Thursday, July 7, 2011

Purchasers in a Short Sale

You find a house in a neighborhood that you love.  The price is reasonable, although you will probably have to put in new carpet or floors to replace the ones that look like they haven't been replaced for thirty years.  Just down the block, you find a similar house in better condition.  The best part is that it is asking for $50,000.00 less. You get to save money and there is no major work to be done.  Sounds great.  But the catch is that this one is a short sale.  Is a short sale for you? It depends.

What is a short sale? A short sale involves a seller whose asking price for the house, if sold, will not be able to pay off the outstanding balance of the seller's mortgage loan.  For a short sale to successfully close, the seller's lender will have to consent or approve of the proposed short sale and remove its lien from the house so that the purchaser receives clear title, given that the proceeds of the sale will fail to pay off the seller's debt in full.  The seller's lender agrees to take a loss in this transaction.  Short sales happen when the seller and seller's lender prefer to avoid foreclosure.

Depending on your priorities and needs, a property for short sale may or may not be for you.  Short sales can take as little as thirty days to close from contract or as long as one year.  You may not be willing to wait for what might be a very long time to see whether you may or may not close on a property that you want to buy.  Short sales vary in complexity.  If the seller has defaulted on his or her mortgage loan for a long time, he or she may also owe unpaid common charges, real estate taxes, and water and sewer charges.  The seller's mortgage lender will have to consider how much it will receive from the sale proceeds, after it pays the real estate broker, the unpaid common charges, real estate taxes, etc.  On the other hand, the seller may just be only a few months behind on mortgage payments while current on all other payments for the house.  If the appraisal of the property comes in significantly higher than the purchase price reflected in the contact of sale, the seller's mortgage lender may not be very happy.  Additionally, in the recent years of the subprime mortgage boom and bust, it is quite common to find properties that are listed for short sale to also have a second mortgage lien against the property.  While the first mortgage lender takes a partial loss in a short sale, the second mortgage lender will have to take a total loss, or the two lenders may agree to share in the losses.  The second mortgage lender may be the same bank or a different bank as the first mortgage lender.  Your attorney can help you navigate the transaction and negotiations, and advise you as to what hurdles you will be facing on a particular property that you are considering.

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