House Buying 2.0 - Short Sales

I have been in Realty Consulting Services of over 12 years and just saying the title of the article sends chills down my back. I know some of the most steeled real estate agents in the business that literally break-out in cold sweat when they encounter a buyer or seller of a Short Sale. There are some agents out there that profess to be short sale "experts". I have worked with many of them on transactions as well as had them in my training classes and I can tell 90% of them are on some sort of meds or under a therapist care. To say that dealing with shorts sales is your worst nightmare is to put it too lightly. But enough about woes of this type of real estate transaction. If you have the patience, tolerance, skill and luck these little banes of the real estate world can prove to be a great purchase and even not so bad for the seller.

Let's look at some of the mechanics from the seller side. In order to qualify for a short sale the seller (owner) has to meet a number of criteria to be considered by their lending institution for this type of sale. Most typically the seller will have to owe more money on their note then what the house will sell for on the open market. They need to be "under-water". They also need to demonstrate that there is an existing hardship and that is why they cannot come out of pocket to pay the bank the deficiency between what it will sell for and what is owed. In today's economy that is not too hard for many owners to prove.

And short sales are still on the rise, here is a recent quote from a nation real estate tracking company short sales "accounted for 12% of home sales nationwide in the second quarter. That's up from 10% in the same period last year", says researcher RealtyTrac. And they are predicated to continue rising as long as the value of real estate in this country continues to decline.

Sellers not only need to prove a hardship they need to prove their financial position is not fluid, that is they are not sitting on a bundle of cash stashed in some bank account. Then there are the conditions they must agree to prior to the bank accepting their short sale. They include that the sale is an arms-length transaction. That is they don't sell it to a family member, or back to themselves under another name, nor can they sell it and then turn around a rent it out themselves. And in most cases they will have to agree to some sort of re-payment plan for the deficiency that has been created because of this sale. The banks and mortgage companies used to routinely just issue a 1099 misc. form to the IRS for the amount of the deficiency. The IRS would then expect you to pay the taxes as they see it as your enrichment or earning gained. That practice has pretty much ended as the IRS knows it can't collect money from some one that does not have it and even some Judges in some states have declared that it is not lawful for banks to operate this way any longer.

The actual process at least in the beginning is typical of a "normal" sale. The seller hires an agent, the agent should know what the intentions of the seller are (but believe me some never ask the question), whether or not they can come out of pocket to make up the short fall or if they will have to go through a full blown short sale. Even though the property may be marketed as a short sale the bank will not approve it until there is at least a written offer by a qualified buyer presented. That's when the fun begins. The seller will negotiate with the buyer as to the final sale price, terms and conditions, then it is presented to the bank for their consideration and approval. This is where things bog down. It can take literally months to get an initial response from the bank. Meanwhile all parties involved just sit and wait and wonder. The bank will request mountains of paperwork from the seller and some basic information from the buyer. During this time the bank will order at least 3 BPO's (Broker Price Opinions) The bank will largely base the amount of what the sale price from their perspective will be from these opinions. Meanwhile the bank has gone back to the seller and is negotiating how to repay the deficiency. Now, one point to note here. Most banks actually prefer a short sale to a foreclosure. They do not want nor like to spend more money on a property that they are already losing money on. As it will cost, on average $57,000 (nationally) for a bank to go through the entire foreclosure process. And now they own the property, which is a whole other issue. So if the bank and sellers can come to an agreement on the deficiency the sale will resume and move towards the closing date. And one day in the distant future the property will transfer to the new buyer.

From the buyer side of the transaction, the process is not too bad, but you must make sure that your agent includes a Short Sale addendum. Which, in essence is your "escape" clause. Typically the addendum will provide you the ability to cancel your offer should the seller not perform as described in the addendum. Remember you will have a contract with the seller not the bank even though in the addendum it will state that you are aware that there is third party involved and that you understand there maybe time delays and other mitigating factors due to this party.

A couple of key things to keep in mind when you are on this side of the short sale fence. Only put down a minimum deposit. Just a thousand or two should be enough. If the sellers agents insists on more move on to the next property. Make sure that any and all subsequent addendums are fully executed and dated for accuracy. Many times the offer contract will expire under its own terms and conditions, this is typically overlooked until closing day. This is a major issue that happens time and time again and it always backs things up considerably. In addition because the bank is taking a loss, they will usually not agree to any repairs or concessions. So make sure you have a good inspection done on the property and know what you are getting into before you take title. Speaking of title make sure you purchase title insurance. If you are taking out a mortgage to purchase this property then your lender will insist you do so before funding the transaction. There have been countless times where after closing a "cloud" from a previous owners will appear, this is a major problem for all involved even though it probably will not be through any fault of your own. The last piece of advice may seem the simplest but, be sure that there no เช่าบ้าน พระราม 9 other encumbrances on the property that may not be picked-up by a title search. I have seen many times where a fuel tank bill was unpaid by the seller or that there are not any unpaid special assessments or dues that belong to the seller or that transfer to you as the buyer (new owner) once you take possession.

The best advice I can give you regardless of which side of the transaction you are on is that these are complicated transactions (much more so then outlined in this article). You need an experienced agent and attorney to successfully guide you through the process. Check and then double check everyone's credentials and experience. As this is type of realty transaction is often likened to a perfect storm and we all know what that feels like.