What is a short sale/ Pre-Foreclosure?
A short sale occurs when a bank is willing to take a loss on an existing mortgage(s) and allows you to sell your home below market value or for less than what is owed.
Thinking of Making an Offer on a Short Sale? What You Need to Know
Are you looking to buy a new home? Are you thinking that now's a great time to find bargains? That's true, but it pays to know a little about the seller's situation before you make an offer.
A short sale is different from a foreclosure. A foreclosure is when the seller's lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.
You're a good candidate for a short-sale purchase if:
· You're very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
· Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you're preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer who’s financing is less secure.
· You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.
Some of the other risks faced by buyers of short-sale properties include: potential for rejection, bad terms on contract submitted, and no repairs or repair credits. Lenders may reject offers below market value and then you’ll have wasted months.
· Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.
· Bad terms. Even when a lender approves a short sale, it could require the seller to sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
· No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.
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A Tip for our buyers:
Watch out for unethical investors who will try to convince an owner facing foreclosure to sign a quit-claim deed for the property, and then lease the property, warns Jim Cacioppo, broker/owner of Grand Realty Group. Grayslake, Ill. In such cases, the former owners will still be liable for the mortgage payments, even though they no longer own the house.
