Buying a "Short Sale" - what do I need to know?

[Wonders10]

Hi everyone,

I'm in the process of house-hunting and I have found the neighborhood/development of my dreams. There are many houses available at list prices that are just asking for me to buy them. Most of them are short sales. My real estate agent hasn't told me much about them other than they take longer than foreclosures (which confuses me because every place I read about short sales vs. foreclosures it says the complete opposite). Initially she was not showing me any short sales but these houses are just what I have been looking for. Anyway, I'm going to see a bunch on Saturday and if "the one" were to strike my eye and I wanted to put in an offer, what should I know as far as dealing with a short sale. I know my realtor will guide me through it, but I just want a heads up plus some base knnowledge going in to meet with her. I've received a good faith estimate of 190K and all of the houses I'm looking at are ridiculously lower than that. I have excellent credit (not just me saying it...the bank did a credit check on me) and I have 20K for a down payment (don't want to do more so I can have a cushion). I make a decent salary but I have only been contracted since August with my company (finished grad school in June). So that's it....what can you all tell me?

Thanks!

 

[The Mystery Machine]

The danger here is that you think you are getting a "deal" however in reality you may be actually overpaying.

"Short sale" is a red flag and means that the homes are overpriced for the area.

You need to look at a range of homes before you fall in love with a house that is a short sale.

Is this your first house?

 

[AmyinKY]

Be prepared to wait. The lower your offer, the longer the wait. Have an inspection and be prepared for the bank/mortg. company to not want to fix/replace anything that the inspection finds. Wait some more. Have more paperwork to fill out, then wait. Wait some more. Fill out more paperwork, then wait.

I hope the offer you make is high enough to be considered.

Amy

 

[The Mystery Machine]

Be prepared to wait. The lower your offer, the longer the wait. Have an inspection and be prepared for the bank/mortg. company to not want to fix/replace anything that the inspection finds. Wait some more. Have more paperwork to fill out, then wait. Wait some more. Fill out more paperwork, then wait.

I hope the offer you make is high enough to be considered.

Amy

Right and by the time you can close, now the interest rates are not where they were.

Banks are harsh right now with foreclosures/short sales. They are sitting on them. We just bought a house in Sept. and looked at a forclosure and they would not even entertain anything at below their number and the house needed to be GUTTED!

Just do alot of homework.

 

[SwedishMeatball]

If they are bank owned already, then stay away. Short sales work best if the owner is in pre-foreclosure and has 2 or more mortgages on the home. Otherwise you would usually do a Subject-to. It takes time and involves a lot of wheeling and dealing. The first thing is to approach the home owner and get permission to contact all of the banks. Then you have to talk with the trustee of the mortgage that is seeking foreclosure and make certain that they will agree to an extension of the auction date. You start with the last loan first and that bank will realize that if it goes up for auction, that they will almost certainly receive zero. So you make them an offer. Say it's a third mortgage for $25,000 and you offer them $2,500. They will often take something over nothing. Then you have to repeat that with the next mortgage in line. By the time you get back to the first mortgage, you'll be in a good position to negotiate an amount that is less than owed considering the housing market. Even if you paid the full amount on the loan, it would usually be less than the fair market value. Of course you have to factor in the amount that you settled with the other banks. It's quite complicated, and I am certainly no expert. I have a minimal amount of experience dealing with real estate investments.

 

[Wonders10]

The danger here is that you think you are getting a "deal" however in reality you may be actually overpaying.

"Short sale" is a red flag and means that the homes are overpriced for the area.

You need to look at a range of homes before you fall in love with a house that is a short sale.

Is this your first house?

This is my first home and yes I will totally admit to being naive and clueless when it comes to some things...I'm trying to educate myself though along the way! I have looked at a bunch of homes and townhomes but this is where my gut is telling me I belong...I have already looked at some of the model homes here and love them! But buying from a seller/bank is less $$$.

The neighborhoods are all brand new and do not need any major repairs. They are turn-key as far as appearance. I know an inspection would show more, but trust me, these definitely don't look like most foreclosures that need tons of work. My opinion is that when they were first built, in the height of the "we will give a house to everyone" stage, these people bought and now cannot afford to live there/pay the mortgage. That's my guess with these particular homes.

