Late last year I wrote a brief article on the pitfalls of buying a bank owned foreclosure. Another type of property that has become a significant part of the market throughout Westchester is known as a short sale. A short sale occurs when a home sells for less than the mortgage loan balance- a rather common thing these days- and all are subject to the current lender's approval. Approval is hinged on the hardship of the current owner and market value being verified as being less than the mortgage. They have their headaches, but because they are now common it is good for perspective buyers to under stand some important facts about short sales.
- If you are considering a short sale, be prepared to wait. Banks typically take two, 3 or more months to approve them. Ironically, once approved, you get a 30 day deadline to close.
- All short sales are sold "as is." This does not mean you skip your inspection, but it does mean that the current owner cannot cure the leaky water heater, the outdated electric panel, or any other finding. Your best remedy is to have your price reflect the condition. That said...
- You can't "steal" a short sale. Banks will have the home evaluated by an independent appraiser or broker, and they'll accept market value with some adjustments down. But they won't accept a sweetheart discount price. They are trying to mitigate a loss. I often say that they are good deals, but not steals.
- You will get clear title. Once a short sale is approved, allowances are made to clear all liens and back taxes by the current lender. No financial encumbrance can survive the closing.
One question that home buyers should ask is who is negotiating with the seller's banks. If the seller's broker or lawyer is dealing with their lender, the buyer has a right to know if they have any experience at this, if there is a second mortgage also being dealt with, and how the short sale process is going at different intervals. I am often asked who the lender is, and while that is fine, it seldom has much to do with whether or not the process will be smooth or if the price will be accepted.
It is not unusual for the bank, when they finally render their decision, to try and negotiate some. The buyer should be prepared for a possible counter offer, especially if their initial offer was on the low side.
Given the condition of the housing market and the overall economy, short sales are going to remain common for some years to come. They should neither scare buyers away nor should they be viewed as steals by speculators looking to make a flip. They essentially constitute a wait for the buyer. For the sellers, they represent an opportunity to exit their house with dignity and to avoid foreclosure. Lenders get the benefit of liquidating an upside down or non performing mortgage without the expense and wait of the foreclosure courts. Everyobody should win, and in a few years, with some improvment in the market, they'll be a thing of the past again.