Anyone have experience buying homes that are "short sales" - searching the internet I'm finding mostly horror stories around taking months to close, not a typical offer/counter-offer scenario, etc. Just wondering if anyone here has experiences they could share - there are a lot of these popping up...
Short Sales
- Thread starter Chad
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Our family relocated to Denver from Ames last fall. We sold out house in Ames in July and the new owners took possession of our house in August. We offered over the asking price on a short sale in Denver in July right after the sale of our home in Ames.
So, the realtors said that the short sale home we offered on had already gone through most of the approval the bank needed with another buyer and they ended up not being able to get the loan, so they walked away. Both our realtor and the listing agent insisted that they could close the sale on the home within 30 days as most of the process had already been done, just with a different buyer.
Well, we ended up homeless. Husband living in a hotel in Denver. Me and the family living at my parents lake house. We pushed and pushed the realtors. They said everytime that the sale was close, just ahng in there. They were "waiting on the bank". The owners of the short sale did their paperwork. We wrote up an awesome offer as I said earlier. The home had been vacated in March.
We finally gave up. Started the house hunting process all over again and finally moved in at the end of October. It was one of the most frustrating and ridiculous ordeals I have ever dealt with. I do not suggest trying to buy a short sale at all. Home buying/selling is stressful enough and then add that on top of it. No thank you!
The house we tried to buy is vacant and in foreclosure. Just drove buy it the other day.
So, the realtors said that the short sale home we offered on had already gone through most of the approval the bank needed with another buyer and they ended up not being able to get the loan, so they walked away. Both our realtor and the listing agent insisted that they could close the sale on the home within 30 days as most of the process had already been done, just with a different buyer.
Well, we ended up homeless. Husband living in a hotel in Denver. Me and the family living at my parents lake house. We pushed and pushed the realtors. They said everytime that the sale was close, just ahng in there. They were "waiting on the bank". The owners of the short sale did their paperwork. We wrote up an awesome offer as I said earlier. The home had been vacated in March.
We finally gave up. Started the house hunting process all over again and finally moved in at the end of October. It was one of the most frustrating and ridiculous ordeals I have ever dealt with. I do not suggest trying to buy a short sale at all. Home buying/selling is stressful enough and then add that on top of it. No thank you!
The house we tried to buy is vacant and in foreclosure. Just drove buy it the other day.
Apologize in advance for a long post :smile:
I work for a real estate services firm here in Minneapolis and am a licensed real estate agent, appraiser, and mortgage broker. Unfortunately, I have too much experience with short sales and foreclosures.
What you read is probably mostly correct. They are often great values, but are an absolute nightmare from a transactional stand-point. I'd summarize as follows:
1.) It's a slow process. As you can imagine, banks are overwhelmed with these transactions and totally understaffed. For example, many banks disclose that they will take 30-60 days just to respond to your offer. That's before negotiation, inspections, appraisal, title examination, etc. You could easily be looking at 120 days from start to finish.
2.) There are too many cooks in the kitchen. Agents, loan servicing companies, asset managers, investors, mortgage insurance companies, etc. Communication is terrible and you need approval from countless entities before the deal goes through.
3.) There are often title issues. Ownership and chain of title are often clouded due to the rapid-fire way in which mortgages are sold. Throw in junior-lien holders like second mortgagors, counties that are owed back taxes, associations that are owed back dues and the fact that a mortgage insurance company has to agree to insure the loss and you've got yourself a nightmare.
I could go on and on, but will spare you all the details. Worst part is that it's completely out of your hands and your agents hands. I hate them because I'm very hands on and like to tightly manage the transaction which just isn't possible in these cases.
Many people falsely assume that short sales/foreclosures sell for less because they're in bad shape. That is often the case, but it's mostly the transaction that keeps people away. If you're trying to time the sale of your own home with the purchase of another, it's a crap-shoot and you better have another place to stay for awhile. Same goes with someone trying to time the purchase with the expiration of a lease. This eliminates many would-be buyers and therefore drives prices down.
If you have a flexible timeline and are confident you have good representation (from an agent, mortgage broker, title company) go for it...there's a lot of equity to be had overnight. To give you a flavor, consider the fact that the median sales price of short sales/foreclosures in the Twin Cities dropped 26% last year. Traditional transactions (Mr. and Mrs. Seller to Mr. and Mrs. Buyer) only dropped 2%. Of course, that's just here, but I think it illustrates the power of the "short sale/foreclosure" stigma.
