What Every Buyer Should Know About A Short Sale
In this housing market, many buyers are out looking for the best deal possible. When you find a property that appears to be listed far below the local market, it may be a short sale.
What is a “short sale”? A short sale occurs when a owner of real estate seeks to sell a property where the outstanding amount due on the mortgage is more than the agreed sale price. In order to complete this type of transaction, the seller’s mortgage holder must be willing to accept less than the outstanding mortgage amount in order to release its lien on the property. For example, the lender may approve a short sale to avoid a lengthy and expensive foreclosure process, especially if it anticipates that the proceeds from a foreclosure auction may be less than from a short sale. Ultimately, the short sale process results in the lender accepting a reduced payment and the seller receiving no proceeds from the sale.
Hire professionals with experience. When dealing with a short sale, it is important to have an agent and attorney experienced not only in transactional work generally, but also specifically in the short sale process, which is intricate and time-sensitive. You will do yourself a service by surrounding yourself with professionals who have successfully closed short sales in the past. An experienced agent will know how to best submit the paperwork to expedite the process. An experienced attorney will ensure that you are meeting the sensitive financing and closing deadlines, and will help you avoid legal pitfalls specific to short sales.
Know the process. The short sale process is considerably more complicated and lengthy than a normal purchase. Once the seller has accepted your offer, the offer must then be submitted to his lender for approval. Unless and until the lender completes a sometimes lengthy analysis of the transaction, and approves it, you do not have a deal. An experienced agent will send the offer to the lender right away, along with a copy of your earnest money and pre-approval letter. Along with your offer, the seller will need to submit documentation that he or she has no equity in the property and is unable to repay the loan due to hardship. Once the short sale is approved, the seller’s lender dictates the conditions of the release of its mortgage. Meanwhile, despite the lengthy approval process, you as buyer will be expected to do everything necessary to get your financing in order in a timely manner – even with no guarantee that the short sale will be approved ultimately.
Do your homework. Do some research before making an offer to purchase a short-sale property. A quick search of the records at the Registry of Deeds can tell you who owns the property, how many mortgages are outstanding, and whether a complaint to foreclose has been filed. This up-front research will help you formulate an offer that the lender is most likely to consider. Ask your attorney to assist you with this as necessary.
Have an inspection. Property purchased in a short sale is usually sold “as is”. Generally, the lender will not negotiate the purchase price or provide credits based on property defects. As such, it is extremely important that you obtain a home inspection early on in the process to avoid surprises later on. If you are not comfortable with any major element of the property’s condition, consider walking away from the deal early.
Prepare to wait. A short sale can take several months to complete. It is not unusual for a lender to respond to an offer from weeks to months after it is submitted. An experienced agent and attorney will find out the right contact person at the lender to keep the process moving, but ultimately the timeline is in the lender’s hands. If the lender does accept your offer, it will issue an approval letter, setting forth very specific conditions which must be met at the closing in order for the lien to be released. It is critical for your attorney to be experienced with short sales and understand the approval letter in order to ensure that all conditions are satisfied in full at the closing.
There are certainly great deals to be had through short sales, as long as the buyer is informed about the process, does his homework, and surrounds himself with competent, experienced real estate professionals who will help guide him away from pitfalls.
Sol J. Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.