The Short Sale Blues

@danmelson over at searchlightcrusade.net wrote a terrific article for buyers on why NOT to buy Short Sale properties.

For all of you who are not sure what that is, a short sale is typically when the seller is unable to make their house payments, all other options have been excluded and the house must be sold. However, the situation is that the seller owes more than the house is worth. There are a number of scenarios where this becomes possible, but for this article it isn't relevant.

When buying short sales, you sign a purchase contract for an agreed price with the seller and then submit it to the bank for approval. The bank then requests tons of paperwork from the seller, and even documents from the buyer, to make sure a short sale is necessary. Then the bank let's the offer sit on a desk for an undetermined amount of time before they finally look at it. This time could be 10 days. It could be 3 months. One I am working on is current sitting at 3.5 months.

The bank is not obligated to take accept the contact at any point in time. This leads to any number of issues for the buyer. Long term mortgage locks, missing opportunity on other properties, no guarantee on purchase... the list goes on and on.

For this reason a Realtor is wise to avoid the short sale.

I offer a 2nd option that can benefit all parties and avoid dealing with the bank.

If all parties are willing, the buyer runs a title search. If it is found to be clean and everything looks good a price on the house is determined. A contract is written up by an attorney where the seller quit claims the property to the buyer. The buyer then owns the property, but the mortgage is still in the sellers name. The buyer then refinances the property and a pays off what is owed to the bank.

Of course it is not that simple... maybe you give the seller some concessions to do this, the amount owed to the bank must be less than the value of the property, if the bank discovers that the deed has been quit claimed to someone other than the person on the mortgage they can call the note due (though I have NEVER heard of a bank doing this), the Realtor would have to be compensated for what I would consider procuring the sale...

The quick of it all is the property is put into the buyers name per a pre-existing contract between the two parties, then refinances the property to pay off the current bank loan.

This is a simple multi-step process to buying the property from a seller who is NOT underwater on their mortgage yet is unable to refinance on their own or sell the property otherwise while avoiding the bank. I would HIGHLY recommend you consult a real estate attorney to ensure all parties are equally protected during this process.

Just a thought. Now get the flip out there.