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Is a Short Sale sale for you?
Thinking of Making an
Offer on a Short Sale? What You Need to Know.
Are you looking to buy a
new home? Are you thinking that now's a great time
to find bargains? That's true, but it pays to know a
little about the seller's situation before you make
an offer.
If a home is being sold
for below what the current seller owes on the
property—and the seller does not have other funds to
make up the difference at closing—the sale is
considered a short sale. Many more home owners are
finding themselves in this situation due to a number
of factors, including job losses, aggressive
borrowing against their home in the days of easy
credit, and declining home values in a slower real
estate market.
A short sale is different
from a foreclosure, which is when the seller's
lender has taken title of the home and is selling it
directly. Homeowners often try to accomplish a short
sale in order to avoid foreclosure. But a short sale
holds many potential pitfalls for buyers. Know the
risks before you pursue a short-sale purchase.
You're a good candidate
for a short-sale purchase if:
·
You're very patient.
Even after you come to agreement with the
seller to buy a short-sale property, the seller’s
lender (or lenders, if there is more than one
mortgage) has to approve the sale before you can
close. When there is only one mortgage, short-sale
experts say lender approval typically takes about
two months. If there is more than one mortgage with
different lenders, it can take four months or longer
for the lenders to approve the sale.
·
Your financing is in order.
Lenders like cash offers. But even if you
can’t pay all cash for a short-sale property, it’s
important to show you are well qualified and your
financing is set. If you're preapproved, have a
large down payment, and can close at any time, your
offer will be viewed more favorably than that of a
buyer whose financing is less secure.
·
You don’t have any contingencies.
If you have a home to sell
before you can close on the purchase of the
short-sale property—or you need to be in your new
home by a certain time—a short sale may not be for
you. Lenders like no-contingency offers and flexible
closing terms.
If you're serious about
purchasing a short-sale property, it's important for
you to have expert assistance. Here are some people
you want to work with:
·
Experienced real estate attorney.
Only about two out of five short sales are approved
by lenders. But a good real estate attorney who's
knowledgeable about the short-sale process will
increase your chances getting an approved contract.
Also, if you want any provisions or very specialized
language written into the purchase contract, a real
estate attorney is essential throughout the
negotiation.
·
A qualified real estate
professional.* You may have a close
friend or relative in real estate, but if that
person doesn’t know anything about short sales,
working with him or her may hurt your chances of a
successful closing. Interview a few practitioners
and ask them how many buyers they've represented in
a short sale and, of those, how many have
successfully closed. A qualified real estate
professional will be able to show you short-sale
homes, help negotiate the purchase when you find the
property you want to buy, and smooth communications
with the lender. (All MLSs permit, and some now
require, special notations to indicate that a
listing is a short sale. There also are certain
phrases you can watch for, such as “lender approval
required.”)
·
Title officer. It’s
a good idea to have a title officer do an initial
title search on a short-sale property to see all the
liens attached to the property. If there are
multiple lien holders (e.g., second or third
mortgage or lines of credit, real estate tax lien,
mechanic’s lien, homeowners association lien, etc.),
it's much tougher to get that short sale contract to
the closing table. Any of the lien holders could put
a kink in the process even after you’ve waited for
months for lender approval. If you don’t know a
title officer, your real estate attorney or real
estate professional should be able to recommend a
few.
Some of the other risks
faced by buyers of short-sale properties include:
·
Potential for rejection.
Lenders want to minimize their losses as much as
possible. If you make an offer tremendously lower
than the fair market value of the home, chances are
that your offer will be rejected and you’ll have
wasted months. Or the lender could make a
counteroffer, which will lengthen the process.
·
Bad terms. Even
when a lender approves a short sale, it could
require that the sellers sign a promissory note to
repay the deficient amount of the loan, which may
not be acceptable to some financially desperate
sellers. In that case, the sellers may refuse to go
through with the short sale. Lenders also can change
any of the terms of the contract that you’ve already
negotiated, which may not be agreeable to you.
·
No repairs or repair credits.
You will most likely be asked to take the property
“as is.” Lenders are already taking a loss on the
property and may not agree to requests for repair
credits.
The risks of a short sale
are considerable. But if you have the time,
patience, and iron will to see it through, a short
sale can be a win-win for you and the sellers.
* Not all real estate
practitioners are REALTORS®. A REALTOR® is a member
of the NATIONAL ASSOCIATION OF REALTORS® and is
bound by NAR’s strict code of ethics.
Note: This article
provides general information only. Information is
not provided as advice for a specific matter. Laws
vary from state to state. For advice on a specific
matter, consult your attorney or CPA.
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