As most homeowners know, the American housing market - especially in some states like Nevada, Arizona and Florida - is still in a slump. Housing prices may have stabilized in some areas, but the average home price in most Arizona metro areas is still thousands below where it was just a few years ago. The gap between home purchase prices and mortgage amounts leads many people - especially those who have lost their jobs or are now making a fraction of the salary they used to - to consider a once extreme remedy: a short sale.
What Are Short Sales?
A short sale is one in which the mortgage lender agrees to allow the home to be sold for less than the value of the mortgage. It is done to avoid foreclosure, but it does not require that the property's owner actually be behind on mortgage payments. If the lender is reasonably convinced that the seller will soon default because of financial woes like job loss or illness - or the value of the house has fallen considerably below the mortgage amount - it may be receptive to a short sale as a way of getting at least some return on investment.
Most lenders are more likely to accept a short sale than pursue a foreclosure filing because the foreclosure process itself can be costly, can take months (or years) to complete and is a paperwork-filled, tedious process.
Are Short Sales As Easy As They Seem?
In a word: No. The concept of a short sale is a relatively simple one, but the process itself is actually quite complex. All listing and sale documents should be drafted to allow the seller to cancel without liability should the short sale not prove advantageous. It is vitally important for a buyer interested in purchasing a short sale to work with an experienced real estate agent as well as a skilled attorney to successfully navigate the potential pitfalls such as post sale deficiency liability or tax liability. For example, a skilled realtor or attorney will be able to access the financial records for the property and discover if there are multiple mortgages in play - if there is more than one lender, they both have to agree to the short sale or the transaction cannot proceed. They must also both agree to any purchase price offered by a potential buyer. A skilled real estate attorney can help a buyer craft the type of purchase offer that is realistic, thorough and has the highest chance of being accepted. A skilled real estate attorney can assist a seller to minimize risk inherent in the transaction.
Why Should a Buyer Be Wary of a Short Sale?
There are other possible issues with short sales, including:
- They are sold "as-is" - this means that the purchaser would be responsible for handling any potential structural or cosmetic issues like roof replacement, building code deficiencies or broken windows
- Closing times vary - particularly if there are multiple mortgages, it can take weeks or months to even get a response to a proffered purchase price; an acceptance and title closing could take much longer
- The possibility of unfair lending terms - some mortgage lenders might want a short sale property seller to agree to pay the difference between the sale price and the value of the mortgage; if a seller is unable to do so, the sale might fall through
- Buyers are responsible for a larger percentage of closing costs
- Buyers typically must pay for home inspections and independent appraisals
- If a buyer has his or her own home to sell before closing on a short sale, the lender might refuse to entertain even a reasonable offer on a short sale property
Sometimes a short sale really is "too good to be true." Only an experienced real estate broker or real estate attorney can tell the difference. If you or a loved one is interested in purchasing a short sale or pre-foreclosure home, seek the advice of an experienced real estate professional in your area to learn more about your legal rights and options.