Real Estate - Can we talk short-sales?

[AD720]

I could use some advice on buying a "short-sale" property...pitfalls, things to watch for, etc?

I already have heard that when making an offer we will need to put up some earnest money.

Anyone deal with short-sales?

[jmsremax]

I did when I was a real estate agent. Short sales can be diamonds in the rough or a complete disaster.

First thing to remember is a short sale is sold as is. Now that doesn't mean the property is in ruins, but buyer beware. Shorts sales are the last attempt to sell the property before foreclosure so it's in the best interest for both the bank and the home owners to sell it.

One of the things you will want to ask is if you are responsible for any of late payments from the current owners (and/or interest) or back taxes on the property if you were purchasing the home. You NEED to get a reputable home inspector, possibly someone who specializes in foreclosures/SS (I am sure they are out there).

Make sure you already have your finances in order and you are pre-qualified for up to $XXX,XXX because there isn't much time between short sale and foreclosure. The bank will want you to close ASAP and if the property is something you feel is a good deal then you don't want to miss your opportunity to buy it because you failed to see if the bank will even give you a loan. I know people that put your typical 10-20% down to purchase a SS, others more....that will depend on your credit score. Good luck with your search and hopefully you find a great deal.

[Ashcan Bill]

Also if there's an HOA involved, check to see if there are any assessments or back fees due on the property. Usually the bank will refuse to pay for these, and you don't find out about them until the close of escrow.

[wayner123]

I bought my home on a short sale. It's different than traditional sale. There will be a TON of back and forth between your lender and the bank and also the title company. The main things to look for are:

1. Just because a house says it's a short sale doesn't mean it truly is one. A lot of times (at least around here in Central FL) the house is upside down. So the real estate agent knows that the asking price will have to be below what the owner owes. So they list it as a short sale. They usually wait until they have an offer, THEN they go to the bank which holds the loan/title and go from there. So it can take 6-12 months before you actually hear whether or not your offer was accepted. Mortgage companies are so swamped with requests that it seems to take forever. If the house you are looking at already has done the correct short sale papers, ask to see them. Just because the house is listed at $XXX,XXX doesn't mean the bank who holds the loan approved that amount.

2. Get a well respected home inspector and make sure they are familiar with short sales. It might be a bit more expensive in the front end, but it's worth it. As short sales are sold as is.

3. Insult them with your offer. Don't be afraid to offer 65% of the asking price. Like I said above, they most likely listed the house without doing the correct short sale front work they needed to. Your offer will at least get the ball rolling.

That's all I can think of right now, and I know I have left off some things. I'll try to reply with things to add later.

[forgop]

Never pursued a short sale, but after talking with my agent after buying a house a year ago, the only thing it sounds like you can have when attempting to buy a short sale is a lot of time. If you are under any sort of time constraint that you need to operate under, forget it. Sounds like a short sale is more like a long sale in that it can take months upon months to actually get one to go through.

[jmsremax]

Also, don't let a pushy seller's agent rush you into anything. The few times this scenario played out with the buyers I was representing it turned out they were trying to prevent a home inspector from finding any issues with the property. The worst was this one house that seemed like a winner until the home inspector noticed the house wasn't tied into the street sewerage and water lines. The estimated cost to get the home tied in was about $70,000ish because they would have to dig up the street, break apart the foundation, pay for the pipes, and pay the town a fee to install.

[wayner123]

Originally Posted by forgop

Never pursued a short sale, but after talking with my agent after buying a house a year ago, the only thing it sounds like you can have when attempting to buy a short sale is a lot of time. If you are under any sort of time constraint that you need to operate under, forget it. Sounds like a short sale is more like a long sale in that it can take months upon months to actually get one to go through.

That is not the case in every short sale, but 99% of them are that way. We were blessed enough to have gotten a short sale that a previous buyer had put a bid in on 6 months earlier. The people who put the bid in, found another house in the meantime. But most of the short sale work had been done. As it should be. These agents listing houses as shorts sales, without an offer from the bank piss me off. In those cases, your offer is what gets that 6-12 month ball rolling.

[AD720]

Thanks for the info guys.

