Are there any downfalls to purchasing a home on a short sale?

Asked by Robert Tucker, Bellmore, NY Wed Apr 28, 2010

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18
, ,
Thu Apr 25, 2013
Good afternoon Robert,

I've been helping First Time Buyers for 23 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.

Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.

For Short Sales, my attitude of late is that First Time Buyers should steer clear. Short Sales tend to be a better deal for the homeowner than for the Buyer. You'll wait MONTHS for the homeowner's Lender to approve the short sale; maybe as long as Six or Seven Months. Meanwhile, you're stuck in a contract to buy that home. I closed a short sale recently with a Buyer who, after seven months said this at the closing table, "I don't even want this house anymore."

And he didn't even get the "deal" on price he thought he was getting! The house appraised for only slightly more than he paid for it at the short sale price. He walked into this deal thinking he was buying a home for $100,000 less than it's value. In the end that wasn't the case.

There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay.

Trevor Curran
NMLS #40140
Mobile: 516-582-9181
Office: 516-829-2900
Fax: 516-829-2944
PowerHouse Solutions, Inc.
1010 Northern Blvd. Suite 234
Great Neck NY 11021
Licensed Mortgage Banker – NYS Dept. of Financial Services
NMLS#3528

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0 votes
sales 3611 , Agent, Parsippany, NJ
Mon Jun 11, 2012
Hello

the only downfall to purchasing a home on a shortsale is the waiting period and having you down payment held for a long period of time, the other is short sales can fall apart it not a guarentee you will get the home even after you have signed contracts with the seller since the bank who is taking the loss has the final say in the deal.

American Financial resourcees
91 Maple AVe
Smithtown NY
NMLS ID 124292
Cell 516.233.4842
0 votes
Fajardo Dela…, Agent, Flushing, NY
Sat Jun 9, 2012
I would like to explain the step by step, of it all works out.
Please just give me a call as soon as you can.
Thank you



Fajardo Delacruz
Licensed Real Estate Agent
Century Homes Realty Group llc
Direct Line: 347-932-0609
0 votes
Aaron Weber…, Agent, Middleton, WI
Fri Dec 16, 2011
The biggest concern I have run into with clients is time and not knowing what the bank is doing. It is a long process but the rewards can be great.
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sales 3611 , Agent, Parsippany, NJ
Fri Dec 16, 2011
Hey Rob,

Seems like your question was answered , it is a long process so be sure not to tie up to much of your money when binding the contract always check public records to make sure property only has one lien on it, if there are two most of the times those deals never close, for a simple reason the first mortgage negotiator wants any extra the second would be asking for. so most agents are unable to negotiate with both banks to arrange the agreement. If you have any questions please call me 516.233.4842 Affordable Mortgages Available My Office is 666 Old Country Rd Garden City NewYork 11530 or Call Sean 516.852.6656 who is extremely knowledgeable with short sales
0 votes
My NC Homes…, Agent, Chapel Hill, NC
Thu Dec 15, 2011
In my opinion the biggest downfall is that over 50% of the time your wasting months to find out that either the lender won't approve the sale or for them to counter with an often times crazy number that makes you wonder if the lender is on drugs.

The price listed by the seller means less than nothing, lenders won't preapprove prices for sellers so they simply make one up and hope it will fly.

Foreclosures are much more straightforward though with over 30 years of experience around foreclosures, I'd tell you what I tell every Buyer client, rarely are these deals as good as you might think The majority are fair by the time you're done working on them, Perhaps 1 out of 10 is a great deal and perhaps 1 or 2 out of 10 will be money pits.

Many motivated Sellers just waiting on an offer, who are willing to negotiate, and if problems are uncovered during the inspection problem willing to work with you.

Regardless of what you decide works for you, I wish you all the best.
0 votes
Faye Paschall, Agent, Murrieta, CA
Thu Dec 15, 2011
You can get a great deal on a short sale. It's critical all parties involved are experienced and know the guidelines of a short sale. The process can take a very long time or it can be approved in a short period of time.
Your agent can get answers for you as to the bank or banks involved.
0 votes
Terry McCarl…, Agent, Cape Coral, FL
Thu Dec 15, 2011
You can get a great buy on a short sale if you have the time required to wait for lender approval. It is critical that you work with an experienced buyers agent that truly understands the ins and outs of the short sale process.

