About Short Sales
What is a Short Sale?
Although short sales are not a new concept, the current economic climate has brought the concept of short sales to the forefront. With so many people in financial trouble and the crash of the real estate market, many people are suddenly in the position of having an "upside down" mortgage, which means they owe more money than their house is worth. Add to this job loss or other hardship, a few missed mortgage payments and before you know it, the bank is foreclosing on your home. In order to avoid foreclosure, home owners negotiate with the bank to sell their home for a reduced price that is less than the mortgage due, also known as a short sale.
Qualifying for a Short Sale
Not everyone with an upside down mortgage qualifies for a short sale. Before you jump on the foreclosure bandwagon, make sure you meet the qualifications for a short sale:
- The home's market value has dropped
- The mortgage is in or near default status
- The seller has fallen on hard times
- The seller has no assets
Even if you meet these requirements, there are many other challenges to completing a short sale. Not all lenders accept short sales. They would prefer to foreclose and own the property outright, so you'll have to work with a skilled negotiator to succeed. To see if you might be a candidate for a short sale, call 978.745.7325 to schedule a free consultation.
Buying a Pre-Foreclosed Property or Short Sale
There's never been a better time to buy a pre-foreclosed property or short sale. With so many people facing foreclosure you can find a great deal if you have the resources and the patience. There's also a new program called the Home Affordable Foreclosure Act (HAFA) that was passed in April of this year to make the short sale process more attractive. The new law offers the following incentives for short sale participants:
- Homeowner: $1500
- Servicing bank: $1000
- Second lien holder: $1000
Although you can get a great deal on a short sale, keep in mind that there are pitfalls associated with buying a property this way. You should do your homework before shopping for a short sale so you'll know what to expect. First of all, just because a property is listed as a short sale doesn't mean it's really for sale or that it will sell at the listed price.
Here are six things you should know before deciding if a short sale is right for you:- Comparable sales for the short sale: Short sales are usually priced below comparative sales, but priced in line with pending sales. This is because short sales generally take 2 to 4 months to close and the pending sales price will become the comparative sales price at closing. Some short sales are priced ridiculously low and have no chance of being accepted by the lender. If you want your offer to be accepted, it will need to be priced near market level.
- Mortgage amounts, number of loans and lenders: Ask your agent to research how much is owed against the property and how many loans are recorded. A second or third mortgage lender will receive very little compared to a senior lender in first position. In addition, some lenders have a reputation of being difficult to work with. A good short sale agent will know whose these lenders are and can advise you of potential problems.
- Short sale listing agent's track record: Make sure your short sale listings agent has actually succeeded in closing a short sale. It's up to the listings agent to submit the short sale package and negotiate with the bank. Your buyer's agent can't talk to the bank directly.
- Short sale seller qualifications: Find out if your seller has provided a complete short sale package and that the requirements for a short sale have been met. A short sale package consists of the following:
- Seller's hardship letter
- Tax returns
- W-2's
- Payroll stubs
- Financial statement
- Bank statements
- Listing documents & contracts
- Number of short sale offers: Homes priced under market value will probably have multiple offers. An agent is not required to disclose the the terms of those offers, but you should know how many offers you are up against. This is how it generally works:
- When a short sale first comes on the market, the first offer is usually slightly below list price
- The second offer is at list price
- The third offer is slightly higher, usually by $1,000 or $2,000
- The listing agent's short sale procedures: Although all Realtors® are bound by the Realtor Code of Ethics, not every agent is a realtor. This means that the short sale listings agent may decide to submit only the first offer to the bank and withhold all other offers. Withholding offers could be a violation of the fiduciary relationship between the listing agent and the seller. Keep in mind that even if your offer is submitted to the bank, another buyer could outbid you while you're waiting for short sale approval.
Looking to buy a pre-foreclosure or short sale property?
If a short sale sounds right for you, call Re-Bound today at 978.745.7325 for a free consultation. Not all our available properties are listed, so you'll have to call to see what's available. If we don't have what you're looking for, we can help find the right deal for you and guide you through the short sale process.