Buyers pursue short sales to get a good deal. So when you see a price
listed for a home that you think is too low for the neighborhood,
before you jump on that price like hot fudge on a sundae, ask your
agent to call the listing agent to find out if the home is 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 the seller need not be in
default -- to have stopped making mortgage payments -- before a lender
will consider a short sale. 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.
Check the Public Records
Do
your research before making an offer to purchase. Your agent can find
out who is in title, whether a foreclosure notice has been filed and
how much is owed to the lender(s). This is important because it will
help you to determine how much to offer.
If there are two loans, you
could have a problem. The first mortgage lender's position is protected
by the second lender, unless the second lender does not want to
foreclose. If a seller owes $160,000 on the first and $40,000 on the
second, offering $160,000 leaves nothing for the second. The first will
need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It's
one strike against you if the listing agent has never handled a short
sale, but it's even worse if your own agent has no experience in that
arena. You need an experienced short sale agent.
My experience and knowledge in short sales will help to expedite your transaction and
protect your interests. You don't want to miss any important detail due
to inexperience or find out your transaction is not going to close on
time because no one has followed up in a timely manner.
Qualifying the Property and Seller for a Short Sale
A
lender is unlikely to agree to a short sale unless the seller has no
equity and is unable to repay the difference between your sales price
and the existing loans. Sellers need to provide a hardship letter to
the lender. Sellers may also owe taxes on the amount of debt that is
forgiven.
A seller I know once demanded that the buyer slip the
seller $1,000 to be given the right to purchase the seller's property.
We said no. This is fraud. The lender legally pursued that seller. Do
not be lured by sellers who suggest this practice. In a short sale, the
seller receives no money because the lender is losing money.
Submit Documentation and Purchase Offer to Lender
Once
the seller has accepted your offer, send it to the lender for approval.
You do not have a deal until the lender accepts. Also, send the lender
a copy of your earnest money deposit. Do not be astonished if the
lender asks you to increase it.
In addition, the lender will want
to see that you have your own loan available and you are preapproved.
Send a preapproval letter to the lender. It will help if your agent
sends a list of comparable sales that support the price you are
offering to pay for the home.
Give the Short Sale Lender Time to Respond
Make
your offer contingent upon the lender's acceptance. Give the lender a
time frame in which to respond, after which, you will be free to
cancel.
Some lenders submit short sales to committee, but most can
make a decision within two to three months. Get a name and phone number
for the appropriate contact at the lender. Don't send an offer blindly
to a department.
Understand Short Sale Commissions
Regardless
of the commission the seller has agreed to pay, the lender is actually
the entity paying the commission. The reason is the seller is not
receiving any money with which to pay a commission. Since the lender is
losing money, the lender will likely negotiate the commission directly
with the listing broker, who will then share the commission with your
agent.
If you have signed a buyer's broker agreement with your
agent, ask if the agent will waive the difference due or you might have
to pay it out of your pocket. Some brokers feel it is unfair to
penalize the agent, but the lender is calling the shots.
Reserve the Right to Conduct Inspections
Generally,
the lender will not pay for customary items that a seller would pay.
These include home protection plans for the buyer, buyer credits of any
kind and pest / termite inspections. A buyer will be asked to purchase
the property "as is," which means no repairs.
It is extremely
important that a buyer obtain a home inspection and pay for other types
of inspections such as pest, roof, sewers, septic tanks, chimney or
fireplace inspections. Do not waive your right to obtain these
inspections and make your offer contingent on approving them.