I am not in a huge hurry. I'm renting right now and my lease is not up til the end of July 09, but I would break it in a heartbeat if I bought and closed sooner.

 

[Califgirl]

Be prepared to wait. The lower your offer, the longer the wait. Have an inspection and be prepared for the bank/mortg. company to not want to fix/replace anything that the inspection finds. Wait some more. Have more paperwork to fill out, then wait. Wait some more. Fill out more paperwork, then wait.

I hope the offer you make is high enough to be considered.

Amy

You forgot to add: Overnight Fed Ex every single piece of paper. Wait.

Overnight Fed Ex more documents. Wait some more.

Fed EX that crucial, have to leave work to get it notarized and signed document. Keep waiting.....

 

[The Mystery Machine]

This is my key question to you....

Is the developer gone from this neighborhood? Is the neighborhood done?

I bought BRAND NEW and baby there is no guarantee of squat. I am having basement cracking and a leaking circuit box. This is my 4th house, 3 of them were brand new.

Have you googled the area to find out any ongoing issues?

 

[Wonders10]

This is my key question to you....

Is the developer gone from this neighborhood? Is the neighborhood done?

I bought BRAND NEW and baby there is no guarantee of squat. I am having basement cracking and a leaking circuit box. This is my 4th house, 3 of them were brand new.

Have you googled the area to find out any ongoing issues?

You make a good point...just because it is new, doesn't mean it is perfect. But my point is they don't have any obvious flaws like some houses do, such as cosmetic issues.

The neighborhood is quite large and made up of a bunch of different developers. Two of them are still there and one is gone. It's very similar to Disney's Celebration just to give you all an idea.

 

[The Mystery Machine]

You make a good point...just because it is new, doesn't mean it is perfect. But my point is they don't have any obvious flaws like some houses do, such as cosmetic issues.

The neighborhood is quite large and made up of a bunch of different developers. Two of them are still there and one is gone. It's very similar to Disney's Celebration just to give you all an idea.

Cosmetic is easy is better to deal with than a leaky roof, trust me. Been there.

The problem with the short sale aside from the headache of time to purchase it, is that you are going to be buying it "as is".

Now DH and I have an issue with that because if something goes wrong it is 100% on your shoulders with no recourse.

It is a gamble and you should know that going in. So make sure you do homework to see if the builders are having any issues with the homes.

In addition if they have a ton of short sales it means that the homes are priced too high for the market. The risk there is that they will fall even further.
Again, another gamble.

Finally the last BIG gamble for you is if you lose your job, you will be sitting in the same boat as your sellers. There goes your credit and now you are hosed.

We also bought new in Sept. and it is a gamble as well. If DH were to lose his job we are looking at the same thing. It WILL be hard to unload the house.

However we did get the house down to a FAIR price even though they would call it a "steal" but it isn't really.

That is the issue....price. If you cannot get the house for a reasonable price, walk away. Do not come up to something you feel is over the top.

Do your homework for the neighborhood with your realtor and pinpoint every sale to see what the neighborhood is doing with regards to price. Have a number in mind and then walk away if you have to.

If it was a "true deal" it would not be in "short sale". Keep that in mind. Good Luck.

 

[Piecey]

We looked at a short-sale.

Made an offer on a short-sale.

Never heard back from the bank, and we offered over list. It was ridiculous.
I think that was the most annoying thing about a short-sale to us... dealing with a bank as a lender AND as a seller!!

We ended up buying a house across the street from the short-sale.. which we've now been watching and we've seen the previous owners lurking around and removing the real-estate signs, etc.

I think it's a good thing the bank never answered us on it..

 

[The Mystery Machine]

We looked at a short-sale.

Made an offer on a short-sale.

Never heard back from the bank, and we offered over list. It was ridiculous.
I think that was the most annoying thing about a short-sale to us... dealing with a bank as a lender AND as a seller!!

We ended up buying a house across the street from the short-sale.. which we've now been watching and we've seen the previous owners lurking around and removing the real-estate signs, etc.

I think it's a good thing the bank never answered us on it..

Remember we tried to talk you out of it as well.....

It is a pain isn't it? We considered a foreclosure and boy you would think they were sitting on a stack of gold.

 

[Piecey]

Remember we tried to talk you out of it as well.....

It is a pain isn't it? We considered a foreclosure and boy you would think they were sitting on a stack of gold.

