Short Sales

Are you looking to buy a new home? Are you thinking that now’s a great time to find bargains? Before you make an offer, it pays to know a little about the seller’s situation.
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.
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. You need to be aware of the risks before you pursue a short-sale purchase.
You are a good candidate for a short-sale purchase if:
• You are 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 involved) has to approve the sale before you can close. The more lenders involved, the longer the approval will take.
• You have financing 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 are preapproved 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.
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. This 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. Unfortunately this may happen right before closing.
• 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 repair the property or provide a credit for repairs. This is especially important to be aware of if you are using an FHA or VA mortgage.
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.