What is a Short Sale in Real Estate?
What is a short sale? A short sale is actually a pre-foreclosure
sale. This means that the home seller is willing to accept an amount
that is discounted in order to payoff their existing mortgage and avoid
pending foreclosure. A seller may be willing to do this in order to
salvage their credit and as much as possible from the sale of the home
before it actually goes into foreclosure.
Short sale deals are often attractive to many home buyers and real
estate investors. A short sale real estate may frequently show up
when you see a home that is advertised with a price that appears to be
lower than the average prices in the neighborhood. Before you act on
such a short sale property it is imperative that you take the time to
find out whether the property is a short sale.
While there are certainly some advantages associated with buying a
property in a short sale, including obvious savings advantages, there
are also some disadvantages as well.
For example, you should understand that while the short sale homes may
be listed with a lower price this does not mean the lender itself will
be willing to accept your offer. In some cases, the seller may be
willing to accept the offer but the lender will not.
Also, you should know that the seller must be in default and must have
stopped making mortgage payments before the lender will typically be
willing to accept a short sale. In addition, there are cases in which
the seller owes more than the home is actually worth. In this situation
the discounted price might bring the price of the home in line with its
market value but will not bring the price of the home below market
value. If you're looking for a good deal, especially if you intend to
resell the property for profit purposes, you may find yourself out of
luck.
To avoid such problems it is essential that you take the time to do your
own research before making an offer on a short sale deal. Take the
time to find out who is actually in the title and whether a foreclosure
notice has even been filed. You should also find out how much money is
owed to the lender because this can play a role in how much you should
offer for the property.
It is also important to take the time to find out how many loans are on
the property. In some cases there may be two loans and this can
complicate matters to some degree. The first mortgage loan is generally
protected by the second lender unless the second lender does not wish to
foreclose.
If you do plan to make an offer on a short sale home, make sure you
are working with an agent that has experience in handling short sales.
An experienced short sale agent will be able to help you quickly close
the transaction while also protecting your interests at the same time.
Keep in mind that most lenders will not agree to a short sale unless the
seller really has no equity in the property and is unable to repay the
difference between the existing loan or loans and your purchase price.
You should also be aware of unscrupulous sellers who will try to finagle
money out of the transaction under the table. This is complete fraud. In
a short sale, the seller receives no money out of the transaction
because the lender is actually losing money.
If the seller does accept your offer, you will need to send it to the
lender for their approval. At this time you will also need to make sure
the lender receives a copy of your earnest money deposit. The lender may
even ask you to increase your earnest money deposit. You should also be
prepared for the fact that the lender may wish for you to have your loan
available and be pre-approved for the loan. You can help to expedite
matters by sending a pre-approval letter to the lender in advance.
It can also be helpful to make your offer contingent upon the acceptance
of the lender. You should provide a timeframe in which the lender must
respond. After that time frame passes, you will be free to cancel your
offer if the lender does not respond. A good time frame is anywhere
between two and three weeks, providing you have submitted all relevant
information the lender will need in order to make a decision.
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