For real-estate investors looking to flip a profit or first-time home buyers looking for a steal, a short sale property could be a diamond in the rough. Nonetheless, as enticing as the lowered price tag might be, there are still several other factors all home buyers should consider before buying short sale property.
Short sales are settlements which occur when a property is sold for “less than the total amount owed on the existing mortgage loan.” In some situations, short sales are lucrative deals for a bank, especially if the borrower (usually the previous homeowner) fails to pay the mortgage on time and has very little intention of bringing the loan current, let alone pay it off. However, the lender must also agree to the short sale, yet they may also consider foreclosure as well.
Before buying a short sale property, prospective buyers must always ensure that the seller has already defaulted. Occasionally, a seller might market or list their home as a short sale without completely acknowledging the actual process involved in making a property short sale. Desperate homeowners will look to short sale before defaulting on their loans. If a seller doesn’t default before listing their property as a short sale, the deal automatically falls through and so do the effort and expenses a prospective buyer may have put into the deal. Similarly, before considering a short sale property, buyers should ask if the homeowner has filed for bankruptcy. A short sale is also a collection activity and a successfully filed bankruptcy requires all collection activities to come to an end. Thus, if the homeowner were to have filed for bankruptcy, the short sale deal would already be void from the beginning.
In addition, a large percentage of short sales require a great deal of maintenance and renovation. Typically, if a homeowner is unable to afford to pay their mortgage, they may not have been able to afford the proper maintenance. Moreover, some houses that go on short sale may be boarded up, allowing safety hazards such as mold to fester. Therefore, home buyers must always remember that short sales are a gamble. Furthermore, it is also important to conduct quality home inspections and thorough repair estimates before closing on a short sale.
In all honesty, home buyers must also understand that long waits and red tape are common in short sales. Even after the lender agrees to the short sale of the property, it must still go through a tedious approval process, an approval process which might take months before the buyer is brought in to close the deal. As a result, home buyers in search of an immediate home should reconsider the lengthy process a short sale might require.
Consequently, before considering the luring price tag of a short sale property, consider the necessary patience and investigation required as well.