For Sale By Owner Short Sales
After the recession of real estate industry, real estate sales began increasing in the many U.S. markets as the distressed homeowners were forced to sell their homes less than the market value. The sale of property involving the short sale or foreclosure take a longer time as compared to the normal sale due to the attached complications and legal process.
Still short sales represent a significant amount of sales activity that can range up to 45 to 50 percent of the real estate sales and sometimes more in some parts of the country where the foreclosure rates were predominantly high according to the National Association or Realtors.
What is a Short Sale by Owner?
Short sale is the process of selling a property that brings less proceeds as compared to the amount owned on it. The short sale negotiator convinces the lender and short sale bank to accept less the mortgage amount and bear the loss. Everyone who is owned money in the shorts sale, must agrees to receive less. If anyone of them does not agree, then the process cannot be executed. The approvals of all the involved parties make short sales complex transactions that move slowly and often fall through.
Sellers involved in the process of foreclosure generally don’t agree to sell the property as a short sale at once. They first compare how much they can get for their home versus how much they owe. If the amount owned on house is greater than the amount borrowed, then they would be willing to do a short sale, but if the market value of house is greater than the amount owed on they would not opt for short sale. A small number of those short sale sellers may also decide to sell without representation. Short sale sellers without an agent are for-sale-by-owner sellers, and this situation requires legal advice that a short sale seller may not pursue.
Buying For Sale By Owner Short Sales
A short sale may be a good an attractive deal for buyer and can offers less price at the time of buying a short sale. On the other hand, it can be helpful for distressed homeowners that want to get rid of the mortgage loan and personal liability. Short sale is also helpful reducing the loss that can be going into the foreclosure. Although a short sale and a foreclosure negatively affect a seller’s credit score, in a short sale the damage can be minimized if the homeowner can persuade the lender to report the debt to credit bureaus as “paid in full.”
Who Needs a Real Estate Lawyer?
Both parties need short sale consultation and especially those who are unrepresented, should have legal and tax opinion. Buy, if they refuse to hire the short sale agent, then would refuse to hire the services of real estate lawyer as well. However, that doesn’t mean that you should ignore the recommendation to call a real estate lawyer.
If you are anticipating buying a short sale directly from a seller in foreclosure then hiring a short sale negotiator would save your money in the long and also from any kind of legal complications. Depending on your state laws, the seller might be able to successfully sue you, after closing and regain control of the property. You would be out-of-pocket lawyer fees, court fees AND you could lose your home. So, if the seller isn’t smart enough to seek legal representation, don’t make the mistake of sliding into the same rocking boat.
Writing Short Sale Purchase Offers
Decision on the offer price would be lender’s call instead of short sale owner. To the extent the seller may face short sale tax ramifications on the amount of debt relief or face a deficiency judgment, the seller will likely not have a stake in the amount that you offer. It is better to write contingencies in your offer letter such as:
- Subject to the existing lender’s acceptance and your negotiation directly with the lender. Ask the seller to give you written authorization to talk with the lender.
- Subject to a home inspection and other such inspections as lead paint, natural hazard disclosures, pest reports, roof certifications, sewer / septic inspections and mandated seller disclosures.
- Subject to your loan funding.
- Subject to an appraisal.
- Subject to your approval of title policy commitment / preliminary title report.
Do not give your earnest money deposit to the seller. Make it payable to a third party such as a title company or escrow company.
Negotiating with Lenders on Short Sales
Find out if the seller has already talked to the short sale negotiation agent. If not, then ask him or her to consult a short sale negotiation agent and get the hardship letter. Before the lender will consider your offer, the lender will want assurance that the seller has no assets to attach. In addition, depending on the lender, it may also want documentation such as:
- Preapproval letter from your lender.
- Estimated certified closing statement.
- Certified closing instructions.
- Title policy commitment / preliminary title report.
- Evidence of your earnest money deposit.
- Profit and loss statement, if you are self-employed, and last three months of bank statements and / or 2 years of tax returns.
- List of recent comparable sales in the neighborhood.
Your bargaining power will rest on the comparable sales and condition of the real estate market. Lenders generally use an automated appraisal service, which may not reflect the true market value in the neighborhood. Be ready to point out why factors such as busy thoroughfares, close proximity of railroad tracks or high number of neighborhood foreclosures affect the value, and use those reasons to justify your asking price.