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Fox Around the House

The trouble with short sales

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 (iStock)

When a housing market crashes, home owners are often left with properties that are worth less than they still owe on their mortgages. In cases like this, owners often choose to walk away, selling the home for a loss. These properties — called short sales — offer a good opportunity for buyers to get a great deal on a home, but they also come with a number of complications. If you’ve got your eye on a home that’s selling short, here are some problems that you should be aware of.

Dealing With Lenders

With a traditional sale, you mostly deal with the seller and your own lender. But during a short sale, there’s another party involved in the sale: the original mortgage lender. By selling the home at a loss, the lender has calculated that it’s better to lose some money on the deal than to have the home go into foreclosure and sit vacant for a long period of time. But before they sign off on a money-losing agreement, you can expect to deal with an extra dose of bureaucratic back-and-forth. On top of that, there are often multiple parties involved. Mortgage debt today is usually repackaged and sold to investors, so for the sale to go through, you’re going to need the approval of the original lender as well as the current debt holders. This means it might take weeks after you’ve made an offer to finally hear back from someone. So before you get involved in a short sale, make sure you have plenty of time and patience.

Sealing the Deal

The lender is going to closely examine the seller’s finances to make sure they absolutely can’t negotiate a better deal for themselves. A short sale is probably only going to go through if the lender feels it is a last resort before going into foreclosure proceedings, and that it is getting the highest possible price for the home. This might mean that they reject your first offer and ask for more. Remember, in a short sale, it is the lender and not the seller that sets the final price.

The Deal Slips Away

Sometimes a short sale is a deal that’s too good to be true, something that a potential buyer only finds out after weeks wasted on negotiations. First, a short sale can’t go through if the current owner has filed for bankruptcy. It can be a delicate subject to bring up, but before you get too involved in the short sale, make sure to ask if they have filed for bankruptcy, or plan on doing so before the sale goes through. 

There’s also another scenario buyers run into during short sales: a desperate home owner decides to cut their loses and sell short, but they didn’t tell their bank. When selling a home for a loss, the current owner doesn’t get to set the price or the terms of the sale, that’s something they need to work out with the bank first and they need permission to sell for a loss. So make sure to ask if they have arranged the short sale with their lender before you get too far along in the process.  

Speeding up the Process

To speed up the process and increase your chances of landing your dream home, you’re going to want to hire an experienced agent to handle your short sale. Many agents will claim they have experience, but you want to make sure that you work with one that has actually completed several short sales. Ask to speak with past clients that have gone through the same process. Not only can they vouch for the agent, but they might be able to give you some advice as well.