Thursday, March 12, 2009, AM | 1 Comment
In this lousy market, there is a phenomenon known as underwater mortgages. That means the house is worth less than the mortgage loan still remaining to be paid on the property.
If you sold the house in this kind of situation, the money you get from the sale will not be enough to pay off the mortgage. You would be stuck with the difference as debt that you will still have to pay to the mortgage lender.
The sale of the property, in a case like this, is called a short sale where a home is sold for less than the outstanding mortgage balance with the approval of the lender. Prices are often attractive, but short sales aren’t for buyers who face a deadline or are easily discouraged.
Lenders take an average of eight weeks just to respond to an offer – compared with 12 days for Real Estate Owned property (REO).
The lender, mostly a bank, may announce a minimum price, hold out for multiple offers and then ask everyone to do better. And approval of a purchase is complicated. The bank may only be servicing the loan, and the investors who actually own it will have to weigh in, as will any second-mortgage lenders.
Once the bank signs off on the agreement that you and the home seller have reached, you can get an inspection, but it will be too late to renegotiate the price.
So it’s a good idea to build the estimated cost of repairs into your offer. As with REO, you can add contingencies and seek traditional financing, but you should get your pre-approval from the seller’s lender to make your offer more attractive.
In a Nutshell
The lending bank may have too few staffers to handle the hundreds of short-sale offers they receive. Buyers need to find a willing buyer’s agent who knows which local listing agents are experienced and successful short-sale closers. The best ones know how to overcome the banks’ inertia.
Foreclosures come with their own set of headaches, and they are often clustered in new developments built far from city centers. Buying in a stable neighborhood may be the better deal in the long run. Even if prices continue to drop, they are likely to recover more quickly there than in a development full of foreclosures.
As always, do research online. Go to my post on REO where I have given the addresses for some websites to start with. Research, research, research.Facebook.com/doable.finance