What Home Buyers Need to Know about Short Sales
“Short sales” are beginning to slow down. But there are still plenty of short sales out there and some are very good deals. It is important that buyers understand the implications of entering a short sale transaction. First, what is a short sale? Short sales occur when the seller owes more than the property is worth and will not make up the difference at closing. In order for such a transaction to close, all lien holders must release their security interest in the property and sellers will also want the lien holders to forgive the sellers’ legal obligation to repay their debt.
Buyers entering into a short sale transaction need to set their expectations and be prepared for a difficult transaction. Some of the concerns to be aware of are:
1. Some sellers set an unrealistically low listing price knowing it will not likely be approved just to get their property shown to prospective buyers, i.e., this steal of a deal may not be.
2. Some short sale transactions have multiple liens on the property such as 1st mortgage, 2nd mortgage, home equity line of credit, judgment liens, etc. All of these liens must be cleared for the seller to produce clear title to the buyer. That is a big time consuming task.
3. Because of the length of the task, buyers must be aware up front that they will need a great deal of patience.
4. Even with patience, some short sales close and many do not. This is not surprising given the number of entities and individuals that must voluntarily agree to compromise their financial interest.
5. Some listings provide a “third party negotiator” to facilitate a release of lien holder’s interests and require that the buyer pay for these services. Be aware of your costs before you enter into a contract.
If you are a buyer entering into a short sale transaction, be aware up front: This is a long and frustrating process that may never close. On the other hand, some short sales do close and the buyers are very pleased with their deal. However, buyers should be aware that there are many deals out there that are not short sales. Many homes are priced well including properties that have been foreclosed on. These transactions have a much better success rate.