The Buying Process
Finding a Home
Making an Offer
Finding a Loan
The Right Price
Getting to Settlement
Historic Real Estate
1st Time Homebuyers
Foreclosures & Short Sales
Foreclosures & Short Sales
As odd as it may sound, foreclosures, bank-owned and short sale properties are often difficult to buy, although you would think the banks would be glad to get rid of them. They also aren’t always the fantastic bargains that urban legend would lead you to expect. Much like regular resales, some are in decent condition and some are awful; some are terribly overpriced and some can be negotiated to a good price. We will do our best to protect you if you decide to buy one of these properties, but much of the process with foreclosures or short sales is out of our control. Even the sale contract required for these properties does not carry many of the built-in protections you would have on a regular resale home. The good news is that sometimes there are foreclosures and short sales that are worth jumping through a few more hoops to buy, but your purchase should be handled by an experienced agent who is trained in these kinds of sales.
You need to know that foreclosures and short sales are very different, both from each other and from regular home sales:
A Foreclosure is a property that has been taken over by the bank because the owners couldn’t or wouldn’t make the mortgage payments. It is owned by the bank and they are selling it directly. We’ll include REOs (Real Estate Owned) properties here too although they may not be foreclosures. The great majority of foreclosures do settle, usually with few problems along the way. There are however, some potential issues to be aware of:
- It may take a little longer for a response from the bank.
- Foreclosures sometimes don’t settle as scheduled, although they usually won’t miss by more than a few days. Don’t commit to a move-out date at your current home without giving yourself an extra month just in case. Paying an extra month’s rent is preferable to being homeless.
- Occasionally there are title issues that can hold up settlement.
- You’ll be required to agree to terms that favor the bank, rather than the fairly balanced terms contained in the Maryland contract used for regular home sales.
- Your closing costs will be higher because these are non-owner occupied so you will have to pay more taxes up front, usually a year rather than 6 months. This isn’t lost money, just a larger amount to be paid at settlement.
- The bank may be exempt from paying transfer and recordation taxes so you will have to cover these costs.
- You cannot have a house-to-sell contingency.
- Use a title company that isn’t working for the bank that owns the house.
In addition to most of the above issues, Short Sales can have their own issues:
A Short Sale is a property that is still owned and usually occupied by the seller but their mortgage is for more money than the home is worth in today’s market. The owner can’t or won’t make the mortgage payments so is trying to sell it for less than is owed. In other words, the payoff to the bank will be “short” of the amount owed. You will have a contract with the seller but it must be approved by the bank.
- You may not get the house. The bank may not approve the sale and it will go to foreclosure anyway. Many end up in foreclosure.
- Because of the volume and the complexity of the Short Sale/Foreclosure process, it usually takes anywhere from 3 – 9 months for the bank to respond.
- As part of their approval, the bank frequently changes the agreed-to price and terms, even if the contract is full price. Occasionally the bank will exercise their option to change the price or terms again just before settlement. You’re faced with agreeing to the new terms or walking away from the purchase, often a difficult decision when it happens just hours before settlement.
- You have to disclose name, SSN, birth date and financial information to the bank.
- Once the bank approves the sale, you’ll have to be prepared for settlement to occur very fast. Inspections need to be done well before this point.
- You’ll have up-front costs of $600-$1,000 that will be lost if the sale doesn’t go through. Your deposit will usually be held by the listing company.
- The owners may still be living in the house and be uncooperative, only wanting to keep a roof over their heads. They may not maintain the home, don’t work toward the sale, and occasionally don’t vacate the property before settlement.
- You may be required to pay some of your agent’s commission since the bank often won’t pay it all.
- There may be an inexperienced or untrained agent selling the house which can further delay or obstruct the transaction.
If you are willing to put up with these potential problems, we have
a Certified Distressed Property Expert who is experienced in Short Sales.