Buying in short sale may offer the best opportunities in a decade because of the COVID-19 lockdowns. The moratoriums on evictions and closures of small businesses have created a backlog of distressed property concealed by moratoriums on foreclosures. As these moratoriums end with the easing of COVID-19 distressed properties will hit the market.
Homebuyers and investors can save a lot of money buying a property in a short sale. While this savings can be a tremendous, it is important to remember the buyer will earn this savings and must be prepared for the obstacles posed by a short sale.
The opportunities buying in short sale are created because the lienholders agree to settle for less than the face value of the debt secured by the property. That is a fancy way of saying everyone agrees to come up short [hence the name, ‘short sale’]. It is important to understand that “everyone” includes more than just the bank: it can include contractors whose work on the property went unpaid, utility companies, the IRS, homeowners associations and judgment creditors. You must remember the reason a homeowner attempts a short sale is that they are in financial difficulty and such a person rarely has difficulty with only one debt.
Opportunities buying in short sales can take a long time, as there are many parties other than the buyer and seller who must agree to the transaction. Even when the primary mortgage lender provides a relatively quick approval, there may be delays. The seller may not have much ready cash. If the seller is expecting the transaction to take several months and then discovers they must find a place to rent and come up with a security deposit and rent on short-notice there may be a delay while the seller gathers the necessary funds.
These situations can pose obstacles to buying a property in a short sale, but they can be overcome with a little preparation. An informed and prepared buyer can save a lot of money on a home or rental property by purchasing it in a short sale.
If you are considering purchasing a property in a short sale here are some things you should do:
- Understand that this transaction may involve several months of waiting and then suddenly require you to be ready to close within 30 days.
- Ask your real estate broker and attorney how many short sales they have negotiated and closed. If the answer is a single digit number, consider using a more experienced broker/attorney.
- Ask the Seller [this is usually done through your attorney] how long they will require to move out and how much they have set aside for a security deposit.
- Ask for the Seller’s utility bills as part of your inspection/due diligence process. Most buyers ask about 2nd mortgages and contractor liens but then are surprised when past due utility bills delay a closing.
- Contact me at 312 577-9405, or David@RatowitzLawGroup.com.