Questions to Ask When Buying a Short Sale Home
For a home buyer or small investor about to offer on a short sale, where the seller's lender has to approve a price below what is owed. The questions follow the order the decision usually takes: the listing, the lender and the liens, the timeline, the condition of the house, the costs, and the offer with your way out of it. Some are for the listing agent or the seller, some for your own agent, your loan officer or a real estate attorney, and each has a note on what a reassuring or a worrying answer sounds like.
The questions
Each question, and why to ask it
The listing
Is this a true short sale, where the owner still holds the house and the lender has to agree to take less than it is owed?
Why ask it
Listings blur short sales, pre-foreclosures and homes the bank has already taken back, and each one runs differently. In a short sale you need two yeses: the owner's signature and the lender's consent. A listing agent who cannot say which kind this is has probably not handled many.
Has the seller's lender approved the sale, approved a price, or only been told that a sale is coming?
Why ask it
Those are three different houses to bid on. An approval at a stated price, in a letter you can read, usually points to a wait of weeks. 'The package is in' tends to mean months and a number nobody knows yet, and 'we will submit once there is an offer' means the wait has not begun.
How was the list price chosen, and has the lender ever seen it?
Why ask it
Short sale prices are often set by the agent to draw an offer, and the lender then orders its own valuation and may want more. A price the bank has never looked at is an invitation to start a file, not a figure you can count on. Ask what became of any earlier offer sent up near that number.
Have you listed a short sale before, and how many reached closing with this lender?
Why ask it
The listing agent does the chasing that decides how long you wait, so their record counts for more here than in an ordinary sale. Several closings with the same servicer means they know its forms and its pace. A first attempt is not a reason to leave, but add time to every estimate and ask for updates in writing.
Who is negotiating with the lender, and who pays that person?
Why ask it
It may be the listing agent, the seller's attorney or an outside negotiation company. An outside fee sometimes turns up later as a line the buyer is asked to cover, so get the amount now and ask whether the lender has agreed to pay it out of the sale.
Has the seller sent the lender a complete hardship package, and on what date was it acknowledged?
Why ask it
Lenders generally will not weigh an offer until the owner's file is whole: the hardship letter, the financial statements, the form that lets the agent speak for them. The clock really starts on the date the lender confirmed it had everything, which can be weeks after the envelope was mailed. You do not need the family's story, only that date.
Is the seller still cooperating: returning calls, signing forms and sending the lender what it asks for?
Why ask it
For months the owner has to keep signing, sending bank statements and letting people in, for a sale that usually pays them little or nothing. An owner who has moved away, gone silent or is in the middle of a divorce is a common reason for a file to stall. A useful check is the date the seller last sent back something the lender asked for.
Has another buyer already been through this with the lender, and why did they leave?
Why ask it
A buyer who waited five months and gave up tells you about the pace. One whose price was refused tells you roughly the number the bank wants, which is worth more than the list price. If an approval was issued to that buyer, ask whether it can pass to you or whether the review starts over.
Lender and liens
How many loans and liens are on the property, and who holds each one?
Why ask it
One mortgage is the simple case. A second mortgage, an equity line, a tax authority, an owners' association, an unpaid contractor or a court judgment is each one more party that must agree to release its claim for less than it is owed, and any of them can stop the sale alone. Ask whether a title search has been run yet or whether the list is from the seller's memory.
How much is owed against the house in total, and how far below that is the list price?
Why ask it
The gap is the loss the lender is being asked to accept. Lenders generally weigh an offer against what they expect to recover by foreclosing instead, so a price far under the debt can be approved and one close to it refused. A rough figure from the listing agent is enough, since the exact balances are the seller's private business.
If there is a second mortgage or an equity line, has that lender been contacted, and what will it take to release its lien?
Why ask it
The junior lender usually receives little and so has little reason to hurry. The first lender often caps what the second may be paid, and the gap between that cap and the second's demand is where these sales die, or where the buyer is asked to make up the difference. Get both figures before you are attached to the house.
Who actually makes the decision: the company that collects the payments, an investor behind the loan, or a mortgage insurer?
