Buying a Home Through a Short Sales Transaction

By: Susan Zanzonico

Have you considered being a little unorthodox and buying a home that is a short sale transaction? After the spate of much publicized foreclosures, many lenders have realized that a foreclosure is not necessarily the best way for them to offload a bad debt.

Foreclosures are costly, time consuming and represent an additional loss for the lender, because of the inclusion of both legal fees and court costs. Short sales transactions are becoming a more viable choice in situations involving financially stressed home owners.

However, don't be fooled by the name; 'short sales' are often 'long' sales with much ongoing haggling, mediation and negotiation. They are almost never straightforward, but having said that, they offer an opportunity for prospective buyers to get a bargain-priced home. In effect the 'cost' of the home is reflected in the patience and tenacity of the buyer and the buyer's real estate agent.

Your real estate agent will know that the seller legally has to be in default before a short sale can proceed, public records must be checked and there are certain 'pecking orders' for negotiating with lenders, (usually you will deal with the second lender first!) The real estate agent will steer you through the complicated procedure which is largely unfamiliar to the general public. Your agent will also be able to negotiate with your real estate lawyer when the time comes.

Now is certainly a good time to get pre-approved and 'lock-in' some financing prior to starting a search for a short sale home. The rate dropped again this week and if you mortgage now you will save $50.00 per month over last week's rate.

Many prospective buyers are waiting for the all-time low, as we are almost there! Of course, logically, we never know when we have hit the bottom until the rate starts to creep up. At that point, everyone rushes to lock in, but in effect we have already missed it! But if you do get pre-approved and are looking for a short sale, it may help your search and eventual purchase if you are aware why some short sale homes are more difficult to buy than others.

For instance, if a home has more than one mortgage on it, it gets more complicated and needs more negotiating with more people. One problem that immediately arises is to actually agree the 'new' value (and therefore your price) on the home.

The more people who have a financial interest in the property, the harder it is to agree on anything. So try for a home that is on a short sale list that has no more than two lenders, and preferably only one. If you can find a home with only one lender, it is really worth trying for that one.

Be prepared to truly negotiate. This means that you DO have to concede on some points, so pick your battles! Do not convey the attitude that you are doing them a favor, this is a two-way stretch. Always follow the advice of your real estate professional on matters of legality. The short sales transaction is not conducted or concluded in the manner that you might be used to, but your agent knows the ropes.

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