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Written by Marlon Baugh
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Friday, 25 July 2008 |
As the number of foreclosures continues to rise, buyers will find some amazing “garage-sale” priced homes. While these deals may be hard to pass up, buyers do have opportunities to buy homes through a "short sale" before a home goes into foreclosure.
What is a "short sale?" A short sale is defined as the sale of a home at a price less than the existing mortgage balance. The ultimate price of a short sale lies in the willingness of the bank to negotiate terms. This is a complicated process and, up until recently, rarely occurred. Short sales are becoming more frequent and there are some great buys because of it.
When you are looking to buy a home at bargain prices, consider hiring a professional to help you. There are so many legal loop holes that the average person could be taken advantage of during the negotiation process. Make sure the professional you hire is experienced. A majority of lawyers and real estate agents have little or no experience in these types of sales. Choose wisely as it could save you thousands of dollars in the long run and a lot of heartache.
The most important point to consider is this: Going it alone when purchasing a home in foreclosure or that is listed as a short sale will significantly increase your chance for failure with the bank.
The steps in the process are:
1. Locate homes which are in default, as early as possible, even possibly before the formal non-judicial foreclosure begins. A knowledgeable Real Estate Agent should be able to show you a list in the Multiple Listing Service of tens of thousands of these.
2. Search foreclosed homes with plenty of lead time before the Trustee's Sale (you may need weeks or months of lead time.)
3. Once you have created a list of such homes, narrow that list to only those homes you would have likely purchased for yourself, even if it wasn’t in foreclosure. In other words, don’t buy the house just because “it’s a great deal.” Look at buying it if you like the house AND “it’s a great deal.”
4. Complete an accurate Comparative Market Analysis (CMA) using sold homes with similar features, via a good database such as the local Multiple Listing Service (MLS).
5. Determine the exact mortgage balance and status of default or foreclosure.
6. Be sure to find out if there is a second or third mortgage on the house. This has foiled many potential buyers after they have spent weeks of time on the deal.
7. Research the possibility of other liens (tax liens, mechanic's liens, labor liens, state liens, etc.)
8. Determine how best to talk and negotiate with the loss mitigation department of the bank or mortgage holder. Do not take this step lightly. It takes a trained professional to do this for you as it’s not like your standard negotiation. You have to know what facts to present to them to get them to accept your offer.
9. Determine whether or not purchasing via the short sale will negate any subordinate loans or liens (another trap for the unwary.)
10. Know which costs and fees in addition to the mortgage balance can be compromised and by how much (experience is the best teacher.)
11. Prepare a comprehensive package to present to the mortgage holder, which is the most critical step in closing a short sale. This should include the Purchase & Sale Agreement, and a thorough analysis of the home, prices, the local market, and justification of your offering price. Your offer must be prepared very professionally or the bank will merely overlook you, without giving your offer a second look. You have to be able to make a case to the bank, as to why they should sell to you at this price, and they can smell a rookie a mile away.
12. In order to close on a deal in a short sale, you must follow through with all parties involved.
The complexity and difficulty of closing short sales should never be underestimated, even under the best of circumstances. It is hard to find a buyer of foreclosure properties through the short sale process, despite what con artists would like you to believe. You should have some experience before purchasing foreclosure or short sale properties.
Buying a foreclosure can be a fast way to lose money if in the process you make major mistakes. On the other hand, because the purchase price is below the current market value of the home, it can be a great way to pick up equity immediately the day of closing.
Marlon Baugh is the owner of Specialized Financial Solutions and has helped hundreds of people buy their first “short sale home”. Marlon has specialized in helping individuals with bankruptcy, foreclosure and other credit issues for the last 5 years. To learn more or to get access to his Free Insider Mortgage Reports give him a call at 954-678-5796 or visit his website at www.specializedfinancialsolutions.com.
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