Really, what I am worried about is that it is number one on our list and at a price we can afford but we ARE on a deadline as our current lease is up at the end of August.

I'll try to find out about the paperwork being in and what the bank offer is.

[BigCat]

I bought on a short sale. We got a great deal on a home that was in good shape - just in need of updating. We made a low ball offer in March and did not find out whether it was accepted until June. We closed in July. I was told that the timeline was pretty standard. There was actually no back and forth with the bank. After we executed the purchase agreement with the owners, it went to the bank for approval and we just waited. We knew they were having a half-assed appraisal performed on the home (I forget the correct term for it now) to determine whether our offer was acceptable. Apparently it was. The closing went off without a hitch and we've been very happy. I think we only put up $1000 in earnest money.

On the other hand, a friend of mine got jerked around a lot with a short sale that eventually fell through. I think how smoothly the process operates depends a lot on the lender and whether there are other mortgages on the home that will require the cooperation of more than one lender. Logic would dictate that the banks are losing money on these properties every day they sit on an offer, but they seem impervious to that logic. Hopefully your realtor is familiar with the process and knows enough about the lender that has to approve the sale to get it through. Good luck if you make an offer.

Edit - I posted before I saw your most recent post. If the rental market is like it is here, you may easily convince your landlord to go month to month. I was in the same situation and mine agreed to do it just to keep a tenant she knew would pay in the place. Just a thought.

[AD720]

Originally Posted by BigCat

I bought on a short sale. We got a great deal on a home that was in good shape - just in need of updating. We made a low ball offer in March and did not find out whether it was accepted until June. We closed in July. I was told that the timeline was pretty standard. There was actually no back and forth with the bank. After we executed the purchase agreement with the owners, it went to the bank for approval and we just waited. We knew they were having a half-assed appraisal performed on the home (I forget the correct term for it now) to determine whether our offer was acceptable. Apparently it was. The closing went off without a hitch and we've been very happy. I think we only put up $1000 in earnest money.

On the other hand, a friend of mine got jerked around a lot with a short sale that eventually fell through. I think how smoothly the process operates depends a lot on the lender and whether there are other mortgages on the home that will require the cooperation of more than one lender. Logic would dictate that the banks are losing money on these properties every day they sit on an offer, but they seem impervious to that logic. Hopefully your realtor is familiar with the process and knows enough about the lender that has to approve the sale to get it through. Good luck if you make an offer.

Edit - I posted before I saw your most recent post. If the rental market is like it is here, you may easily convince your landlord to go month to month. I was in the same situation and mine agreed to do it just to keep a tenant she knew would pay in the place. Just a thought.

That is what is doing my head in.

I think that may be an option, I'll have to touch base about that. I'd rather pay landlord our rent plus even a little extra to not have to pack up, pay for a storage unit and stay in corporate housing for who knows how long

[Smokin Gator]

I have purchased five or six short sales in the last 14-15 months. Much of what I could offer has already been said... but I want to reiterate one point... if you are under any kind of time restraints, as it sounds like you are, I would be very hesitant to get in on a short sale. The quickest one I had was about 6 weeks. The longest was almost 7 month. I would also strongly advise not to put ANY earnest money down until the bank has accepted all of the terms. What I usually do is put down 10-15 percent within 48 hours of the bank signing the short sale addendum. That much tends to get their attention. Also, if it is with Bank of America, Citimortgage, or Indy Mac I wouldn't even bother. They take forever and through endless roadblocks into the situation.

One very positive aspect of a short sale versus a foreclosure is at least you are pertty much guaranteed to get a clean title. Foreclosures, on the other hand, have gotten to be a real crap shoot. If you don't really know what to look for in the title history it can get ugly!!!

[AD720]

I wish we had the luxury to just say forget this one, but it's in our budget (barely), in the area we want and has everything on our checklist. Everything else is either too much money, too little house or too far away from where we are looking. We've got a solid 4 months, 120 days.

I'm leaning toward putting in an offer, with a very small amount of earnest money and just keep looking. Worst case, we withdrawal the offer and lose it.

