As foreclosure rates soar, some lenders are eager to negotiate short sales in order to avoid the expense of seizing a delinquent borrower's property. A short sale is one in which the seller is trying to get the bank to accept an amount that is lower than what is owed on the property. This will be a home that is facing foreclosure due to the fact that the homeowner is in financial distress. In fact, a bank will usually only agree to a short sale if the borrower can prove a case of hardship, often due to a job loss or a major health issue.
Short sales can be true bargains for home buyers, often allowing them to get into a home they would not otherwise be able to afford.
However, a successful negotiation of this type of transaction is far from easy. To forge an agreement that satisfies all parties, including the homeowner, buyer and lender can be complex.
Before venturing into a short sale, you should be aware of some basic information.
- Be prepared for the process to be extremely lengthy. The "short" in short sales has nothing to do with the time involved. To the contrary, getting a response to your offer can initially take a few weeks.
- You will need to have your own loan pre-approved and ready to go. It is unlikely that the bank will allow you to assume the seller's loan.
- Be aware that the list price may not be the actual price the bank will be willing to accept. A broker who takes a short sale listing does her best to arrive at an asking price based on current neighborhood and market conditions but that price does not necessarily correlate with what the bank will find sufficient. You need to know if the asking price is based on the fair market value of the property or if it is a figure that the seller hopes the bank will accept.
- A short sale will sell "as is." That means that no repairs will be made. You will usually be allowed to have a home inspection but any deferred maintenance will become your problem. Maintenance issues are usually part of the picture with any distressed properties since a homeowner who is struggling financially has often been neglecting repairs for some time.
- If there is a second mortgage on the property, approval will have to pass by that lender as well. Lenders holding second mortgages, such as home-equity lines of credit can stop the sale from proceeding. Second mortgage holders are the last in line to be paid but will have to be offered an amount that they find to be acceptable to go along with the deal.
- The lender can change the terms and the time to close. Even after your offer is accepted, the closing will be determined by the lender's back-log of foreclosures and how much paperwork the seller has already submitted. In order for the short sale to proceed, the seller has to submit a complete short sale package which consists of the following: a) a written hardship letter stating the circumstances as to why payments cannot be made, b) the last two bank statements (checking and savings), c) the last two paycheck stubs, d) the last two income tax returns with all schedules, e) the last two statements for any other accounts including 401k accounts and d) any other paperwork that the bank requests.
- Lenders can change the conditions of the sale up the last minute. Many lenders reserve the right to renegotiate the terms of the short sale. If market changes occur or new laws are passed, the bank can generally change the terms of the contract. Since the announcement of the "Government Bailout" some banks are waiting to see how they will be affected before acting on these sales.
- Some short sales are never completed. The process involves dealing with a person sitting behind a desk who is in a city far removed from yours. It is a situation that is fraught with red tape and bureaucracy and the bank contact is often not motivated to get the deal accomplished very quickly.
Even with all of these caveats, a short sale can offer the opportunity for you to get into a property that you may otherwise have not been able to afford. This can be a rewarding experience but you should only go into this territory armed with expert help.
Your Buyer Broker
It is crucial that your buyer broker is knowledgeable about the mechanisms involved in the short sale transaction. This involves a certain amount of due diligence to ascertain that the property is actually qualified for this type of deal and also requires your broker to know how to prepare the correct documents such as a competitive market anaylsis to support your offer price, a letter to the bank on your behalf and other necessary items that must accompany your offer on the property.
A Real Estate Attorney
As with all real estate transactions, be sure to hire an attorney to look over all of the documents involved in the purchase and to protect your interests.
Copyright 2009 - Claudette Millette, President, TheBuyersCounsel - 800-392-1446, E-mail
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