Short Sale Confusion
We have a new animal in the real estate jungle, the Short Sale or Short Pay. What exactly is this? Is it something to be feared? Should you stay away from these?
The owner of a property has had some kind of hardship that has prevented them from paying their mortgage payments. The value of the property has dropped below what is needed to sell the property including the closing costs. The property owner now has two choices, let the lender foreclosure on the property and face the credit disadvantages of having a foreclosure on their credit for 10 years, or contact the lender and arrange for a Short Sale. With the Short Sale there will also be a credit ding, but it will show that the mortgage was paid as agreed. In the Short Sale the lender will accept an offer and pay the costs to sell the property. The lender will then, in most cases,1099 the seller for the amount of money that was short. The 1099 policy is how the lender's write off their loss.
The Short Sale needs to be viewed the same as a regular sale in the aspects of the price you would like to offer. If you really want to buy the property you will need to offer market value for the lender and the seller to accept your offer. The property will be sold "as is" and you can and should take that consideration in your offer. But don't try to "low ball". This will not fly. Make sure your agent runs the comparables for that neighborhood. If similar size and condition properties are selling for $595,000 don't offer $495,000. Don't think because someone is having a hardship and is desperate to sell their home that they will take a $100,000 or more hit on the 1099. A more reasonable offer that might fly would be around $575,000. The lender will send out an appraiser and will know the value. Don't be disappointed by trying to get that great deal!
You need to be patient. The lenders are on a different time line than a normal sale. But this does not mean that you can wait around to get your loan in place while waiting for lender approval. Many times as soon as that approval is made the lender wants you to close ASAP! So make sure you have all your ducks in a row! Do get your inspections done as soon as escrow is opened. You will know then what you are getting into. Remember the property is being sold "as is" and that will mean everything is on you including government retro fitting and termite inspection and clearance. Make sure you have a professional inspection!
Short Sales are not something to be afraid of, just be knowledgeable of what you are doing and most important make sure your real estate agent is knowledgeable too!
For more information on buying or selling a Short Sale property contact us right away.