John Adams: Short sales can present bargains
John Adams on real estate
Last week we saw how a savvy buyer can track down a bargain by offering to buy homes owned by banks after the conclusion of the foreclosure process. Unfortunately, many of those homes need a substantial amount of work before they can be occupied, and it may not be possible to obtain financing on such a property.
But there's another way to pick up a good deal on your next house. And it can be a win-win transaction for all parties to the deal. It's called a short sale, and here's how it works:
When a borrower decides that he can no longer make the required monthly payments, he may contact a real estate professional about obtaining help with selling his house rather than losing it to foreclosure. If the agent then determines that more is owed on the loan than the house is currently worth, she can call the lender's loss mitigation department.
If the agent can convince the lender that 1) a foreclosure is imminent and that 2) the lender is going to lose money on the eventual sale of the house, the bank may agree to accept less than the full balance of the loan as a payoff. They will consent only if they believe this course of action will result in less of a loss for the bank. And in today's slow sales environment, that's a fairly easy case to make.
One of the biggest hurdles to a successful short sale is getting the lender to make a decision on any "short sale" offer you might make.
And because the process of getting to a closing can be an extremely difficult one, it pays to work with an agent who is a short sale specialist. While there is little anyone can do to move a bank forward in the process, a persistent agent can try to get all the required paperwork submitted in a timely manner. And yes, there is a remarkable amount of paperwork required. Remember, you are dealing with a bank.
Perhaps the biggest problem is that the bank will require that the homeowner (also the defaulting borrower) prove that he has no assets and no income, and that he has suffered some misfortune that prevents him from paying. Proving financial hardship is an art form all its own. In addition, the homeowner cannot benefit financially from the sale of his home.
As a result, the homeowner has little incentive to participate in the short sale. And if the bank discovers that you have compensated the seller in any way, it will revoke its agreement to participate in the sale. This is where the patience and professionalism of the facilitating agent can make all the difference.
Finally, make sure you obtain solid legal advice during short sales, which are not typical transactions.
John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920am) every Saturday at noon.
For more real estate information or to comment, visit www.money99.com.