Also, an experienced agent will cover things such as the appliances remaining in the home etc...and have you do a final walk thru prior to closing just like you would on a "regular" home purchase. This final walk thru allows you the opportunity to make sure the home in still in the same condition it was in at the time you placed your offer.

I don't know about NY but here in FL the day of closing belongs to the buyer unless negotiated differently. This way the sellers have already moved out when the final walk thru is done so no worries of evicting someone or appliances, fans etc...being removed after the closing.
0 votes
Geoff, , Melville, NY
Thu Dec 15, 2011
I agree with a lot, not all of the answers posted on here and it looks like majority of you say time is the main issue. I work for a national company called AMERICAS SHORT SALE CONDUIT (ASSC). We specialize specifically in short sales and short sale negotiations, and on average get short sales bank approved anywhere from 3 weeks to 45 days. We do all of the paperwork from start to finish, and are involved with every person (realtors, sellers, buyers, banks, attorneys) that is part of the short sale process. If any of you need help with short sales, or would like more information, please contact us at 1-800-318-5110.

Good luck.

Geoff
0 votes
sales 3611 , Agent, Parsippany, NJ
Wed Jun 23, 2010
Hi,

Yes the some issues you might run into are:
1. could be waiting a long time for bank approval on if they will entertainthe offer.
2. missing the chance to lock into a low rate until attorny tells you bank has agreed and have 30 days to close
if you do not close with in 30 days file has to be re submitted to the bank and you have to play the waiting game
3. locking into a rate and rate expirations
4. could take from 6 months or longer
5. fustration nor knowing what is going on
6. no one knows anything invlovled in transaction (Attorney, realtors, negotitors etc.)
7 if there is a second mortgage on property HUGE Problem
good luck with your search
0 votes
Mtg 101, , Garden City, NY
Fri May 14, 2010
.Hi,

it seems like you have had your questions answered i am a local mortgage bank and if you would like to come in and talk about all your options please call 516-233-4842 or email me vaiossa@unitednorthen.com

My address is 3601 hempstead tpk levittown NY 11756
closing on refi 14 days
purchase closings 21days -
0 votes
Geri Sonkin, Agent, Merrick, NY
Wed Apr 28, 2010
If you choose to make an offer on a short sale there are many factors involved and it can take quite awhile before you find out whether or not the bank will accept your offer. Paperwork presented in these cases has to be complete, both from the purchaser and the seller. I recently closed a short sale in which there were two banks involved and it took a full year to complete it. Sometimes you can do everything right and spend months thinking you bought a home only to find out the deal died very late in the process. With all that said though, you can sometimes do very well with a short sale. Just know, if you decide to do this, all the people involved in the transaction had better know what they're doing so you have a better chance of success.

Good luck!
0 votes
, ,
Wed Apr 28, 2010
Another big downfall is that because of the length of time involved, it is difficult to lock an interest rate. I find that most buyers like to know what their payments will be when they apply for a loan. Rates could stay stable until the bank has approved the short sale, but they also could rise. If you are borderline in terms of debt ratios, you could possibly end up not qualifying for a loan that you have been approved for. Besides that, most people also spend money on an engineer and an appraisal, only to have the deal fall through for some reason.
It is also possible for the bank to come back to you with a counter-offer. Even though the seller accepted your price, that doesn't mean that the bank will. I know that there are many homes listed for sale, and I am sure if you work with Arlynn, she will be happy to find one in your price range. She and I have worked on many deals together in the past, and I know that she does everything she can to match the buyer to the right home for them.
0 votes
Arlynn B. Pa…, , Roslyn Heights, NY
Wed Apr 28, 2010
Robert -

There are 2 major pitfalls of buying a house on short sale.
1. The length of time involved and 2. the uncertainty of obtaining the lender's approval even after the time has elapsed - once the buyer has made his/her offer and the homeowner has accepted both the price and terms offered, the contracts must be executed by both parties and the "short sale package" is submitted to the bank. This usually consists of the seller's hardship letter, evidence that they cannot afford to pay the mortgage, past bank statements, past due bills, doctors letters if appropriate, etc. During this time, you, the buyer, is applying for and obtaining your mortgage committment. Once the lender has received AND reviewed all of this information and documentation, they will then come to a conclusion as to whether they will approve a short sale. In otherwords, you may have gotten your mortgage committment and waited, possibly for months, and then be turned down! Even if the lender approves the short sale, your mortgage committment may have expired or the interest rates may have risen to where it is no longer possible for you to afford the home.

