The short-sale buying guide for today's housing market
Here's a 10-step primer on short sales and the steps you will need to take to purchase one.
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Foreclosure is a fairly well-understood process, but as "short sale" signs sprout like weeds, you may wonder what they are all about.
When a lender agrees to accept a mortgage payoff amount that is less than what is owed in order to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.
Everyone loses — or wins
Short sales are a mixed bag for the buyer, the seller and the lender.
If you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.
The buyer gets the property at a reduced price, but the property in all likelihood has its share of problems — think fixer-upper — and will need to go through considerable red tape in order to make the deal happen.
The lender takes a financial loss, but perhaps not as large a loss as it might if it forecloses on the property.
Before you even start considering getting involved in a short sale, there are two situations in which an attempt at a short sale is almost certain to fail:
- No default on loan — Lenders almost never will accept short-sale offers or requests for short sales until the borrower is far behind in payments and a notice of default has been issued.
- Bankruptcy — If the seller has filed for bankruptcy, forget it. Few, if any, lenders will consider a short sale when the seller has filed for bankruptcy because negotiating a short sale is considered a collection activity and collection activities are prohibited in bankruptcies.
Can it work for you?
Buying a home in a short sale can be a hassle, so why should you consider it? It boils down to the bottom line. You will get the property for a substantial discount. Since the lender is eager to continue to get paid the money it loaned out, it may also offer favorable financing terms.
Since the sellers play an active role in the short-sale process, you will have their cooperation (and most likely won't need to evict them upon taking possession of the home). This is not always the case with a property that has gone through foreclosure.
Whether you've become aware of the distressed situation on a property through an agent, a “for sale by owner” ad or word-of-mouth, this is not a do-it-yourself project. A short sale is one real-estate deal where you really need to get help from an experienced agent or attorney. Not all real-estate agents know how to handle a short sale, so make sure you consult with one who can demonstrate special training or a good track record with short sales.
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Why lenders (might) agree
It might seem counterintuitive for a lender to go along with a short sale. After all, a lender is legally entitled to pursue the full balance of the loan. When a homeowner falls behind on payments, the lender can (and often does) hold the borrower responsible for every penny owed.
And yet more and more lenders are willing to consider approving a short sale.
Lenders are painfully aware of just how bad the current foreclosure crisis is. They know the cold reality is that a large number of struggling borrowers will end up losing their homes, and so they often see the advisability in accepting the inevitable and trying to minimize their losses. Yet some lenders seem to remain in denial.
Foreclosure is an expensive and time-consuming process for a lender. By agreeing to a short sale, the lender wraps up this little mess quickly, and perhaps with less of a loss than it would have incurred with a foreclosure.
- MSN Money: Should homeowners walk away?
Remember, after foreclosing, the lender owns the home and has to maintain it, insure it and pay taxes on it. So instead of receiving payments each month, the lender is now forking out money every month. Plus, short sales help the lender look good on paper — the property never gets listed as an actual foreclosure, which helps the lender's numbers. Lenders see it as the lesser of two evils — if the numbers make sense for them.
Here are the 10 steps to buying a short sale:
1. Identify potential short sales
Locate pre-foreclosures in your area. You can use an online database, search courthouse listings and legal ads or use an experienced real-estate agent as a buyer's agent. First, try to determine how much is owed on the house in relation to its approximate value. If it seems high, it's a good candidate because it indicates the seller might have trouble selling it for enough to satisfy the loan. Pass on those in which the owner has a lot of equity in the home — the lender likely will prefer to foreclose and resell closer to the market price.
2. View the property
Gauge its condition and estimate of how much it's going to take to repair or renovate. If it needs work, many "normal" buyers won't consider it, which is good for you.
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3. Do your research
What is the property worth? What's the profit potential? If you're an investor or even a homeowner planning to live in the home a short time, you'll want to profit from the deal.
4. Find all liens and mortgages
Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.