Why ask it
The servicer on the statements is often not the owner of the loan. An investor, an insurer or a government-backed program behind it can add its own rules and its own round of review. 'I am not sure' from the listing agent means nobody has asked, and that question should be answered before you sign.
Has the lender ordered its own valuation yet, and what happens if it comes in above my offer?
Why ask it
The lender normally sends an appraiser or a local agent to put a value on the house, and that figure drives its answer even though you may never be shown it. Ask whether the listing agent meets whoever does the valuation with recent sales and repair estimates in hand, since that visit is one of the few moments anyone can influence. Then ask whether a high value can be disputed and how long a second one takes.
Will the approval letter name me, the price and a closing deadline, and can my attorney read it the day it arrives?
Why ask it
The letter is the lender's terms, and it sits beside your contract without being part of it. It usually sets the amount the lender must net, the costs it will allow and a date after which the approval lapses. Conflicts between the letter and the contract are common, so have it read against the contract straight away.
Will the lender release the seller from the rest of the debt, and will the seller still sign if it does not?
Why ask it
Whether the unpaid balance can follow the owner after a short sale depends on the state and on the wording of the approval, and that is for the seller's own attorney to explain. It concerns you because an owner who learns late that the debt survives may refuse to sign. Ask the listing agent whether the seller has taken advice on it yet.
Will I have to sign an arm's-length statement, and does the lender restrict resale or letting the seller stay on?
Why ask it
Many lenders have buyer, seller and agents sign that they are unrelated and that there are no side arrangements, and some limit a quick resale. It matters most to an investor planning to sell soon and to anyone buying from a relative or thinking of renting the house back to the owner. Ask to see the wording early and have an attorney explain what signing commits you to.
What will the title company or closing attorney need in hand before it will insure this sale?
Why ask it
Put this to whoever will close the purchase. They need a written release from every lien holder, and they are the ones who turn up the forgotten judgment or the old mortgage that was never cleared. A lien found in the first week is a nuisance, and the same lien found the day before closing can cost you the approval deadline, so ask for the search to be run early.
Is the seller in bankruptcy, or likely to file, and would that change who has to approve?
Why ask it
A bankruptcy can pause the process or bring a court or trustee into the decision, and how that works is something only a local attorney should explain. The listing agent should at least know whether a case is open. If one is, take the case details to your attorney before you spend anything on the house.
Timeline
From a signed offer to an answer from this lender, how long have your recent files taken?
Why ask it
A general figure is no use here, so ask about the agent's own last two or three files with this servicer. A few weeks is possible and so is most of a year. An agent who promises a date is guessing, and it is safer to plan around something longer than whatever you are told.
Has a foreclosure sale date been set, and can it be postponed while the lender reviews my offer?
Why ask it
A scheduled auction puts a clock on everything. Sometimes it speeds the lender up, and sometimes the house is sold on the courthouse steps while your offer is still in a queue. Foreclosure and postponement work very differently from state to state, so get the date from the listing agent and ask your attorney what it means where you are buying.
If the bank counters at a higher price, how long do I have to answer, and can I counter back?
Why ask it
Some lenders will trade numbers, and others send one figure and a short deadline. Ask the listing agent whether a counter from this servicer has ever come down after it was shown repair estimates or recent sales nearby. Check too that your contract lets you decline the bank's price and get your deposit back.
If the lender goes quiet, who chases it, how often, and how will I hear about it?
Why ask it
A few weeks of silence is ordinary and rarely means no. What you want is a named person calling on a schedule and passing on notes: who they spoke to, what was asked for, the next date. Agree on a regular update through your agent, even when the whole update is 'nothing new'.
Will the house stay on the market, and can other offers go to the lender while mine is waiting?
Why ask it
Practice varies. Some listing agents send up one signed offer and stop, and others keep collecting backups; whether the seller can take a better offer after signing yours depends on the contract and on local rules. If the listing stays active, assume you can be outbid during the wait and ask your agent how the contract could prevent it.
Once the bank says yes, how many days will I have to close?
Why ask it
After months of waiting the window is often short, and the lender may refuse to extend it. Have the inspector, the insurance quote and the loan file ready before the letter comes. The listing agent can tell you how this lender has treated requests for a few more days.
How long do my pre-approval and rate lock last, and what does an extension cost?
