Has anyone purchased a short sale?

TGTIW · 07-27-2010, 09:23 AM

We're looking at a house, that is currently being sold as a short sale.
Overall, the house is in reasonable shape, the downstairs has been completly remodeled, the upstairs needs work. The previous owners obviously did not have much concern about the conditions that they lived in. I think it could work out to be a bargin, even considering the work that would need to be done, but I'm hesitant due to the additional legal issues.
Anyone go through this before?

drcoastline · 07-27-2010, 09:30 AM

Hi TGTIW,

I recently purchased a short sale. What legal issues are you asking about? There really shouldn't be any legal issues for a short sale. Basically you and the seller come to an agreement and then the bank either approves or disapproves the sale. This could take time. Some work involved in that but nothing legal other then the seller may have to pay additional income tax.

If it is bank owned it is usually even easier as you more or less deal directly with the bank (through their Realtor of course). But still pretty traditional transaction.

What specifically are you asking?

TGTIW · 07-27-2010, 09:39 AM

Basically, my concerns are about this statement in the listing "Preapproved short sale on first and second mortgage, all offers still contingent on approval from ALL lien holders of record, regardless of short sale."

Does this mean there are additional lien holders, besides the two mortgages? I think my biggest reservation is with the owners. According to neighbors, they've abandoned the house once before, had to return and now it's vacant again and in short sale. Also, the house is empty, except for the garage which is filled with their crap. I don't trust the owners to not return to the house before the sale and do more damage. But if the sale could go through, we'd be getting a house at about 75k less than the neighborhood average.

MarKoBrow · 07-27-2010, 09:54 AM

I bought my vacation/retirement home in Mass on a short sale, I was told by a lawyer at the time to make sure the bank owns it outright. There are times when a bank can repo a home and that home still may have uncleared encumbrances on it. Perhaps you might want to find a good real estate attorney locally that can help you thru your sale

Rick Lee · Rick Lee's Garage

It's not a short sale if the bank owns it already.

I recently bought a short sale and it took about six months from intial offer to close. Banks are usually totally irrational about this stuff, so don't be surprised by the games. They want every dime they can get out of the sellers. The bank will try to cut realtor commissions, counter your offer and then tell the sellers they need to bring cash to the table. Once everyone has come to an agreement, the waiting starts. Sure, the sellers technically have to keep the house in the condition it was in when your offer was accepted. But what are you gonna do if they don't? Walk away because they let the pool turn green? You have to decide how much you're willing to cough up at the last minute when sheet pops up and no one is willing to pay for it - broken a/c, cracked foundation, leaky roof, etc. Believe me, you'll get some surprises at the end and, if you're emotionally invested in the house, you'll need to be prepared to pay at closing to make problems go away. Ask me how I know.

drcoastline · 07-27-2010, 10:07 AM

TGTIW,

That statement means the two mortgage holders have pre-approved a short sale. That may help the sale move fatser. Their could be other lien holders as well. Such as tax sale certificate holders, water, sewer, utilities and others. That will be found out in a title search. You could do a basic title search on your own by going to the court house with the address, Lot, block. All the recordings will be listed. You can make your offer based on the title search.

The property is still owned by the sellers so they have every right at this time to go back in the house and do what ever they please to it. Make your offer contingent upon a satisfactory inspection of the property. Go in and take photos. Prior to settlement go back and do a walk through to make sure no additional damage has been done.

Remember the sellers have to agree to the sale so it is in their best interest to help it go through.

TGTIW · 07-27-2010, 10:21 AM

The note on the door stating that the utilities are about to be shut off due to lack of payment probably isn't a good sign either.

Rick Lee · Rick Lee's Garage

In my recent purchase utilities were kept on and put in the listing agent's name. I'm sure it cost very little to keep them on in a vacant house and it's impossible to sell one without them on. Oh, the gas had been shut off and I had to put that in my name for the home inspection. There was no point in shutting it off and then paying a second reconnection fee when we moved in. Listing agent was a dumb coont and wasn't gonna lift a finger to get us to buy the place, as she wanted to bring in her own buyers and double her commission.

TGTIW · 07-27-2010, 10:27 AM

There are a couple of red flags that bother me with the house.
-Some of the minor work that was done looks half-assed, which leads me to believe the major work was half-assed as well.
-The wood flooring is warping, which makes me think there is a moisture issue.
-There is a stain on the carpet upstairs, where someone/something obviously had some intestinal issues and it was never cleaned.

drcoastline · 07-27-2010, 10:36 AM

TGTIW,

Don't worry to much about the liens. The seller (really the banks) will pick those items up. If the house were to go into foreclosure they would become responsible for those items any way. especially the taxes. Who cares if the utilities get turned off. It is summer the pipes aren't going to freeze. The worse the house looks the fewer people that are going to be interested in it. The banks don't want this house back it will cost them more to maintain it and they are already loosing money. Be prepared to make your case why they should accept your offer and move quickly. Determine a price you want to pay Then get an appraisal it will cost you a few hundred but how are they going to argue with your offer if you have an appraisal to back it up? Then explain to them how they will be responsible to maintain the house, grass, repairs, fix up, TAXES, loss of revenue, foreclosure fees, Real estate commissions after foreclosure, etc. That is why they should accept your offer now.

