10 Things to Check Before Getting into a Short Sale

By
Services for Real Estate Pros with Law Office of James Miner LLC

I do a large volume of short sales, representing both buyers and sellers.  In my experience, when a short sale fails it is usually not due to a failure to obtain bank approval.  In fact, we are able to get bank approval on the majority of our Short Sales.

The reasons for a short sale to fall apart can usually be seen at the beginning of a transaction and a little due diligence at the front end can save you from investing your time and energy in a deal that has very litte chance of closing.

Below is my Top 10 list of things to check before getting into a Short Sale, either as the listing agent or the selling agent.  There are actually just 9 items listed, and I'm hoping you can fill in number 10 for me.   Tell me what I missed!

  1. How many mortgages are there against the home?  Ask the seller how many mortgages they have taken out.  Be sure to ask specifically about home equity loans and lines of credit.  You’d be surprised home many homeowners don’t understand that their line of credit is a mortgage.  Also, the more mortgages there are against the home, the harder it will be to obtain approvals and to get to closing.
  2. How many Sellers are there?  Sometimes a seller will move away or otherwise fail to cooperate in the sale process after they have signed the listing agreement.  Every person with a legal interest in the home must cooperate by signing the Deed and other closing papers.  This will include anyone named on the Deed as well as spouses and civil union partners, if they lived in the home.  Find out in advance if any such person has moved out of State or out of the Country and might not cooperate.
  3. Ask sellers if they know of any judgments against them.  If the homeowner has not been able to make mortgage payments, he or she may not be making other payments as well.  If any unpaid accounts have become judgments against the seller, the creditor has a lien on the property and will be a cloud on title.   Unpaid income taxes can also be liens against the property and may prevent the closing.
  4. Call the tax office for the status of the property taxes.  In many cases, the mortgage lender will make the tax payments to prevent a tax foreclosure.  This is not always the   case however, and there could be significant back taxes that must be paid current at closing. 
  5. Find out if HOA dues are up to date.  If the seller has not been making mortgage payments, it’s a safe bet that they have not been paying the homeowner’s association dues and, unlike taxes, the lenders do not make these payments.  Unpaid dues will have to be paid current at closing.
  6. Call building dept. re: open permits.  If the seller did any work to the home without obtaining the proper permits, it may be impossible to get a Certificate of Occupancy until the permits are obtained.  There could also be significant safety hazards from the unpermitted work.
  7. Check the condition of the house.  We all know that Short Sales are “as-is” so it is important to know if there are potential make-or-break issues, such as underground oil tanks, knob & tube wiring, mold, etc.  If there is noone to make repairs, and a buyer won't accept the condition, the deal does not close. 
  8. Ask the Seller if the house is in foreclosure.  This is not necessarily a deal killer, but you will be in a race to close on the Sale before the foreclosure is completed.   Most lenders do not suspend the foreclosure process when they are considering a short sale request, or even after they have approved the short sale. 
  9. Ask if there are tenants.  Uncooperative tenants can hamper your ability to show the property and can also prevent the closing from occurring.  Make sure that the Seller or Seller’s attorney will take the appropriate steps to remove the tenants prior to closing, unless the buyer has agreed to close with the tenants in possession.

So that's my list.  Checking out these items will help you to determine if the Short Sale is going to close, or if it is more likely to crash and burn.  I know it is hard to pass up a potential transaction (I feel the same way when I give up a client), but sometimes it is better to move onto the next house and invest your resources in a transaction that has a better chance of closing.


Good Luck!  Jim Miner.

 

 

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Rainer
32,824
Ben Giordano
RE/MAX Sun & Sea - Boca Raton, FL

Great tips.

Oct 17, 2009 02:24 AM #1
Rainer
34,829
Keith Burke
Coldwell Banker Brown Realtors - Belleville, IL

James,

Excellent post.  It looks like I'll be working on my first Short Sale next week.  Enjoy the rest of your weekend!

Oct 17, 2009 04:41 AM #2
Rainmaker
26,822
James Miner, Esq.
Law Office of James Miner LLC - Westfield, NJ

Thanks, Gentlemen.   Keith, good luck with your Short Sale next week.  After your years of service with the Navy, I'm sure you are well prepared for anything. 

Oct 17, 2009 06:51 AM #3
Rainmaker
161,942
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Hi James -

#5 - In my state of California, I am able to have the lender usually pay for delinquent HOA fees.

#7 - Although you are purchasing it "AS-IS", you can get high estimated repair costs to offset the BPO.

#9 - Although tenants can be an issue, but usually I have very good relationships with them as I help them find a new rental and guarantee that they get their security deposit back. It's not a deal breaker for me.

#10 - Have they attempted a loan modification or other solution? If not, do you plan to?

Oct 17, 2009 05:36 PM #4
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Rainmaker
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James Miner, Esq.

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