Buying a Short Sale Property
I was reading the Orlando Sentinel today July 12, 2011 issue and found some great information about the basics of short sales purchasing:
What is a short sale?
According to foreclosureuniversity.com, “a short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. You write an offer to the lender for $220,000, which is accepted as full payment for the loan.”
Pros and cons of short sales
Pro: Getting the property for less than what it would cost for the owner to reinstate the mortgage can be a windfall.
Con: Short sales can require more work on the part of the buyer who must also qualify for the transaction — and often be able to pay entirely in cash.
Did you know?
– Frankie Orlando, the author of The Pre-Foreclosure Real Estate Handbook, says that Fannie Mae and Freddie Mac will accept 85 to 90 percent of the fair market values in a short sale, and HUD will accept as low as 82 percent.
– To make a case for the short sale, the buyer needs to compile paperwork to prove to the lender that the homeowner qualifies for a short sale payoff.
– While a first mortgage will be satisfied in a short sale, buyers also need to consider any secondary liens against the property.
– Lenders will more seriously consider short sale offers that are entirely in cash, with a 30-day-or-shorter closing and no contingencies.
– The seller or property owner cannot profit from a short sale.