Buying Short Sales

Short Sale ProcessThe Good. The Bad. The Ugly.  It is all how you look at it. Your perspectives and views on Distressed Properties (Short Sales, Real Estate Owned – REO) properties has probably been formed by opinions given to you by friends, relatives, bankers and real estate agents. Opinions will range from, “You must be crazy to buy a short sale! They take forever.”, to “I saved thousands of dollars on the purchase of my new home!”  Patience is certainly a key factor when diving into the distressed property market.  The successful purchase of a  Short Sale property depends on a variety of steps that must go right.  Here are some factors you should consider when looking for a home that is listed as a Short Sale:

What is a Short Sale?

A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.

Be aware that in rare cases the seller need not be in default — to have stopped making mortgage payments — before a lender will consider a short sale. It is not often this happens, however; a lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.

Why Should I Consider Buying a Short Sale Property?

Realty Times has a good article on the Top 10 Home Buying Tips For Short Sales – A Guide To Understanding Short Sale Foreclosure Real Estate. There are some great financial advantages to buying a short sale property. If you and your have done the homework, you find that in many cases short sale properties can be bought at a great value. Close examination of the previous sales in a targeted neighborhood will reveal if the home is a good value. Additionally, unlike REO or Bank Owned properties, the short sale property is typically in better condition. 

What are the Steps to Buying a Short Sale?

First and foremost, make sure that the real estate agent you choose has been well versed in the Short Sale Process.  Also, determine how experienced the listing agent is as well. Questions to be asked are: Is there more than one loan? Is the bank aware of the short sale? If there is a 2nd lien, is there Mortgage Insurance (MI) on the second note (this is VERY important). This article explains to potential pitfalls of homes in the Short Sale Process with MI. If there is a 2nd loan on the property, this will cause some heartburn for all parties.  The 2nd could be a home equity loan or a 2nd loan that the seller originated to avoid private mortgage insurance.  In some cases, the 2nd loan could be insured.

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