Archive for the ‘Financial’ Category

What you should know about buying a short-sale house

Sunday, February 22nd, 2015

As a result of a bad economy, the number of short sales increases. When homeowners can no longer make their mortgage payments, they look for a way out. One common solution is to get the lender to agree to let the owner sell his/her home for fair market value.

Often, the selling price is lower than the mortgage balance owed. The lender’s only other viable option is to foreclose on the property, a process which is costly and can take a long time. A short sale usually gives the lender a chance to recoup the mortgage balance relatively quickly.

The price will probably be lower

Short sales occur frequently in a depressed real estate market. Since you’re buying the home at its fair market value, what you pay will be lower than if the homeowner had listed it at a price that would cover the mortgage. If you can get a good deal, you should be able to make a nice profit if you sell that property when the market rebounds. But don’t be surprised that there are some catches and caveats.

The property is sold “as is”

When a homeowner is willing to walk away from the home that he/she has invested so much in, you know that person is in serious financial stress. Not being able to make the mortgage payments is a good indicator that there was no money to keep the property properly maintained.

You should know that neither the lender nor the homeowner will want to make any necessary repairs. You would be buying the home as is, warts, leaky roof and all. Problems can be minor or run into tens of thousands of dollars to fix. Keep this in mind when you think you’ve snagged the sale of the century.

The seller and lender must agree

Once you make a short sale offer, both the homeowner and the mortgage lender must accept it. The lender must agree to receiving less than the home’s mortgage balance. In some cases, the lender may want to hold the borrower (homeowner) financially liable for the gap between the selling price and the mortgage balance.

If the homeowner rejects this provision, the sale can be stopped. Many lenders will often forgive this difference and accept it as a write off. That would incentivize the homeowner to agree to sign off on the short sale.

Short sales take some time

While short sales are faster than foreclosures, they don’t happen overnight. They usually take longer than traditional sales. The lender will insist on having the home appraised. Then some time will be needed for the lender to evaluate your offer and make a decision. Your initial proposal might be turned down and a counter proposal may be put on the table.

The whole process could last a few months, especially if multiple lenders have liens against the property. When that happens, it can take considerable time until all lenders are satisfied and agree to the short sale.

There are many complex issues that come into play when a short sale is being considered. If you are thinking about purchasing a home in a short sale, it would be best to contact a real estate attorney.