5. Figure out the financing
This is critical. You have to know how you're going to pay for the property. If you're a good credit risk, the existing lender may be willing to give you a loan. Since it already has a lot of your information in the short-sale paperwork, it may be able to expedite the loan application process. It's important to understand that in a short sale, you have to be able to move quickly. Once an agreement is worked out, it is common for the lender to require closing in as few as 20 days. This is too late to start shopping for a mortgage.
It was fully insulated, roofed and weather tight. It was drywalled and all plumbed with fixtures installed. It had a new approved sepitc installed and we did the well with 3/4 inch copper lines. We had all we needed to live and finish it when we could. My husband moved his body shop repair business to the basement garage which in our private lot could not be seen by the neighbors or from the road.
Immediately after this the bank required us to move. We were paying $300 a month easily made especially working in the basement.
This community has a history of taking property that had been improved and we were only one of many. We went back to this area several years later and suffered psychlogical and physical harassment which I believed due to the fact the home we built on land we bought was owned by the power structure which did not want us around to show their greed.
My husband died after what I state was 6 years of harassment. It was a terror campaign against us. Strangely enough we had not filed a lawsuit against the school when our sun aged 7 was knocked unconscious on the Central school palayground when being chased by a bully. The reward for this behavior was to have my son denied a life and is today on ss supplemental and myself on ssi.
Since I have not stopped seeking legal redress, my son is periodically taken in by the warrants issued for non child support, jailed, his warrants updated, and terrorized as only a brain traumatized individual can be. Where is the justice system in all this?
Going through loads of analyzing currently concerning real estate short sales. Nerve-racking days. Hope mine is going to be done soon. All The Best .
"Are you Nutso"
Now "splain this to me Lucy".
How is it that he worked full time, or even a good portion part time, as a lecturer when he was fully engaged into his political career?
As I stated, his resume' seems to overlap a lot, suggesting his motivation was not employment, but rather one of posturing for his political motives and ambitions.
A lot of organizations place people on their payroll not so much for their employment, but rather to enhance their own credibility. Kind of like recruiting for bigger and better players.
I'm not saying this is wrong, but as far as a "working" career these sort of positions are more or less on a resume' as "what organizations have you joined or belong to."
Why else would a law firm hire someone to write a personal book?
Btw... I believe the editor job at Harvard is a non-paying position. Kind of like class president, looks good on your resume', but has no financial remuneratory benefits.
Legislative career: 1997–2008
State Senator: 1997–2004
U.S. Senate campaign 2002
U.S. Senator: 2005–2008
2008 presidential campaign
Graduated from Harvard in 1991.
In 1991, Obama accepted a two-year position as Visiting Law and Government Fellow at the University of Chicago Law School to work on his first book. He then taught at the University of Chicago Law School for twelve years—as a Lecturer from 1992 to 1996, and as a Senior Lecturer from 1996 to 2004—teaching Constitutional law.
All, or most dates, preceeding this were for positions of either non-pay, or funded by grants, fellowships, or other sundry organizations. Not private business.
Now for the second guy. "NoMoreMeltdowns"
I only wrote what I did in response to what someone else posted on this thread.
So you might want to voice your own aggrandized rant towards him!
...or maybe it is already you...hmmmm?
According to the University of Chicago, School of Law, President Obama worked at the university as a professor in the capacity of Lecturer and Senior Lecturer from 1992 until 2004, when he took office as a United States Senator. You also failed to mention that while attending Harvard, President Obama served as the Editor of the Harvard Law Review.
You must be joking! Are you so obsessed with your extreme right wing ideology that you need to go on a political rant in the comment section of an article about real estate short sales? You need to get life and don't get burn by the hot coffee or the political rants you are spewing out!
"This economy will keep getting better because we have someone in the white house that knows what it is like to work for a living."
I just about spit out my coffee when I read this...LMAO!
For the record this person's, to whom you refer, only private work history is at a Baskin Robins in Hawaii employed as a clerk, in his youth, for a very short period, before he entered into the political arena. Yes, he had various sundry positions, but all were politically based and funded.
He attended mostly private schools that were quite expensive to attend and then traveled the world during his young adult life doing various things including spending an inordinate amount of time in Bali while being paid by
the University of Chicago, Law School. In fact, most of his so called employment was funded by either universities or government grants.
