What should a buyer know about a short sale home?

Years ago, there were a number of Baltimore short sale homes for sale with the values in the Baltimore real estate market (and elsewhere) dropping from the high values seen in 2005 and 2006. A number of home sellers may have possibly owed more on their homes than their current value, yet those sellers may have wanted or needed to move or sell their home.

In 2010, I wrote an article about Short Sale Questions and Answers, but it mostly discussed the seller’s side, not what a potential buyer may need to comprehend.

If a buyer is interested in a home that is disclosed as a possible short sale, there are a good number of things to understand.

  1. There is very little that is “short” about a short sale, except that the seller’s mortgage holder is being shorted what is owed on the property. The short sale process can be very long and drawn out. There is generally no guarantee on a closing date or that the seller’s lender will even allow the sale to go through, and potentially, the property could go into foreclosure.
  2. The seller’s lender/mortgage company must agree to the terms of the sale.
  3. The seller usually has to prove hardship – why they can’t pay the difference of what they owe and the value of the home.
  4. In the majority of cases, the home may need to be sold “as-is” with no repairs. If the seller does not have the money to pay the mortgage off at the time of sale, the seller’s lender would most likely not want them spending money on repairs.
  5. The home would need to fall in line with home values in the area. Yes, this should take repairs (and the seller being unable to make repairs,) but the seller’s lender would generally not want to see an extremely low sales price compared to neighboring values.
  6. If the seller has multiple liens on the property, the lien holders may all need to agree to the short sale. It is conceivable there are some lien holders who could potentially not get any of the debt owed to them by the seller, and they can possibly stop the short sale process from happening.
  7. It is possible that the seller may not have been making mortgage payments. Depending on how much is in arrears, the bank may want that added on to the “short” part of the short sale. So even if it appears like a seller’s lender may only be “shorted” a certain amount based on what is left on the seller’s mortgage, there could possibly be multiple months’ mortgage payments in addition to that amount.
  8. If a seller has not been paying their mortgage, it is possible that the seller’s lender has already started the foreclosure process or may be considering foreclosure as an option. This could mean that the seller’s lender may not agree to the terms of a buyer’s contract with a seller.

Here are more details on short sales in general in an article from Bankrate.

A Baltimore short sale buyer needs to be prepared and aware that a third-party could be a part of their contract of sale. The third party may not agree to the terms of the contract of sale, and could potentially ask the buyer to make changes to the contract of sale. With a short sale, it is not guaranteed that the buyer would be able to buy a home with the terms in a contract of sale with the seller.

If you are considering buying a home in Baltimore, please contact me. I would love to help!