My dad lives in Pheonix... he was offering on short sales and it was a nightmare. So, he offered on a house that was a "regular" sale. Because of all of the short sales and foreclosures in the area, he is now having a hard time getting the appraisal to come back ok. This house is only 150k. The people bought it a few years ago for over 250k.
Bad housing markets = nightmare to buy either way....
Bad housing markets = nightmare to buy either way....
A short sale is basically any transaction where the bank agrees to sell the property for less than what is owed to them.
For example, a seller owes $200,000 on the mortgage and the market only supports a sales price of $180,000. After expenses (realtor commission, closing costs, etc), the bank might clear $170,000. The bank may choose to allow a short sale and eat that $30,000.
Many times, it's worthwhile for them to do so because the legal costs associated with foreclosure are extremely high for the bank. You must also consider the fact that the bank is in the business of lending money and collecting interest. A property sitting vacant with no one making payments is detrimental to their business model. Once the bank forecloses on a property (and therefore becomes the legal owner), they are responsible for taxes, association dues (if applicable), and assessments. Those carrying costs can add up in a hurry....often times hundreds if not thousands of dollars per month. Long story short, they're often willing to eat money upfront to save money in the long run.
My dad lives in Pheonix... he was offering on short sales and it was a nightmare. So, he offered on a house that was a "regular" sale. Because of all of the short sales and foreclosures in the area, he is now having a hard time getting the appraisal to come back ok. This house is only 150k. The people bought it a few years ago for over 250k.
Bad housing markets = nightmare to buy either way....
That's another challenge with the market in general. As I stated earlier, there are often times two distinct markets...one for regular transactions and one for lender-mediated homes.
If there are only a few lender-mediated sales in a neighborhood, you can pass them off as an anomaly and ignore them because they're not "arms-length" transactions. However, if the neighborhood is overrun with short sales/foreclosures, they essentially become the market and can't be ignored...therefore having a negative affect on prices across the board.
How does a short sale effect (affect maybe) the credit of the seller? From what you are saying, they have to take a huge hit.
I'm not a credit expert, but know a little bit from being a mortgage broker. That being said, take this with a grain of salt...
My understanding is that the short sale, by itself, does not damage your credit. It's usually the missed mortgage payments that gets you. How are these two related, you ask? Well, here's another secret...the bank (99.9% of the time, in my experience) won't even consider a short sale until you start missing payments. Consecutive missed payments on a mortgage can absolutely kill your credit.
The bank looks at it this way - why would they agree to eat money on your mortgage if you continue to make payments? It wouldn't make any sense. However, once you start missing payments they get worried about their money and become fearful of a foreclosure (the costs of which I outlined in an earlier post). Then, and only then, will they work with you on a short sale.
One other consideration is that you may have to pay taxes on any debt that is relieved. For example, say the bank eats $20k on your mortgage and relieves that debt. You may be required to pay taxes on that (relieved debt is treated as income by the IRS).
Now, the government has recently passes legislation to make this not the case, but I believe it's only temporary. Since I'm not an account, I should make that disclaimer and recommend anyone reading this to talk to a qualified tax professional if considering a short sale.
laws also vary by state which can get confusing.
In some states you can buy a foreclosed house and the previous owners can decide they want the house back for what they owed. It is called the "Right of Redemption". In MN they have 60 days. In Iowa they don't have "Right of Redemption". I think one state has 1 year. You would lose any improvements you made to the house during that period not to mention you would have to move again if you had moved in. It does not happen often because usually if someone has the money they won't get foreclosed on if they want to keep the house.
In some states you can buy a foreclosed house and the previous owners can decide they want the house back for what they owed. It is called the "Right of Redemption". In MN they have 60 days. In Iowa they don't have "Right of Redemption". I think one state has 1 year. You would lose any improvements you made to the house during that period not to mention you would have to move again if you had moved in. It does not happen often because usually if someone has the money they won't get foreclosed on if they want to keep the house.
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Laws do vary from state to state. The only time you run the risk of having a foreclosure taken back by the previous owner is if you're the one to purchase it at sheriff sale. Normally, the bank is the one to make the purchase at that time.
There is a redemption period after the sheriff sale. In MN it is 6 months and it is accelerated to 6 weeks if the property is vacated. The owner has this time to make good with the bank. If they don't, the bank officially takes ownership and can sell to whoever they please.
Again, I don't know how other states work, but I would advise anyone purchasing a property at the sheriff sale to not make any improvements or get settled in. If you purchase it from the bank (after foreclosure is official and the redemption period has passed) then you should be in the clear.
ffelknirznarf, thanks for the heads up on the Right of Redemption. I didn't know that existed and I may be looking at short sale house when we mover back to the states.