According the the Mortage Bankers Association, one in seven borrowers nationwide is behind on their mortgage, or not making payments whatsoever. This has resulted in a glut of distressed properties on all markets nationwide. San Mateo County is certainly no different. The resulting distressed properties on the market, particularly short sales, can result in the purchase of a home at a good price. However, buying a short sale is more difficult than it sounds. Here are a couple of things to consider before purchasing a short sale.
Short sale is a sale where the lender agrees to sell the property at less than what is owed on the mortgage. Short sales require lender approval and lenders do their best to determine the current market value of a home before approving the final sales price.
It is important to remember a couple of points when considering the purchase of a short sale. Firstly, the list price is very rarely the approved sale price. In fact, a list price in a short sale is little more than one person’s opinion of what a lender is willing to accept. Furthermore, short sales are routinely priced under market value in order to spur offers.
Ultimately, the lender makes the final decision on price, regardless of the seller’s opinion. The lender does this through a broker price opinion (BPO) or even a full appraisal. So even though you as a buyer may have a signed contract at a lower price, the bank may approve the short sale at a higher price based on current market conditions. The lender approved price is the final sales price, regardless of what the offer stipulates.
Secondly, there is nothing short about a short sale. While the offer process may be quick, all short sale offers are written contingent upon the seller getting short sale approval from the bank. This approval time represents the lion’s share of the short sale timeline and can be dictated by a number of different factors including the lender’s ability to process the short sale package, the seller’s ability to submit complete documentation to the lender and any back taxes, mortgage payments or property liens that need to be negotiated prior to close of escrow.
Lastly, as a buyer in a short sale transaction, it is far more likely that you will be asked to bring money to escrow to pay off non recurring closing costs. The premise of a short sale is based on a verfiable financial hardship being experienced by the seller. Therefore, there is a high chance that missed mortgage payments, back taxes, mechanic’s liens and even abatement fees have been levied against the property. Since the seller is generally in no postition to pay these off, the buyer may be asked to pay some or all of these costs in order to close escrow. It is imperative that buyers and their agents understand the overall picture of what is owed by the seller before make a short sale purchase. Countless transactions have fallen through as a result of this and buyers should understand that being asked to pay of seller obligations to close the escrow is a probable scenario in a short sale purchase transaction.
Short sales can help sellers avoid foreclosure and save their credit ratings. The can also represent a good deal depending on the condition of the property and the number of lenders involved. However, buyers of short sales really need understand the end to end process before considering a short sale purchase.
If you are considering purchasing a short sale or are suffering from a financial hardship and need more information regarding options to avoid foreclosure, visit my foreclosure avoidance resources on the web at www.JosephCapote.com
Filed under: Buyer's Blog, Seller's Blog, foreclosure, short sale
Joe Capote 