Why ask it
Ask your loan officer, and say 'short sale' so they understand there is no closing date. Many buyers hold off locking a rate until the approval letter arrives, which means the loan then has to move quickly. Pre-approvals lapse as well, so expect to send fresh pay stubs and statements more than once.
Where will I be living, and what will I be paying, if this takes twice as long as I am told?
Why ask it
Put this to yourself before you offer. A lease that ends in June, a home you are selling or a school year that starts in the fall does not sit well with a purchase that has no date. If you cannot answer comfortably, a short sale may be the wrong kind of house for you this year, however good the price.
Can I keep looking at other houses, and what would it cost me to leave for one?
Why ask it
Plenty of buyers do, and whether it is free depends on the cancellation terms you wrote in. If leaving before lender approval costs nothing, the wait is cheap and the short sale becomes one option among several. Tell your agent that this is the plan so the offer is written for it.
Condition
In an as-is short sale, can I still ask for a lower price over what the inspection finds?
Why ask it
The seller has no money for repairs and the lender rarely pays for them, so the inspection here is for deciding whether to buy and at what price. A price cut usually has to go back to the lender, which can add weeks, so ask the listing agent how this one has answered such requests before. How as-is affects the seller's duty to disclose known problems differs by state, and your agent can tell you what applies where you are buying.
Should I inspect as soon as the seller signs, or wait until the lender approves?
Why ask it
Inspecting at once means you do not wait months for a house you would have rejected. Waiting means you do not pay for a report on a house you may never get. Either works if the contract states when the inspection period begins, and if you go early, keep the right to look again before closing.
Has the water, gas or power been shut off, and who gets it reconnected before the inspector comes?
Why ask it
An inspector cannot test plumbing, heating or wiring with the services off, and an owner behind on the mortgage may be behind with the utilities too. Settle who pays to reconnect before you book anyone. If the house sat unheated through a winter, ask the inspector how the pipes can be tested before you rely on them.
What has stopped working or gone unrepaired since money got tight?
Why ask it
A question for the seller, asked kindly. An owner who could not make the payment has probably also put off the roof, the furnace service and the gutters. The good news in a short sale is that there is still an owner to ask, which there would not be once a bank had taken the house back.
Is the house occupied by the owner, by a tenant, or by nobody?
Why ask it
Each answer changes something. An owner in place can show you the house and may want a few days after closing, a tenant brings a lease, a deposit and rights that may outlast the sale depending on where you are, and an empty house needs someone watching it. Have your attorney explain what applies before you assume the place will be vacant on closing day.
Who is looking after the house during the wait, and what happens if it is damaged before closing?
Why ask it
Find out whether the owner's insurance is still in force and who is mowing, heating and checking the place. Then read what your contract says about a burst pipe or vandalism in month four. You want the right to inspect again and to cancel or reprice if the condition has changed.
Will the appliances and fixtures I saw at the viewing still be there at closing?
Why ask it
Owners leaving with nothing sometimes take the refrigerator, the light fixtures or more. List what stays in the contract and photograph it on the day you view. Do the final walk-through as late as you can, since there are no sale proceeds to hold back if something has gone.
Will the house qualify for my loan in the condition it is in?
Why ask it
Some loan programs set minimum condition standards, and an appraiser may flag peeling paint, a missing handrail or a furnace that does not run. With nobody willing to fix those before closing, the loan can stall. Describe the condition to your loan officer early and ask what the options are if the appraisal calls for repairs.
Costs
Who pays the seller's missed payments, late fees and the lender's legal costs?
Why ask it
Ordinarily these sit inside the loss the lender is deciding whether to accept and never reach the buyer. Being told that you are expected to cover the owner's arrears is a reason to stop and have an attorney read the terms. Ask where each of those items appears on the estimated settlement statement.
Who pays the back property taxes, unpaid association dues and any utility or municipal bills owed on the house?
Why ask it
Buyers get caught here, because some of these debts can stay with the property after it changes hands. The lender may agree to pay some from the sale and refuse others, and whatever is left tends to land on whoever most wants the closing to happen. Get a payoff figure for each one, and ask the title company or your attorney which would follow the house to you.
