Interested in buying short sales?
Buyers pursue short sales because they hear they can get a great deal on a house. But before jumping on the short sale bandwagon, know the facts. Short sales can be a “waiting game” which may not produce the end result you are looking for.
If you are looking to buy a house at a discount on a short sale, be prepared to wait for up to 6 months to a year. The “wait period” can depend on a number of factors such as the bank holding the first mortgage, the seller’s motivation to sell, the short sale listing agent’s experience handling short sales, your agent representing you as the buyer, other liens and encumbrances, and other unforeseen factors.
You can shorten the time to purchase a short sale by doing some of your own due diligence on a short sale home before you enter into any written agreement. Here is your due diligence checklist:
Hire an experienced short sale agent. If the seller hired an inexperienced short sale listing agent, there’s not much you can do about that if you really like the home and price. However, if you mistakenly hire an inexperienced short sale agent, this is a double strike against you and will almost kill your chance of buying the short sale home you like within a reasonable timeframe, if at all.
Therefore, when you are interviewing agents, qualify their short sale experience, ask them about their success rate with negotiating short sales? What banks have they worked with? How long have the agent been negotiating short sales? Ask about any failures your agent has had with deals that didn’t close. If your agent tells you that they close 100% of their short sale deals, I would question their integrity. You should listen for the depth of their experience and what they did when confronted with a challenging situation.
Make sure the seller is motivated to sell. Is the seller motivated to sell? Unfortunately, the seller’s motivation will likely be communicated by the short sale listing agent, so you may not get the whole story. All you can really do is look for clues. Check to see if the seller has started packing. Do they look like they are getting ready to move? If the house is vacant, most likely the seller is motivated to get the home sold. If the seller is living in the home, when were they planning on moving? Will they sign off on the paperwork, or are the using the short sale process to buy more time, so the lender doesn’t foreclose? If the seller is not motivated, do not waste your time, move onto the next short sale property.
Ask about who the first mortgage company. How fast is their short sale process? What kind of reputation does the bank have for closing short sales? If they are super slow, extremely disorganized, or have a bad reputation for short sales, you may want to pass. If they are excellent with reviewing short sales, this is a good sign. Proceed with the rest of your due diligence checklist.
Check the title of the house for ALL liens. Make sure you know everything that is owed on the house before you make your offer. If the house has more than a first mortgage, you should ask if the short sale listing agent has been in contact with all of the lienholders, ordered payoffs, and asked about the possibility of junior liens accepting discounts for their debts.
If the short sale listing agent is not aware that there are junior liens on the property and has not been in contact with the junior lienholders, this shows that the agent simply doesn’t have the experience or know how to deal with an unusually challenging short sale that is not for the novices. Don’t waste your time on short sales with multiple liens and an agent too inexperienced to get your deal through.
Remember that many first mortgage lienholders frequently have no choice but to foreclose on multiple lien homes to extinguish the junior lienholders from title. Without releases from the junior lienholders, there is no way that you as a short sale buyer can get marketable title to the home. So its best to just start looking at the next short sale deal.
Make sure you follow special instructions for submitting a short sale contract. Sometimes the lender requires special addenda, special contract language or specific legal forms to be used. These instructions must be followed or you may find that your purchase contract may be rejected or kicked out, only to start the short sale process all over again. Unfortunately, banks can be very strict about paperwork. Knowing that they require special contract submission instructions can save you time, and in some cases, save your deal. If your real estate agent failed to follow instructions or has never submitted a short sale contract before, he may overlook important details, which can derail your deal.
Provide enough time for the lender to respond. Keep in mind that most lender will not review your offer for 30 to 60 days. Provide a reasonable amount of time for the lender to respond. Remind your agent about your moving plans and urge them to push the short sale through or at least get an answer, so that you can withdraw your current offer and start looking at your next short sale deal.
Provide an inspection period in the contract. Once a lender has agreed to your short sale offer, hire a home inspector to identify deferred maintenance in the home. Any maintenance items you uncover are grounds to either renegotiate price or exit the contract. Keep in mind that sellers who fall behind on payments generally postpone taking care of maintenance items. You want to protect yourself against any potential costly repairs that can break you if you didn’t uncover them prior to closing on the property.
To ensure a smooth short sale buying process, it all starts with a great real estate agent who specializes in short sales. Once you’ve found an agent who can help you, the remaining steps to a short sale process are a cinch. However, if you come up short (no pun intended) with a less experienced agent, you will be relying a lot on yourself to protect your interests, possibly causing some delays in the short sale buying process.
If you have any further questions about short sales, please contact us.