[Smokin Gator]

Andrew, as the old saying goes, money talks and BS walks. I can tell you for sure that the larger you make the earnest money the more it gets their attention. However, DO NOT give it to them until the bank signs the short sale addendum. That puts the ball in their court. If they are going to get with the business fine. If they aren't there is no need to give them a penny.

[AD720]

Brent, thanks a bunch for the advice, it's much appreciated.

[SvilleKid]

Originally Posted by wayner123

1. Just because a house says it's a short sale doesn't mean it truly is one. A lot of times (at least around here in Central FL) the house is upside down. So the real estate agent knows that the asking price will have to be below what the owner owes. So they list it as a short sale. They usually wait until they have an offer, THEN they go to the bank which holds the loan/title and go from there. So it can take 6-12 months before you actually hear whether or not your offer was accepted. Mortgage companies are so swamped with requests that it seems to take forever. If the house you are looking at already has done the correct short sale papers, ask to see them. Just because the house is listed at $XXX,XXX doesn't mean the bank who holds the loan approved that amount.

He got close to what I think is THE most important issue: MARKET VALUE!

Just because a short-sale price is put out there, it doesn't mean that the short sale price is below market value. Get you own appraisal. Make sure the appraiser considers the marketing time and value trends of the subject's immediate and general market. If it is a short sale, IT IS UPSIDE DOWN. Otherwise it wouldn't be short. It is in the bank's best interest (and maybe the homeowners too, if they are on the line for the deficiency), to get as much of the loan back if possible. Thus, they might be asking a price that is above the market value. In an economy where property is still depreciating or static at best, you cannot afford to pay more than value. Without appreciation in value, it will take a long time to get back equity if you enter the sale upside down yourself.

[MiamiE]

It is a pain in the ass. I went through this crap a year or so ago, and wont do it again. A lot of what has been said, I wish I had read a long time ago. Point being, they did me a HUGE favor. I didnt buy, and wont buy for the foreseeable future. The market in Florida hasnt hit bottom yet, and I was going to be stuck in something still depreciating. Brent I am assuming you're buying properties as investments. You have more experience than me, but why not put a little less down payment and take the hit on the interest rate, being the property wont be around in 5 years. Assuming your plan is to renovate, rent, and flip. If not, disregard.

[jmsremax]

Originally Posted by SvilleKid

He got close to what I think is THE most important issue: MARKET VALUE!

In a static or depreciating market it's hard to pin point "market value".

The best way to figure out what you should pay will be based on a home inspection, appraisal, and a comparative market analysis of other properties with similiar features. If there are any issues that arise from the inspection then deduct it from the price you are willing to pay and add or deduct any features from the property you are interested in to the ones in the CMA. Then take note of what the selling price was and the listing price. Determine what the % of the listing price was actually paid. Hopefully your agent has already informed you about these tools and again good luck.

[jmsremax]

Originally Posted by MiamiE

You have more experience than me, but why not put a little less down payment and take the hit on the interest rate, being the property wont be around in 5 years. Assuming your plan is to renovate, rent, and flip.

This is how we got into this mess in the first place. People got stuck with properties for longer than they anticipated and ended upside down or in foreclosure.

[MiamiE]

Jon I know a few investors who live by this philosophy. I think a lot of people got into ARM's, not for investment, but for primary residence without really having an idea what was ahead. Anyways I am not talking about an ARM, I am talking about 0-7% down, and a higher fixed rate. Not to mention, the example I am using is someone with existing assets, and great credit. Kind of makes sense. Less money out of pocket, and who really cares about the interest rate if you won't own it for very long. These people are still making money nowadays, at least down in this horrid market. Regardless if they finance or buy cash.

[jmsremax]

Erick, there are many people who live by this rule and have been very successful and I know others who lost everything. Some were using ARMs others weren't. There are so many variables that can play out and cause a snow ball effect (i.e. landlord or tenant(s) losing their job and can't pay their obligation). Unfortunately both investors and home owners were getting themselves into ARMs because lenders were basically giving them away at the time.

I just get tense when I hear people talk about low down payment, higher interest rates mortgages....it just causes flashbacks to 2008.