Deal or no deal, should you consider purchasing a home that is a short sale, foreclosure, or OREO? People are led to believe that they can save a lot of money purchasing a home that falls into one of these categories. But what exactly does a short sale, foreclosure or OREO mean? Below are some important points to think about if you are considering including even one such home in your search.
Short Sale
A short sale involves the sale of a distressed asset (in this case, a residence) for an amount that is less than the outstanding mortgage against the property. It allows for the sale of homes at current market prices, thereby enabling the lender to realize the current market value of the property and also avoid a foreclosure. The lender releases its lien against the collateral and may or may not release the seller from any further liability on the debt.
Drawbacks of Short Sales
- Much reduced probability of sale closing
- Expect at least three months and perhaps six to nine months from contract to close. No guaranteed closing date.
- Lender will probably not approve the contract unless it provides for an “as is” sale.
- Lender will not pay for inspections, repairs, or warranties and often will not pay for standard seller closing costs such as revenue stamps and recording the deed.
- Lender will require a comparative market analysis or a broker price opinion to determine the value of the home.
- The seller’s financial condition may not allow the seller to qualify for a short sale.
- Lender can change the terms of the sale based on market conditions or new laws and can discount commissions paid to brokers.
- Lenders are not required to disclose the condition of the homes.
- Lenders may require that the contract allow it to entertain higher offers up to the closing date.
- Money spent on inspections, loan commitments, etc., is lost if sale does not close.
- Buyer may well miss out on other opportunities.
- Existence of junior liens, unpaid taxes, HOA liens, etc., creates roadblocks and all must be cleared for the transaction to close.
- Purchaser’s lender may be reluctant to process a loan application for a transaction that may never close.
To read more about "Pitfalls of Short Sales and Foreclosures" please click here to read the rest of the article.
*Source Horack * Talley - Attorneys at Law - Charlotte, NC
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