How to Buy a Short Sale Property

Tread carefully with a short sale.

When an individual owes more on his property than the property is worth, and he is either having trouble making his mortgage payments or has stopped paying altogether, his bank may approve a short sale. In a short sale, the lender agrees to accept less for the property than the amount the homeowner still owes on his mortgage. The lender benefits by recovering a portion of the money owed and avoiding expensive foreclosure proceedings. The homeowner benefits by not having a foreclosure hit his credit report. Buying a house through a short sale is complicated and should only be undertaken with an experienced real estate agent.

Instructions

1. Ask your real estate agent for a list of "comps." Comps are information sheets detailing other homes that have sold recently or are currently for sale in a given area. Do assume you are getting a great deal merely because a home is a short sale. Short sale homes are typically priced at fair market value so that the lender takes as little of a loss as possible on the property. Review the comps with your agent to decide if the short sale home is something you want to pursue.

2. Submit an offer to the homeowner. If she approves it, submit the same offer to the lender and get ready for a long wait. Waiting for responses from the lender can take months. Contrary to popular belief, you can ask for concessions such as minor repairs in your offer. Most short sale lenders will not approve such requests, but some will.

3. Budget for higher closing costs. In a typical closing, a buyer pays the majority of the closing costs, but certain items, such as termite letters, are traditionally paid for by the seller. A short sale lender will rarely, if ever, contribute any funds at all to closing. This leaves you to pick up most every charge.

4. Evict the former homeowner. The majority of homeowners seeking a short sale are prepared to follow through with the sale and may even be relieved when the stress of the situation is finally behind them. Some, however, will change their minds at the last minute--especially if their financial situation improves and they find themselves able to meet their mortgage obligations. Homeowners must approve the short sale price before the lender, and once the contract is signed, they cannot legally change their minds. If they do, however, you are the one responsible for initiating eviction proceedings and hoping they do not damage your property on their way out.

References

• The Basics: Short Sales
• Short-Sale Debt Could Follow You