My short sale was done in three months and Citi picked up all costs. They originally lent $399,000.00 I bought it for $235,000.00.

drcoastline · 07-27-2010, 10:38 AM

Have a home inspection done. Hell hire Holmes on Homes he'll figure out what's wrong with it.

Rick Lee · Rick Lee's Garage

If you're financing the house, you'll have to get an appraisal anyway. The bank does their own market analysis, called BPO, on the place to determine if your offer is reasonable. But they also have to decide what their own bare minimum net is after all is said and done. Our appraisal came in $14k low and the sellers' bank immediately agreed to it. They were very motivated to get this house off their books. But they didn't do their math very well and it turned out their net from the deal was going to be $2k less than their bare minimum acceptable payoff. So we got stuck with that and I don't think they were bluffing when they said they were ready to let the house go to auction the next week and then take it back. Since we were getting the place for $14k less than we had originally agreed to, coming up with another $2k didn't seem too painful, but it sure was irritating to be the only party that gave a sheet and thus had to pay.

Scuba Steve · 07-27-2010, 11:22 AM

Quote:

-The wood flooring is warping, which makes me think there is a moisture issue.

You're correct on that... Is it installed on a concrete or plywood subfloor? Is the humidity high indoors? If the utilities are off so now it's hot and humid, don't expect the floor to unwarp itself.

drcoastline · 07-27-2010, 11:22 AM

Rick Lee is right. That is why you want to have your own Appraisal. The bank will do A BPO (Brokers Price Opinion) which is essentially the same thing as an Appraisal but not as involved so the Appraisal will trump the BPO that is why you want to have the appraisal sent as part of your offering package. As Rick said if you are going to get a mortgage you will need to have an appraisal done any way and the bank knows that you wont get a mortgage if the property doesnt appraise. So they will over look their BPO and accept the appraisal.

Basically the same thing happened to me that happened to Rick but I didn't have to pay the additional cost that he did. The Bank performed had a BPO completed that valued the house at $300,000.00. Afterward the house next door sold for $245,00.00 (it was not a distress sale). My appraisal came in at $235,000.00 as the house next door had a pool renovated kitchen and new windows and siding. They accepted my offer paid all the liens and settlement costs.

So TGTIW if you like the property go for it. Just put lots of contingencies in the offer that lets you out if find you don't want it. Don't just accept the standard terminate, mortgage, inspection add your own so you are protected and comfortable.

TGTIW · 07-27-2010, 11:26 AM

The house has a crawl space, and we looked at the house a week before we went through it with a realtor, the AC was running at that point and looking through the windows we could see the warped flooring. I wonder if the house has a grading issue. I think I'm going to try and go through it again and really poke around.

Scuba Steve · 07-27-2010, 11:34 AM

That's a possibility... could be pretty much anything. Even a water leak that could have been corrected, but soaked the place beforehand.

From what I've experienced, for every shortcut I see in a finished job there will be another one that I find when demoing the job out. If the work was done recently or doesn't involve water it's not always so bad to undo.

berettafan · 07-27-2010, 12:51 PM

it's a house. it's in good or bad shope. doesn't matter how you come to own it.

BUT houses that sit empty for long periods of time are potentially bad just like cars that sit for long periods of time. particularly if electric was turned off.

Groesbeck Hurricane · 07-27-2010, 01:22 PM

Crawl space and warped flooring equals water under the home in most cases. It could also indicate prior flooding. I would be so VERY careful about that!

So, are there any other homes in the area to look at? Why this one in particular? You might find you are spending the $75K in savings just to make the home liveable unless you can rip out the flooring and replace and get the walls and do the plumbing work and roofing and foundation repairs and whatever else comes up on your own.

Generally, if the people were not able to pay mortgage and utilities for some time then they were likely unable to afford maintenance at most times. Some of us fall on hard times. Things happen. There are other people who need to sell their homes who actually took care of the homes prior to falling on hard times.

Por_sha911 · Por_sha911's Garage

Concerned about other liens? Get title insurance.
Concerned about condition of floors and other items? Get an inspection from a contractor who you know and trust. Then, assume the worst, figure the max cost for repairs, and make an offer so that even if the worst is true you still come out ahead. If they refuse your offer, walk. Your cost to walk away is the PPI. Don't become emotionally attached. Sometimes the best deal you make is the one you turn down.

djmcmath · 07-28-2010, 05:26 PM

I tried to buy a couple of short sales, actually, but wasn't patient enough. While waiting, we'd just go looking for other houses, and eventually found someplace that was more traditional.

The big risks on the short sales were the damages -- or potential damages -- to the houses. You're right to be conservative, but I'd worry less about the legal issues than about what's been done to the house. People who can't pay the mortgage are less than likely to pay premium rates for the kind of quality work that houses need. Whatever estimate you get, plan on the pre-move work taking longer and costing more. There will very likely be surprises, and most of them won't be happy ones.

Good luck, be careful.
Dan