The short sale can be a great way to buy real estate. But you should be aware the this type of transaction is VERY different than buying foreclosures, auction sales, or a normal transaction.
The good news is the price of the property ( lets say for the purpose of this description the property is a single family home)
is most often a great deal because it is selling for less than what is owed on it.
So it is short of paying off the sellers debits,
hence a Short Sale. The debts owed in addition to the mortgage may be closing costs, such as property taxes, transfer taxes, and the real estate agent commission.
Don't assume that the home is in default, the present owner may be making the payments, but can't cover all the costs to sell it because they just don't have the money or the assets to make the deal happen. They are most likely heading for foreclosure, but not there yet.
On the other hand they may be caught with having to relocate and the home is upside down. This means they bought the home at a higher price than it is currently worth. The mortgage is conventional, like a 30 year fixed, but now they have to move and can't sell it because the amount owed is more than it is worth. These sellers may be able to offer an option to buy where you assume the payments for the current mortgage, and wait the market out.
But why should you have all the obligations and no short term benefits? So this is not very common. Plus you could assume some additional debits like back taxes, and liens.
If you are using one of our real estate specialists, they will find out if there are any of these encumbrances on the home before you think of making an offer.
Great news is there is no tax liability for the seller for the unpaid amount of the loan.
On December 14th 2007 the president signed a bill called the Mortgage Forgiveness Debt Relief Act of 2007. Now until January 1 2010 anyone selling their home in a short sale or in a foreclosure will recieve tax forgivness on the amout not paid to the lender. this removes a huge a barrier to closing these kinds of sales.
The most common short sale is where the seller is in trouble.
They are behind on their payments and the bank is not happy. The interest rate may not be fixed and the payments are going up. At this point it is a no win for the seller or the bank. This stage is also called pre foreclosure. So it is time to play lets make a deal. So this is the time to gather all the information you can on the home.
First Arrange to see the Home.
Our agent will arrange this for you and be there with you to help evaluate the home.
If you like it , then it is on the the following steps for you and us.
For You to do: |
Enter into a Buyer Agency Agreement with us. ( the sellers agent will normally split their commission with us but if the bank demands a reduced commission or no commission to us, you may have to factor in a percentage of the purchase price to be paid by you.)
This will allow us to perform the duties below and advise you on the best course of action. Without a buyer agency agreement we will be required to represent the seller, and de facto their bank and cannot give you any advise that would reduce their position. |
| Be prepared to act quickly after we make the first offer. |
Know how much you can afford.
If you haven't been pre approved by a mortgage lender do it. You may need to move quickly to close on a short sale. If you miss out on this one you will be ready for the next. |
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For your Buyer Agent to do (Us) |
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We will perform a CMA ( Competitive Market Analysis).
This will tell you what the home would list for today, and evaluate if the current listing price is fair or if it is too aggressive.
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Perform a records check to determine:
How much was paid for the home
When the seller purchased the home
Who is the title holder of the home.
Who has liens on the home.
Are the taxes current?
Are the water sewer bills current?
Is there is a second lender involved?
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Prepare your offer to the seller and present it to the lender also. |
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Even thought the seller will always have an "As Is" clause because there is no money to negotiate for repairs, we will submit the offer with an inspection clause. If we do find any unrevealed issues they may reconsider reducing the price to cover these issues, or we can resend the offer and you will not lose any good faith money that was given with the offer. |
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We will make the offer time sensitive. The lender will just let it sit on their desk, if we don't put pressure on them to make a move quickly. They also want to resolve the issue, and keep their costs low. |
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There is a lot going on at this stage, you have made an offer to the seller.
The seller accepts the offer, but they really don't own the home, their lender does.
Since the lender is not going to get all their money back on the mortgage, they are the real decision makers.
This is why we make our proposal to the lender and the seller.
Expect the first offer to be rejected.
The lender has investors who they have to prove they are getting the best return back for them. So the first offer is never accepted unless you are paying them off, and this is not likely. There may be multiple offers made before a deal is struck.
What will make your offer appealing is to be very close to the real value of the home.
The foreclosure process is expensive for banks and if you can save them these costs they will be open to the deal.
But on TV you see people buying real estate for pennies on the dollar!.
One person got a home for $150 and it was worth $150,000. How do I get this deal?
These are Tax Sales, not short sales. They are extremely uncommon.
The lender will buy this property or pay the taxes the day of the sale to prevent the sale 99% of the time. But if the bank now owns the property they will try to sell it for the most amount they can get.
The problem is the property has to sit for a year after the sale before the bank can sell it, or if you buy it a tax sale auction your money it also tied up for a year before you own it.
The property owner, or the mortgage holder of the property in default can pay the taxes at anytime and reclaim the property. You would then get your money back, but no gain on it.
The real win in a short sale is the ability to buy a property before foreclosure.
You can get the property for less that the market value, and since the property owner is in a position to resolve their debit before their credit is destroyed, they have an incentive to make the deal happen.
This means the property will not suffer what i call foreclosure rage.
This is when the owner removes all the appliances, destroys the interior, and can render the property almost worthless. The bank knows this happens all the time and this is another reason a short sale is appealing to them.
To this end the seller may have conditions that they put in the deal, like upon the sale the lender amends the sellers credit report to show as "paid as agreed" and remove all negative comments on their file.
If the lender refuses this it can be a deal breaker.
If you have any questions or want to see of there is a listing that will fit your needs and is a short sale contact us for more information. We will scan the MLS and our other sources to find a great deal for you. |
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