Although, he originally came to Chicago in 1985 he left and went back to New York to study at Harvard in 1985, where before he attended Columbia, returning to Chicago in 1991 under a fellowship offered by The University of Chicago Law School. This is when he left for a few years to go to Bali, with his now wife Michelle, to write his book.
Upon returning to Chicago he escalated his efforts into politics largely being funded by foundation, grants, and fellowships.
So when you say, "...we have someone in the white house that knows what it is like to work for a living."
GIVE ME A BREAK!
He grew up attending expensive schools, attended expensive universities, traveled the world on given money, and because of all this, was introduced to some of the more powerful, wealthy, and influential Chicago liberals and leaders who guided him the rest of the way.
"The 29 year old law student made it clear in his initial interview with Miner that he was more interested in joining the firm to learn about Chicago politics than to practice law. During the four years Obama worked as a full time lawyer at the firm, he was involved in 30 cases and accrued 3,723 billable hours."
That's less than 10% working hours for his four years. His so-called law practice occurred during this time from 1996 to 2004, with his law license becoming inactive in 2002 along with Michelle's.
It also should be noted that during this time 1995 he seriously begins political career.
Most of his documentation dates and times overlap one another. Suggesting his "career" was more or less a front for his political ambitions. In other words where he "worked" was more or less a source of funding for his political endeavors.
I could go on, but what's the point?
Most people only regurgitate what they hear with no personal research involved.
And that, Mr. Elliott, is the rest of the story!
"The money that a smaller bank loaned out is the private owners money. and you want the government to come in and make them take a loss. That is like the government coming in and telling the company you work for to pay you less, just because someone else complained that you make too much."
I believe obama tried this very thing awhile back. Didn't he try to make certain ceo's and other execs restrict their pay/bonuses?
Should it matter whether you work at big box store as a clerk or own the store or chain?
Government telling "private " business what they should pay is just another step in the wrong direction!
The article has way too many serious errors!
A Bankruptcy does not prevent a short sale. It just delays it. Once the Bankruptcy is discharged, the Short Sale can continue.
In almost all cases, the seller will be required by the lender to vacant the home by closing.
The lender does not forgive the remaining balance of the loan, unless they agree to do that as part of the sales contract.
I dream of a time when we, human beings, get over the propensity to judge, provide black and white responses, and share information that others may benefit from. Clearly, as it often the case in life, the experiences each homeowner, potential homebuyer of short sale properties and successful purchasers of these types of properties have had a wide range of experiences. Several individuals posted serious challenges working with the bank(s) to obtain properties the bank is sitting on and in many cases, e.g., the person who offered the asking price, it simply makes no sense. What burns me is the individuals bagging on the people, families, extended families, people who purchased those homes with equity and had anywhere from sufficient to plenty of income to maintain their mortgage, taxes, insurance, take care of house repairs and or pay deductibles, through loss of work with 10% unemployment or were high performing, dedicated employees who became disabled and are attempting to pay that mortgage with 77% reduction in income, a home that had $180 k equity (purchase price $455 k -- loan $28 0k) and are either have no equity to pay realtors commissions, escrow fees etc., or may possibly even be $35 k underwater due to the extraordinary loss in value vs the principal reduction as the payments are made. If a short sale went good for you, then you are very blessed. However, it certainly does not invalidate their struggles. To make any definitive statement about other individuals is small and petty. Think of the possible circumstances that may have led to your being in a position to buy the short sales. The breadth of loss, confusion, and challenges such as helping ones disabled children understand why they have to leave their home. Yikes. Please devote some time helping others in need. I find helping others the best way to get out of myself, my stuff, my losses, my degrees or graces bestowed upon you.
Let's meet and I 'll show you how to get a job and pay your bills. By the way... just get a job, ANY job, you over qualified looking for a way out? I wish I had your as* in Farah.. I'd beat you!
We have tried 3 times on 3 different properties...after 3 plus months we gave up. We too have an above average credit rating..the banks are the ones who put this country in this mess..and they are the ones who control the short sales. We are done! Going to buy a mobile home until we can go after what we really want...