How to Buy a Short Sale Home With Cash

A short sale is an agreement between a mortgagee and a lender to release a mortgage for less than the amount owed on the property. Short sales are negotiated between lenders and homeowners for different reasons, among them are the market value of the home is substantially less than the amount owing or the mortgage is unable to continue keeping the loan current.

When considering buying a short sale, it is important to remember the homeowner may not be in default and the lender, not the seller, must ultimately accept the purchase offer.

Things You'll Need

• Public records search
• Real estate agent or broker

Instructions

1. 

   Search the public records. In short sales, it is not uncommon to find "clouds" on the title (meaning liens filed against the property). Look for foreclosure filings, liens and second mortgages. The existence of a first mortgages, liens, arrears property taxes or second mortgage will dictate how much to offer for purchase. Though cash is the best leverage, too much outstanding debt to different creditors will complicate the process and may make the transaction unfeasible.

2. 

   Hire a real estate agent or broker with specific knowledge and experience in buying short sales. The process for buying a short sale typically involves brokering a deal that multiple parties must agree to. An experienced agent or broker will not only protect your interest and place a true market value on the property, but they will also have knowledge as to the process and know what steps to take in order to close in a timely matter.

3. 

   Negotiate the sale's price with the seller, and then forward the offer to the lender for consideration. The offer should contain explicit language the sale is for cash purchase and is not subject to financing. In a short sale, finance contingencies are problematic for both the buyer and the seller. Include in the offer a reservation of rights to inspection. Short sale properties are usually sold "as is" with no warranties or provisions for repairs. The offer should be based on comparable sales in the same geographic area and allow for repairs or improvements.

4. 

   Send an earnest money deposit with the offer to the lender. The earnest money deposit will not ensure the lender accepts the offer but will convey the seriousness of the offer. The lender will evaluate the offer and may or may not counteroffer. It is not uncommon for lenders to reject low-ball offers even if they are cash. Once the sales price has been negotiated with the lender and is accepted, a closing date will be set on the lender's schedule.

Tips & Warnings

• Set the offer in accordance with fair market value and emphasize the purchase is not contingent on financing.

• The lender(s) have ultimate say in accepting the purchase agreement. Even if the purchase price may bring fair market value, the lender might rescind the short sale and foreclose

References

• Mortgage Professor: Should I Purchase the House For All Cash?
• Bankrate: Short sale cash-out won't work
• Frontdoor.com: Cash is King: Buying a Foreclosure or Short Sale

Resources

• HUD: Preforeclosure Sale Frequently Asked Questions