As we mentioned previously, one of the differences between buying a distressed property and a regular one is that
short-sale or foreclosure houses are owned by a bank, and often, more than one bank. For a bank to allow a short sale, it first has to establish that the homeowner has suffered some kind of disaster or hardship which renders them likely to default. Then it evaluates the home’s value and comes up with an acceptable price.
A lot of banks, however, are just servicers. They send out the bills and collect the mortgage payments for investors who actually own “the paper.” If that’s the case, all involved parties have to agree on every aspect of the short sale. And that’s where it gets complicated as well as time consuming.
Foreclosures, on the other hand, are far easier and usually quicker, because the bank owns the property and has already eliminated any lien-holders before the foreclosure process puts the house on the market.
One way to speed up a short sale is to find out from your realtor if the property qualifies for the federal HAFA program (Home Affordable Foreclosure Alternatives). HAFA has required servicers to weigh in on the price within 30 days.
Another trick is to look for homes under contract as an "approved short sale," meaning the bank has already signed off on a sale and a contract price. Sometimes in the short sale process, an approved buyer will walk away from the deal, either out of frustration or for other reasons. In that case, the bank has approved a sale and agreed to a price but their buyer has disappeared. When that happens a new buyer can swoop in and complete the process using the existing approvals and paperwork.
If you can’t find a HAFA home or luck into getting an approved short sale deal, simplify the process as much as possible by choosing a home with as few fingers in the pie as possible. Your realtor can find out who and how many banks or investors are involved from public records. A trip to the county courthouse before you make your offer could save you a lot in time and frustration later.
In my final blog of this series, learn about financing your foreclosure property: Twisting Arms for Fun and Profit.
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