[This article was originally posted at Nooga.com]
Short sales are the hottest thing going in the distressed property market.
A short sale is a sale of real estate in which the sales proceeds fall short of the mortgage balance owed on the property’s loan.
Mortgage lenders consider short sales when a borrower has a hardship that prevents them from paying the balanced owed on their mortgage. And in most cases, the value of the property is currently less than the mortgage balance owed and expenses of a sale. The mortgage lender decides that selling the property at a loss is better than proceeding with collection efforts, including foreclosure.
Short sales are a type of debt settlement, and they can adversely affect a person’s credit report, though the negative impact is typically less for the property owner than a foreclosure or deed- in- lieu of foreclosure.
The first thing to expect when making a short sale offer is a longer waiting period to get an offer accepted. Do not make a short sale offer if you cannot wait.
The seller’s lender does not care that you are over-qualified to buy the property, paying cash and can close in 10 days or less. The short sale offer is just like every other short sale offer the mortgage lender is working and the amount of offers can be an incredibly high number of properties.
Depending on a number of factors, you could receive a response through the seller’s realtor within a couple of weeks or a couple of months. In some situations, it can even take longer than two months to get a reply from the mortgage lender.
Once the response is received, then it’s a race to get to the closing before the short sale offer approval expires. If you are a buyer in a situation where you simply cannot wait the time required or cannot deal with uncertainty very well, a short sale offer may not be right for you.
Short sales are not bank owed properties. A short sale is owned by the property owner and a foreclosure is owned by the mortgage lender.
In a short sale, the owner does not sign the purchase agreement. The mortgage lender is a third party beneficiary of the sale as any proceeds of the sale will be given to them.
The seller of the contract must sign the purchase agreement. If the seller does not sign, any other buyer interested in the home can make an offer and complicate your transaction. The buyer must make sure the seller has signed the purchase agreement. The agreement will be contingent upon the short sale approval of the third party mortgage lender. In most cases, there will be a short sale addendum to the purchase agreement.
A buyer should do their inspections of the property up front. In most cases, short sale homes are sold “as is.” Most short sale homes require some maintenance to return the home to market condition and this can vary depending on the property.
Most often these issues are cosmetic in nature (carpet, painting, appliances, landscaping, etc.) or deferred maintenance issues the seller has not performed. But, some can require extensive repairs. The last thing a buyer wants to have happen is to wait what feels like an eternity and then discover the home has a major repair issue.
Therefore, inspect the home at the time of the contract and submit any repair estimates to the seller’s realtor so they can include it with the seller’s hardship package. Your offer should take the repair issues into consideration and the seller’s realtor can make the lender’s negotiator aware. While the lender will not generally make any repairs, they may provide concessions in lieu of repairs.
A short sale buyer must keep themselves “mortgage worthy” during the waiting and offer process. This means not taking on any new lines of credit, installment purchases of furniture, financing a car or co-signing a loan.
You must maintain your credit history as it was when you were approved for the mortgage loan to purchase the short sale property. If something happens that you think may affect your credit history, income changes or payment ability, contact your mortgage lender and discuss the changes.
Hopefully, you will be still approved and able to get the mortgage loan. If not, let all parties know immediately to terminate your short sale purchase.
A buyer usually gets a great deal in a property when making a short sale offer that is accepted by the seller’s mortgage lender. Yet, they must be able and willing to wait the necessary time to get approval and take the extra steps to make the process a buying success.