Before I talk about the exact steps of how to buy short sale real estate, I ‘d like to go ahead and tell you what to AVOID, so that you don’t start to go wild when you see short sale signs popping up in your area of interest.
First off, short sales are scenarios where the seller owes a fat amount to a lender and is unable to repay back the entire value of the property. In this case, seeing that there is no further way to extract the money back at good face and that a foreclosure can decrease the amount the lender gets to take home, he agrees to sell it off at a lower price than what is owed. The seller doesn’t owe anything further as the balance payment is relieved, the buyer gets a great bargain (upfront actually) and the lender gets to extract back the maximum possible amount he can.
At any rate, if you’re thinking about how to buy short sale real estate, then know that the following 2 cases will for sure cause a failure for you and mark these out with red flags in advance:
CASE # 1 : When you’re planning to flip
Short sales need bank approvals and seller condition cross examinations at times. So they’re anything but short and take a long time.
Yes, even though the property is at it’s low and you could stand to improve it, there is a high probability (and many times a reality) that the renovations are going to shoot through the roof. The reason being that the original owner has had a struggle paying off the amount you’re jumping in with. In that condition, there really hasn’t been much of a maintenance drive undertaken in the recent past.
So unless you’ve done a very thorough inspection and are absolutely sure, don’t move ahead. Seasoned investors can conduct a structure investigation in case of separately built houses/bungalows, but just to be on the safer side, newbies need to avoid it if they plan on selling early. Because it’ll get tough to fetch a buyer who can pay for your added pains in maintenance and heavy expenditure done as well.
CASE # 2 : When the seller is likely to file total bankruptcy
Very few lenders will consider short sales healthy in this case. But those who do play with grit and as a buyer you need to watch for that! Why? because a sell out like this will be a collection activity. That’s NOT PERMITTED in a total bankruptcy of the original owner. Many courts may trouble you later if you buy without any prejudice.
Phew! Now that we’ve got those out of the way, let me tell you a few things about what to do it it is likely to be safe and very profitable to indulge in a short sale, especially when you’re upside down with your mortgage. So here a re a few pointers to help you:
# 1 : Do your homework
Ask you close circle consultant/agent to google out the property a bit, on the inside. He can help you find out who’s name is in the title for that property, what it’s original rise and fall curve was like, how much is owed to the lender and whether or not a foreclosure notice has been filed.
The amount that is owed to the lender is going to help you determine what would be a reasonable offer to make. Further, the original trend lines for that property will tell you if it can help you in the future, given the fact that you’re willing to invest your time and renovation expenses.
If there’s multiple loans owed, there could be a problem. The prime mortgage mender’s position is directly protected by the secondary mortgage lender, in a lot of cases. Typically, when the second lender isn’t keen on foreclosing. If the seller owes an amount to the prime lender that you’re willing to offer, it still leaves nothing for the secondary. So you’re out of balance with all three – the lenders and the desperate seller. Discuss it out with your agent.
# 2 : Qualify the Property
Short sales not handled well are a cause of dispute. There a re many lenders who stand to lose money on short sales, even though damage is minimized. So they begin to pursue the seller and even force them to demand extra commissions for giving rights to indulge in short sales.
This means the seller will have to say that since you’re getting a bargain deal, you should pay some commission to get the right to buy. This is not permitted by the law. And it’s all going to go to the lender who wants to pay taxes from your pocket due on the loan amount being forbidden. ultimately, the seller really doesn’t get anything. So don’t fall for the short commission and lock it in trap. It’s illegal.
Indirectly, qualify the seller and the lender by questioning the property standing before dispute.
# 3 : Give the lender time to respond
Let the lender go through all of the obligations and discussions with their sales committee and approve your offer document. Not rushing things up puts you in a powerful push-pull position and it is now you who can cancel anytime, if suspicions of any kind arise.
Also meanwhile and before even sending your offer, compare prices likely to be right for a couple of short sales, if they’re breaking around the same area. that’ll add to your tools at the negotiating table.
# 4 : Carefully uncover the mortgages
Knowing all the mortgages and liens involved with that property. it not only gives the amount you should be offering but also tells you what all mortgages owed are linked to which liens and how much of each lone is overdue it’s repayment period, or how much time is left. That’ll give you the level of willingness in each lender involved to allow the short sale and also their likeliness to approve your offer.
# 5 : Know what financing you could use
You should be able to qualify for a mortgage loan even before you approach the idea of the short sale. Your offer getting accepted could actually mean a high need on the lender’s end to have you close quickly. A pre-approval of financing is recommended if you’re really interested in the property and feel you’ll need immediate cash.
Hope that the above mentioned details guided you well on your path to learning how to buy short sale real estate. Be optimistic and aware about your decisions and your agent’s experience. Goodluck!