Which closing costs will the lender let the seller pay, and which fall to me that a seller would normally cover?
Why ask it
Every cost on the seller's side has to be approved by the lender, and lenders often trim or refuse things: a credit toward your costs, a home warranty, transfer charges. Ask for an estimated settlement statement with the offer. Budget for more than an ordinary purchase would cost you and be pleased if it comes in under.
Is anyone asking me to pay something that will not appear on the settlement statement?
Why ask it
A payment to a second lender, a negotiator or the seller that the first lender cannot see is a serious warning sign. Lenders generally require every payment to be disclosed, and the paperwork signed at closing usually says there are none. If a side payment is suggested, take it to your attorney before you reply.
Is my earnest money due when the seller signs or only once the lender approves, and where does it sit in the meantime?
Why ask it
Your deposit could be parked for most of a year. Some contracts hold it back until lender approval and others take it at signing, so ask which is usual locally and whether you can choose. A neutral escrow or an attorney's trust account is what you want to hear; it should never go to a seller who is, by definition, short of money.
If the lender cuts the agents' commission, would I owe my agent the difference?
Why ask it
Lenders sometimes reduce the commission as a condition of approval, and some buyer agreements make the client responsible for a shortfall. Read yours and ask your agent before the offer goes in. It is a slightly awkward two minutes now and a much worse conversation at the closing table.
Once I add the repairs and the wait, is this still cheaper than an ordinary sale nearby?
Why ask it
A short sale is not automatically a bargain. Put the repair estimates, the months of rent and any fees you are covering beside what sound houses on the same streets have sold for. If the gap is small, a seller who can fix things and close in six weeks may be the better purchase, and a small investor should run the same sum with holding costs included.
Offer and exit
Have you taken a buyer through a short sale before, and what did you write into the offer to protect them?
Why ask it
For your own agent, before anything is drafted. Someone who has done it will talk about the approval deadline, when the deposit goes in and how a buyer got out of a file that stalled. If this would be their first, ask whether a colleague or an attorney who handles short sales can go over the offer with them.
What does this lender want to see with an offer besides the price?
Why ask it
A complete offer usually travels with proof of funds or a pre-approval letter, and some servicers have forms of their own for the buyer to sign. The listing agent knows what this one has sent back as incomplete. Ask your agent which conditions could be shortened to make the offer look firm without giving up your right to cancel.
Is there a standard short sale addendum where I am buying, and what does it change in the contract?
Why ask it
Many areas have a standard form that makes the whole contract depend on lender approval and sets the dates around it. Go through it line by line with your agent or attorney: it decides when your deadlines begin, how long you have agreed to wait and who may cancel. Where no standard form exists, have an attorney write those terms.
How long am I agreeing to wait for the lender, and can I cancel with my deposit back if there is no answer by then?
Why ask it
A fixed end date, after which you may leave with your deposit or choose to extend, is probably the most useful term a short sale buyer can have. Without one you can be tied up for as long as the bank takes. Pick a date you can live with and put a reminder in your calendar a week ahead of it.
Which of my deadlines start at the seller's signature, and which at the lender's written approval?
Why ask it
The inspection period, the loan application, the appraisal and the closing date can each count from either event, and a contract that leaves it vague sets up an argument later. Ask for the dates as one list with the trigger written beside each. If two people give you different answers, the wording needs fixing before you sign.
If the approval letter adds terms I never agreed to, can I refuse them and keep my deposit?
Why ask it
The lender is not a party to your contract and may approve something different from it: an earlier closing, no seller credit, a fee moved to the buyer. Ask your attorney whether you can decline, and whether saying nothing would count as accepting. Settle this before the letter arrives, because the time to reply is often a matter of days.
If the seller backs out, gets a loan modification or loses the house to foreclosure, do I get my deposit back, and who tells me?
Why ask it
Any of the three ends the sale without the lender ever refusing your offer, and the news can be slow to reach a buyer. Ask your agent which clause returns the deposit in each case and how soon. Beyond the deposit, a claim against an owner with no money is worth little in practice.
What will I have spent that I cannot recover if this never closes?
