short sale property has a pending short sale offer.
>>MORE: Foreclosed Home: What Is A Foreclosed Home?
Can you submit an offer on a pending short sale?
You can always submit an offer on any pending sale property. However, when it comes to a pending short sale, things get complicated and take longer. You are not just dealing with the seller of the house. Instead, the house is in the hands of institutions that want to make their money back.
At the same time, they are not in rush to get the house sold due to other priorities. So, it could take a lot of time before you hear from them.
If you are Ok to wait for whatever it takes, then submitting an offer on a pending short sale will not be a big problem. However, if you are in hurry and want a house as soon as possible, submitting an offer to these properties will not work in your favor.
Your real estate agent can help you decide what to do and how to proceed in these matters.
