Short-Sale and Foreclosed Homes

Special Tips for Successfully Closing the Deal. 

Short sales and foreclosure sales are popular, especially while mortgage rates are so low. However, buying distressed properties is not always easy and the buyer must often jump through additional hoops. If you understand what each type of sale is, then it is easier to understand why you have to jump through certain hoops. A foreclosure sale is a property that the bank has already 
taken, determined a price and listed with an agent. A short sale is a sale by the seller for less than what is owed on the property.

Tips for Buying Short Sales

If you want to buy a property as a short sale, there are two different types: approved and not approved. An approved short sale is one where the bank 
made an agreement with the seller to take less than the outstanding mortgage amount. This is the easiest short sale. A non-approved short sale means that you have another negotiation to make: the negotiation with the bank.

In a non-approved short sale, the seller must give the bank permission to speak with you about the loan. Once you have permission, you must negotiate a price that the bank will take. You must also negotiate the price with the seller. The seller may be willing to take a $50,000 hit, but the bank may not agree to that. In addition, if you negotiate a price with the bank, the seller may not want to go that low. In a short sale, the difference between the price of the home and amount due on the loan is considered income to the seller; and the seller must pay taxes on the difference.

Tip #1: Contact the seller to ask if he or she wishes to take less than the amount owed on the loan. Work out an acceptable price with the seller. Have the seller sign an affidavit stating that the bank may discuss the seller’s mortgage with you. Make sure the loan number is on all correspondence.

Tip #2: Contact the bank after the seller forwards the appropriate documentation. Tell the bank you are working with the seller on a short sale and negotiate a price as close to the price you discussed with the seller.

Tip #3: Often banks do not return calls regarding short sales. You must be on your toes with them — call them often until you can get through to someone. If the bank does call you back, be sure you answer the phone. They may not call again.

Tip #4: Have cash ready or be ready to close with a loan as soon as the bank gives permission. When the bank gives you a time frame to close, you should have the loan ready to close at least a few days before so you don’t have any nasty surprises on closing day.

Tips for Buying Foreclosed Homes

Foreclosures are seldom ready to move in — you must do repairs to the house and freshen it up before you can move in. You may have just a little work, such as paint, new carpets and cleaning; or you could have extensive repairs such as roof leaks, repairing sheet rock and replacing appliances. Generally, if you use a conventional loan, you’ll get financing, but the mortgage rates are higher than Fannie Mae, Freddy Mac, VA and other government-backed loans. The problem is that the home you chose may not qualify for the government-backed loans because of the repairs that need to be completed.

Tip #1: Locate a home that is in decent condition. You don’t want to put money into a house to make it qualify for a loan only to have the loan denied.

Tip #2: When you buy a foreclosure, the price has been set with the repairs in mind. You may still be able to negotiate, but in most cases, the home is appraised as if it did not need repairs, then the approximate cost of repairs is subtracted from that value to get the listing price.

Tip #3: Check with private lenders. The mortgage rates are higher than any other loan, but if the repairs are extensive, you may be limited to paying cash or using a private lender. Generally, if you use a private lender, your credit must be as good as if you were using a bank that requires good to excellent credit.

Working short sales and foreclosures can be more difficult than buying a house that is listed as a regular sale, but with determination and some knowledge of how the system works, you can do it. You may not succeed the first time, but don’t let that stop you from trying again, especially if you can complete any needed repairs yourself.

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