Why ask it
Add it up before you offer: the inspection, the appraisal, the attorney, rate lock extensions, perhaps extra months on a short lease. If that total would hurt, move as much of it as you can to after approval. It is also the figure to set against the discount when you decide whether this house is worth the trouble.
Where do short sale closings most often come apart in the final week?
Why ask it
Save this for a real estate attorney or the closing agent. Someone who handles these regularly will list the usual culprits without pausing: a lien found late, an approval that expires the day before the loan funds, a payoff figure that moved, an owner who will not sign the lender's terms. If attorneys are not customary for a purchase where you live, a short sale is a reasonable occasion to hire one anyway.
What price, what date and what repair bill would make me walk away?
Why ask it
Write the three numbers down and give them to your agent before the offer goes in. Buyers who have waited months tend to accept terms they would have refused on the first day. A limit you set while you were calm is much easier to keep than one you try to find after the bank's counter has landed.
How to use these questions on a short sale
Practical guidance for the conversation itself
Before you offer
Send each question to the person who can answer it
The listing agent knows what the lender has seen and how the seller is holding up. Your own agent knows the contract and the addendum. An attorney or the title company knows the liens and the approval letter, your loan officer knows the lock, and the seller knows the house. Asking the wrong person gets you a confident guess.
Ask for the paper
'The bank is on board' is a description. A dated letter, an acknowledgment that the package is complete, a title search and an estimated settlement statement are documents. Where one exists, ask to read it, with the seller's private details covered if need be.
Set your ceiling and your end date first
Decide the most you will pay and the last date you will wait before you sign anything, and tell your agent both. Then have the offer written so you can leave with your deposit when either limit is passed.
Tell your lender what kind of sale it is
A loan officer who hears 'short sale' on the first call will time the pre-approval, the appraisal and the rate lock differently. One who finds out in month three may have let all of them lapse.
While you wait
Get updates on a schedule
Agree on a day of the week for news, passed through your agent, and keep the notes: who was spoken to, what was requested, what is expected next. A file that shows no movement across several updates is one to ask harder questions about.
Keep your own paperwork fresh
Pay stubs, bank statements and the pre-approval all go out of date during a long wait. Refresh them before they expire, so that when the approval letter comes with a short deadline the loan is not the thing that misses it.
Spend late where the contract allows
If your deadlines start at lender approval, the appraisal and much of the legal work can wait until there is something to close on. The inspection is a judgment call: early saves you waiting for a house you would reject, late saves the fee if the sale never happens.
Keep looking
If the contract lets you leave before approval at no cost, go on viewing other houses. A short sale can fall through for reasons that have nothing to do with you, and a buyer with a second option negotiates a bank's counter far more calmly than one who has nowhere else to go.
When the approval letter arrives
Read the letter against the contract
Check the price, the closing date, the costs the lender allows and any conditions placed on the buyer. Where the letter and the contract disagree, find out the same day whether you can accept, object or cancel, and how long you have to do it.
Count backward from the deadline
Take the date the approval lapses and work back through the loan, the appraisal, the title work and the walk-through. If the days do not fit, ask for an extension at once and in writing. A request made in the final week is the one most likely to be refused.
Look at the house again
Months have passed since you first saw it. Walk through with the utilities on, check that what you listed is still there, and have the inspector back if the place has stood empty or been through a winter.
Go down the settlement statement line by line
Every unpaid tax, association balance, lien payoff and fee should be on it with a name beside it. Anything you are paying that an ordinary seller would have paid should be a figure you already knew about.
Reasons to step back
Nobody can say what the lender has seen
If the listing agent cannot tell you whether the package is complete, who the decision-maker is or when the lender was last contacted, the file is not being worked. The price may be attractive because no bank has agreed to it.
A second lien that nobody has called
Approval from the first lender does not release a second mortgage, a tax lien or an association claim. A sale where the other lien holders have not been approached is much further from closing than it looks.
A payment kept off the statement
Any request to pay someone outside the closing, in cash or by a separate check, should end the conversation until your attorney has seen it. The discount is not worth signing a statement you know to be incomplete.
No end date in the contract
An offer that binds you until the lender answers, whenever that is, hands all the patience to you and none of the choices. If the seller's side will not agree to a date after which you can leave with your deposit, think hard before you sign.