Yep, you did. We paid $11k more (technically only 8k, they paid 3k of our closing!) for a house across the street with more room and after a little TLC will be a much, much, much better place! The yard is bigger, too...

One difference we noticed: The short sale had areas where it had NOT been taken care of at all.. clearly the people weren't too terribly concerned with taking care of a house they weren't bothering to pay for, either.
The house we bought has been cared for immaculately. The woodwork is all original, all the floors underneathe the carpets need are some polish. It's gorgeous-- and totally worth the time we took to find it, at only 10k more than our original price range.

 

[sunnyday123]

We looked at a short-sale.

Made an offer on a short-sale.

Never heard back from the bank, and we offered over list. It was ridiculous.
I think that was the most annoying thing about a short-sale to us... dealing with a bank as a lender AND as a seller!!

We ended up buying a house across the street from the short-sale.. which we've now been watching and we've seen the previous owners lurking around and removing the real-estate signs, etc.

I think it's a good thing the bank never answered us on it..

The bank has the final say so on a short sale...it's one step from a foreclosure...you can wait up to 90 days, and they can entertain other offers and on day 75 ( after you have waited and planned on your new home) tell you no go. Make sure your realtor checks all the comps in the area. Also, the reason she may not be jazzed about showing you short sales ( which she is absolutely not allowed to do!) is because her comission could be reduced, or not at all. See if your contract with her states anything regarding a short sale comission guarantee, such as if you purchased a short sale, she's getting 2 1/2% no matter what, payable possibly by you.

 

[MagicalMom]

We purchased a beautiful bank owned home in November. I knew the development well because I had been casually dreaming (stalking actually! LOL) a certain model in this development but understood it was way out of my price range. While searching the net (stalking the homes again! LOL) I noticed 2 homes in the same model I had been dreaming of that were priced ridiculously low. One was in less than perfect condition, cabinets and counters a bit dinged up, carpet needed replacing and other small cosmetic things. The realtor informed us that there have been 5 offers on this home in the nearly 1 yr that it had been on the market. The bank was just ignoring them. The other home was in near perfect condition and had only been on thbe market for a couple of days. Both homes were identical in price, floorplans, etc. We put full asking price bids on both and held our breathe. We figured if it was meant to be, it would happen. Our offer was accepted on the nearly perfect home within 48 hours! That was the easy part! LOL The closing was delayed multiple times. There were leins totalling over 100,000.00 found on the property for everything from a second mortgage to landscaping fees. Our offer was accepted in August. We finally closed in November. It was a bit frustrating but 2 months later I wake up every morning and can't believe I actually live here!!!!!!! (sorry so long, just still a little psyched!)

I wanted to add that the other home is still for sale. Crazy huh?

 

[Lib E]

I am not in a huge hurry. I'm renting right now and my lease is not up til the end of July 09, but I would break it in a heartbeat if I bought and closed sooner.

I have a friend whose short sale offer was turned down because she was in a lease. She was willing to pay to get out of it, but the bank said no way.

 

[wardfamily1]

We bought our home on a short sale in May 2007. We put an offer in and 2 1/2 weeks later we were closing on the house. It is an older home and we bought it as-is. I love my home, the neighbors, on the other hand, I could do without.

Remember OP, not all short sales are horror stories.

 

[Wonders10]

We bought our home on a short sale in May 2007. We put an offer in and 2 1/2 weeks later we were closing on the house. It is an older home and we bought it as-is. I love my home, the neighbors, on the other hand, I could do without.

Remember OP, not all short sales are horror stories.

Thanks, I know it is definitely not the ideal way to buy a house, but I'm glad to hear there are some success stories out there. Just wondering, why do you think yours went through so quickly?

 

[DancingBear]

The problem with the short sale aside from the headache of time to purchase it, is that you are going to be buying it "as is".

Unless you are buying directly from a builder, you are almost always buying a house as-is.

 

[The Mystery Machine]

Unless you are buying directly from a builder, you are almost always buying a house as-is.

If the sellers leave out stuff on the disclosure you can sue them. I am talking MAJOR stuff here.

With a short sale/foreclosure they don't have to disclose a dang thing.

In addition you can ask for the 1yr warranty thing, not in the case of a short sale/foreclosure.