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In the current market short sales are marketed by realtors and banks more than ever. In a short sale the lender basically agrees to accept less than what is owed on the property or mortgage loan(s).
Recent e-mails and conversations of late have asked about the short sale process.
Even though our company does not offer
short sales, I feel that it is important that you know the facts whether you are
considering purchasing your home as a short sale—or if you are considering selling your home as a short sale.
Please weigh and consider the short sale purchase process appropriately—so that you know what you are getting into—if you are considering purchasing a short sale property now—or in the future.
What You Should Know If You Are Considering Purchasing Your Home Using The Short Sale Method
First and foremost, you must realize that all offers are contingent upon “bank approval.”
Before you even consider looking at short sale properties you should get pre-qualified—or preferrably—pre-approved.
In many cases the seller will have to submit paperwork with the offer showing that purchaser has the means—and is qualified to purchase the property—so as to not tie up the property.
In some cases the lender (the home seller's lender) may request a tri-merged copy of your credit report along with your FICO score.
Your Offer may be one of many offers being reviewed and the seller is under no obligation to accept any offer, or even the highest offer.
The Seller or mortgage company will usually not furnish a Property Disclosure Statement or Termite Letter in most states.
In some cases closing must be done with the “Sellers” attorney.
There may be inspection stipulations, especially if the seller is no longer in the house.
Short Sale contracts are usually never assignable to third parties.
The property is usually sold “As-Is” as the Seller is usually in a difficult financial situation.
Keep in mind that if closing goes beyond 3 months your loan documentation and approval may have to be re-submitted.
After the bank approves the selling price—is usually the best time to submit and finalize your mortgage paperwork. Short sales can take a long time to close.
Credit Reports and Credit Scores are usually only good for up to 90 days or so, therefore you don't want the clock to start ticking until you absolutely have too—based on the terms of the offer.
It is also more prudent to start your lock-in period on your interest rate after the sales price has been determined.
Be sure to check with your lender to see if the lock-in period can be extended—if needed—even if a fee is involved—as interest rate movement is "more likely" due to the long drawn out process of short sales.
The process can be DIFFICULT and TIME CONSUMING.
If it is urgent that you purchase and close by a certain date—a traditional seller or bank foreclosed property that is listed by a real estate company—may be a better option.
Be sure to have your real estate professional write up the offer contract in a manner that will protect you as much as possible—to enhance your interests and negotiating position.
In the short sale process patience, persistence, and the fact that an urgent closing is not necessary in your situation—along with an agent who looks out for your best interest is the key.
You could lose several months in the home search process if the deal falls through. However, with the market over-saturated with short sales and distressed properties—and the fact that you have time—means that a great deal on your home purchase is still within your grasps.
Key Points to Remember:
Be sure that your agent utilizes contingencies and special stipulations to your advantage!
Key areas are the property condition, flood zone, high lead/mold levels, unacceptable title condition (such as unpaid judgments/liens, association fees or city code violations etc.).
Be aware that the short-sale process can be—and often is—a frustrating process.
Be sure to utilize competent professionals and don't be afraid to seek a number of opinions.
An agent with experience can speed up the process. Be sure to use an agent who will protect your negotiating position and work in your best interest.
Be aware that in a "short sale" you
will normally receive a "general warranty deed" at
closing—which if given an option—is usually the best for a purchaser. The
type of deed really depends on how the seller (homeowner) has the deed recorded
at the time of sale.
Try to get the bank to start your short sale file early—this too can speed up the process.
Try to find an agent who is familiar with the short sale process and knows how to get things done— as it is a frustrating and daunting task for those who don’t have a history of dealing with lenders and short sales.
Be sure to factor any repair costs that are required or needed into your offer price.
In addition to a standard home inspection—you may have to do a special inspection on certain items—say a pool, septic system, lead, mold and other items that area not included in a standard inspection.
Also, if a 2nd mortgage is involved—the lender
in the 1st position may have to give (some of the proceeds of the short sale)
something—to gain the cooperation of the lender in the 2nd position.
Remember that by law the documents must spell out that the short sale approval is dependent upon bank approval.
If you are a home buyer—look for short-sale properties that have already been approved (lender has approved a sales price)—realtors will normally include this fact in their marketing.
Remember that if you are not paying cash—the home will have to be financed and must past appraisal. That means the property must be in fairly decent condition.
If the house is missing plumbing fixtures, pipes, copper etc.—or walls and windows have been severely damaged—the appraisal process may nix the closing. Determine the property condition as best you can early in the process.
Remember that the "Seller" may accept your offer but their "Lender" MAY NOT accept your offer.
Always remember that the "seller" receives no money—and the "lender" will be losing money.
As a home buyer it is important to show the seller and mortgage company right up front that you are serious about your purchase and plan on closing the deal.
You may have to get an FHA 203k (rehab loan) to close on a property that needs repairs or possibly set up an escrow account for repairs if the lender(s) agrees.
Make sure you have a quality inspector (ASHI or NAHI certified) and be sure to ask the right questions and get the right answers.
If you don’t get the right answers you might want to consider another property—and consider the money spent ($300-$500) as money well spent—as it prevented you from possibly buying a property that was not in your best interest.
Your greatest benefit as a purchaser of a short-sale is the hassle and time involved in purchasing using the short sale method—is that you will get a property at lower than market value—in some cases much lower.
If you are not in a rush—and you utilize a highly competent real estate agent—your patience may be well worth the wait—as you could possibly get a great deal.
Other Key Points You & Your Agent Should Keep In Mind
All of the above can help you determine the offer price
By keeping the above factors in mind—you could possibly find a great deal on a property that is being sold as a short sale.
Always begin with the end (selling in the future—as most home owners sell within 10 years) in mind—and know the quality of the community that you are moving to—as well as the quality of the school systems—and other amenities that are in the area.
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