Additionally, the home is generally sold "AS IS" and although you have the option to have an engineer inspection, the homeowner will not be fixing any defects your engineer uncovers. The good news is that in New York, the buyer does his inspections prior to contract, so if there are defects you would not proceed with the short sale application.

The upside is that the home is usually being purchased below market value and since the homeowners have actually marketed the home for sale they will not "strip" the home of appliances, pipes, etc nor will they destroy the home. They are subject to a standard real estate contract which will contain clauses that the home must be in substantially the same condition at closing as when contracts were signed.

If you have any further questions, please do not hesitate to contact me directly by phone at (516)410-3594 or by email at Arlynn@ArlynnPalmer.com.

Regards,
Arlynn

Arlynn B. Palmer, ESQ, SRES, CBR, CMS, CNS
Coldwell Banker Claire Sobel
Associate Broker, REALTOR
(516)410-3594
Arlynn@ArlynnPalmer.com
Web Reference:  http://www.ArlynnPalmer.com
0 votes
Anna M Brocco, Agent, Williston Park, NY
Wed Apr 28, 2010
Depends--is it already pre-approved from the lender--if not be prepared to wait and is there more than one lender involved--the seller can accept whatever offer he/she wants, however the lender decides to accept, reject or at times counter offer--they are sold as is, therefore immediate repairs may be needed--your agent and or attorney can advise you best as it relates to the specific property.
0 votes
Keith Manson-…, , Milwaukee, WI
Wed Apr 28, 2010
Everyone needs to understand what your dealing with and how to address the situation with the bank. It is more than a real estate transaction and you need to understand that going into the deal. You need to understand how many loans are associated with the property and who the lenders are. Some lenders deal with short sales quickly and others do not. Some agents know how to deal with short sales and others do not. If you have a week link in the process it can be a very long and difficult process.

Also the lenders on short sales do not always give you a lot of time to complete the deal and if you go past the estimated closing date it may have to go through the approval process again.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee
http://www.milwaukeebailout.com
0 votes
Heather Peck, Home Owner, Las Vegas, NV
Wed Apr 28, 2010
Robert - The biggest downfall to purchasing a home on a short sale is the length of time involved. Until the new HAFA program that was just rolled out, short sales could take up to a year. But recently, most of the deals I have been involved in have been closing within 3-4 months.

The good part about purchasing a short sale is you're still buying from the owner who doesn't care what it sells for because he can't profit on the deal. The houses come with full disclosures on what is wrong with the property, and sometimes the seller's lender will allow for repairs (that was true in Las Vegas until the last 2 months, but I'm sure you're seeing it in markets not hit as hard as ours).

The other downside is the seller's have had a financial hardship so they have probably not been taking great care of the property and it usually being sold "AS IS", but at least they must disclose about the condition and you can always have your agent try to find out as much as they can about the property.

Make sure you have an agent who is familiar with short sales, even on the buying side. They need to ask all the right questions of the listing agent, so you don't get tied up in a deal that has issues and will never close.

Heather Peck, SFR
SellState NRES
702-595-7380
VegasCastles@gmail.com
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Wed Apr 28, 2010
The process take time and patience. There is no guarantee that you will get it in the end.

Also, rates can go higher during the waiting process, also prices can go up.
You may be asked to pay Higher Market price say 3-6 months out.

Also, the seller may take out the appliances and fixtures before leaving and what recourse would you
have , against someone whose credit is ruined anyway.

Last but not least, say the seller chooses not to move out, well evictions cost time and money.

But the deals can be sweet when they close. Get yourself a good RE Lawyer or Agent who has done
a few.

Goodluck
Perry
Web Reference:  http://www.ruthandperry.com
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