Should I buy a short sale? This is a popular question lately. With the rumors of incredible foreclosure and short sale deals, who wouldn’t ask. I’ve lived in Sequim for 18 years, but if I were moving to Sequim to buy my dream home for the next phase of my life–retirement–I would ask, “Should I buy a short sale?”
Should I Buy a Short Sale – What is a Short Sale?
Let’s make sure we’re all on the same sheet of music. A short sale is the sale of a home that is worth less than the balance of the mortgage or mortgages. The bank or banks must agree to take a loss, or the transaction cannot close if the seller doesn’t make up the difference.
Should I Buy a Short Sale in This Market?
True story. I sold a home in Sequim, and it was a short sale. My client asked in the beginning, “Should I buy a short sale?” This home was exactly what my client was looking for, and although it was a short sale, my clients figured by making a full price offer, they would be first in line. It was worth a try, right?
Should I Buy a Short Sale – Will The Bank Approve the Sale?
This home was listed for about $170,000. There was a first for the same amount, a second to another bank for $50,000, and the IRS had a Federal tax lien for roughly $80,000. In a case like this, the bank in second knows there won’t be enough proceeds for them, so they end up taking a full loss if they agree to let the transaction close. After all, the bank in first could foreclose and wipe out all subordinate liens. The IRS has a system in place to enforce or waive Federal liens, and procedurally they have 45 days to enforce or waive. They will typically waive in a case like this. The tax lien is not extinguished, but this property is no longer security for the lien.
Once we had mutual acceptance between my buyer and the seller, the documents went to the banks and the IRS for their stamp of approval. Since my client offered full price, and since a prior offer had been approved by the first bank for a little more than my client’s offer (that buyer walked away for other reasons), this offer had a good probability of getting approved.
The result will surprise you, and may cause you to ask, “Should I buy a short sale?” The IRS was no problem. But the bank in first and second came back demanding about $35,000 more. After waiting for over a month, my clients had an answer.
The Result: Not only did my clients walk away, but no one else will buy this home at this new ridiculous price. I’ve written elsewhere about how inexperienced most asset managers are. Do not assume that the people involved in handling or approving a short sale are experienced in real estate. Many asset managers, short sale negotiators, and bank employees have very little experience in real estate, yet they are handling millions of dollars in short sales all over the country. I know, it’s crazy, but welcome to the world of short sales.
Many buyers experience similar disappointments when trying to buy a short sale. If you ask me, should I buy a short sale, I would say look hard at all other listings before getting on that merry-go-round.
Last Updated on August 9, 2012 by Chuck Marunde