What You Need To Know About Buying A Short Sale
If you are a buyer considering buying a property that is classified as being a “short sale” you first need to know what a short sale is and what the buying process will entail.
A short sale is a property that is being sold by a homeowner that owes more on their mortgage than what the property is worth. Why short sales take place is not important, but for the most part the seller is usually in trouble and can no longer keep up with his mortgage payment to his lender or possible lenders. If you are considering purchasing a short sale here is what you need to know and there is much to know.
- First and foremost you are going to need to be patient throughout the process. You must plan to be in this for the long haul. Some short sales can take up to six months to get done, a few longer than that although in the past couple of months the banks seem to be processing them more expediently. Every short sale is different. No two are alike. Each has its own set of circumstances.
- You may have a signed offer by the “seller of the property” but you need to be aware that the sellers lender or lenders must approve your offer. This is where the short sale process really begins.
- There may be more than one lien holder on the property. In other words there is a first and often times a second mortgage on the property. The first lien holder may agree to your offer. The first lien holder will now say to the second lien holder “here is what we are willing to give you from the proceeds we are receiving from the new buyer”. Often it is very little and the second lien holder can say no to the amount. The first lien holder can say “fine, we will just foreclose on the property”. This can happen and has happened where the property goes to foreclosure. It could be months before it shows up as an active foreclosure for sale.
- The seller’s lender/lenders could come back to you with a counter offer looking for a higher price than what your seller accepted. There are no specific time lines as to when they could or would do that. The norm is when they are ready to do so.
- Because of the length of time it takes for the lender/lenders to approve the short sale and depending on the area you are purchasing in the value of the property could have gone down from when you made the offer. Don’t necessarily count on the lender making adjustments should that be the case.
- Your purchase can and should be contingent on an appraisal. If the property does not appraise you can cancel the contract and all earnest monies will be refunded to you.
- You may be asked by the homeowner to have your earnest money be non-refundable for a period of time, sometimes 60-90 days to assure you are going to stay with the deal and not walk away before the lender approves your offer. This is done because many buyers do walk away prior to lender approval and the seller has wasted a lot of time taking his property off the market for you the buyer. Sellers are looking for “serious” buyers that are willing to wait out the process.
- Short sales can have backup offers. If the lender cannot successfully negotiate a deal with you, there could be a backup offer waiting to take your place. In most instances a lender will only deal with one offer at a time.
- Short sales are usually “As Is”. Usually repairs are not made by the seller, they do not have the financial wherewithal to make repairs. The lender/lenders are taking a hit already so don’t count on them fixing or replacing anything. Often there has been poor maintenance on the property. The seller is losing their home, they have no money and have lost enthusiasm for maintaining the property.
- Your sale is contingent on a home inspection. You do not have to go forward with the sale if you find items in the home inspection that you do not like. With proper notice you can cancel the contract and all earnest monies will be refunded in full to you.
- If you are buying a property in a HOA (homeowners association) and there are delinquent HOA dues you may be asked to pay the back dues.
- The seller (homeowner) has the right to disapprove any terms his lender/lenders want to impose in order for them to go forward with the short sale. If he/she deems those terms to be detrimental to him/her they can chose not to go forward with the short sale, in which case the lender/lenders will foreclose on the property. If this should happen your contract will be cancelled and any earnest monies you may have in escrow will be refunded to you.
- If you are financing your purchase, you should have a financing contingency in your offer. If you cannot get financing within the terms of the contract, your earnest monies will be refunded to you.
- The Seller’s lender/lenders do not care about you. They are not your friend. You are a file on someones desk. Do not try to understand their mentality. It cannot be understood. Again patience is a must.
- You could begin the short sale buying process only to have the property end up in a foreclosure situation. The reason, according to the lender/lenders ” the whole process was taking too long”. Trust me this has happened.
- Short sales are not for the faint of heart. Some of them do get done and if there is only one lien holder the process can go faster. Also if the first and second mortgage is with the same lender, it makes the process easier. Again each one is unique, no two are alike. Just know ahead of time what you are getting yourself into, be patient with the process and you could end up getting the house you always wanted.