Tips for buying a Short Sale home

If a seller sells a house that they owe money on – more money than the house is worth – it is called a short sale. Since the bank is going to end up taking a loss, they need to approve the sale. Interestingly, often to buy a short sale home you have to be both patient and extremely fast. You might make an offer, wait for months, and then hear that you have 2 weeks to get all the paperwork done.

(1) Do your homework – check the land records in the town where the property is located. Is there a pending foreclosure? How many short payoffs will be required to obtain all necessary releases. If you are trying to do a short sale on a property that is already in foreclosure and you need to get a release of two mortgages and 7 judgments liens you may want to pass.

(2) Make sure the seller is completely on board. Have your agent consistently check up with them to see if they have an update. Frequently sellers become disinterested and ignore the bank’s request for updated financial information. The bank may be ready and you may be ready but you cant get far without the seller.

(3) Have all your ducks in a row regarding financing. If it is a property that needs work and you intend on getting an FHA insured loan you may lose your short sale approval during the time it takes to get your loan commitment. It is best to be preapproved and be ready immediately upon acceptance for appraisal, inspections, etc. A lender is loath to hold a short sale approval open for too long.

Still, the experience may not be smooth. One guy made an offer on a short sale property which the seller accepted. He had to put $3k down as earnest money. The seller’s real estate company said his was the only offer but what they didn’t tell me is that even though the house is pending approval the seller and/or the bank can accept other offers: “We never got more than a “keep waiting, it should be only a couple of more weeks.”

After about 3 months he wanted to pull the offer and start looking at other places, but they said he would have to eat the $3k if he did that. After 4 months they tell him the bank accepted another offer – he waited all that time for nothing.

You might be thinking that the bank treated this guy unfairly but keep this in mind. They are losing money on the sale – would you rush into a deal that was losing you money? So it’s not uncommon for short sale buyers to feel powerless or abused as they wait. Go into any short sale transaction with patience.

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