A short sale in real estate term is when a borrower sells their home for a lower price than what is currently owed on the mortgage. In this event, the lender agrees to allow the home to be sold for less than the amount owed on the debt by the current homeowner. This is what is known as a “short sale.”
Many home buyers and real estate investors come across these properties when they are searching for homes. It is important to understand how the short sale process works and what to expect if you plan to make an offer on one of these homes. In addition you need to understand that you will not be dealing with a seller when you make an offer. It is the mortgage servicer that is servicing the loan who will be in control of the sales price and the property during this process.
You should be prepared for a long closing process, as it can easily take 3-6 months or more to complete after your offer has been submitted. The reason being is that many of the mortgage servicers are inundated with distressed mortgages, short sale offers, and loan modification requests by struggling homeowners. Often these mortgage servicers outright deny short sale offers and/or take forever to answer a purchase offer and/or a counteroffer. Sometimes they simply never answer and/or close the transaction. With that said, it is always best to hope for the best and plan for the worst by understanding that placing an offer on a short sale home is somewhat of a gamble and there are absolutely no guarantees.
A good tip before you even make an offer and begin your search would be to deal with a seasoned licensed real estate agent who has a lot of experience in dealing with short sale properties. An experienced agent will understand how the short sale process works and also be aware of the problems that can come up during the transaction. This experience will be very valuable to you when you make an offer on one of these properties.
If you’re not paying cash for the home, you will also want to be pre-approved for a home loan before you make an offer. This should not be a generic approval based on verbal information that you provide to some unknown lender or broker over the phone, but an actual written approval by a reputable lender who has ran your credit and has collected all your financial information. By doing this, the mortgage servicer who is handling the short sale for the property you would like to buy, will know that you are a serious buyer who is ready to purchase today.
Here are some more tips and warnings you’ll need to understand when making an offer on one of these properties.
* Mortgage servicers will not respond to low ball offers.
* Keep in mind that the bank is trying to sell the home at a fair market value
* Short sales are, not buy it or nothing deals
* Sometimes negotiating isn’t much of an option with short sales
* Mortgage serviers have tens if not hundreds of short sale homes they’re dealing with each day, and sometimes will not respond to emergency calls
* Do not hold your hopes on the home as in a short sale
* Check the Public Records: Research is an important step when buying a home in a short sale. Public records will show all the properties recent history including:
* Who is on the title?
* Whether or not a foreclosure notice has been filed
* And how much was previously owed to the lenders
Information like this will be important because it will help you determine how much to offer and whether or not the home will be auctioned off at foreclosure before the sale closes. You do not want to waste months of your time on a property about to go to foreclosure.
As I had mentioned above, if you do not have enough cash to purchase the home, you will need to obtain a new mortgage. Before you even think about making an offer you need to make sure that you can qualify for a new home loan and also the amount you are approved for in order to understand the price range that you can start searching for that perfect home. Please feel free to give me a call, Erik Sandstrom at 1-800-779-4547; or send me an email at Erik.Sandstrom@CaliberHomeLoans.com.