Buying a Short Sale
Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, we need to find out if the home is a short sale.
Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and very few can close in 30 days or less.
Many of my buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
What is a Short Sale
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default to have stopped making mortgage payments before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Checking the Public Records
I always do your research before making an offer for my clients to purchase a short sale. As your agent I will find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s).
This is important because it will help us determine how much to offer. If there are two loans, we could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena.
You need an experienced short sale agent.
An agent as myself with lot of experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Qualifying the Property and Seller for a Short Sale
A lender is unlikely to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender.
Sellers may also owe taxes on the amount of debt that is forgiven.
you might run into a seller that might demand that you pay him a fee to be given the right to purchase his property. This is fraud. The lender can legally pursue the seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller receives no money because the lender is losing money.
Submit Documentation and Purchase Offer to Lender
Once the seller has accepted your offer, we send it to the lender for approval. You do not have a deal until the lender accepts. We also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are preapproved. So I always send a preapproval letter to the lender. I always include a list of comparable sales that support the price we are offering to pay for the home.
Give the Short Sale Lender Time to Respond
We will make your offer contingent upon the lender's acceptance. We will also give the lender a time frame in which to respond, after which, you will be free to cancel.
Some lenders submit short sales to committee, but most can make a decision within two to three months. I make sure to get a name and phone number for the appropriate contact at the lender. I don't just send an offer blindly to a department.
Reserving the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.
It is extremely important that we obtain a home inspection and pay for other types of inspections such as pest and roof, inspection. We shouldn't waive your right to obtain these inspections and make your offer contingent on approving them.
Please feel free to contact me if you have any more questions or concerns about purchasing a Short Sale property.