Short Sale Pitfalls for Buyers
You’ve found the home of your dreams, but it’s a short sale. What are your risks? I’ve listed them below for you. Don’t freak out though. Some (or even most) of these may not apply to your transaction. On the other hand, they may. Try to do as much diligence as you can to find out how serious the seller and his bank really are.
1) The seller’s lender is slow to process the transaction. Wait, let me rephrase that. The seller’s lender is sloooooooooow to process the transaction. This happens a LOT. Do not expect a quick turnaround time. If you need to move quick, a short sale is probably not the way to go.
2) The seller is not diligent in following up with his lender. The seller’s lender will want a lot of paperwork — the seller’s whole financial history, and sometimes even more. Whoever is negotiating with the bank needs to follow up with the bank constantly. Additionally, when the bank wants something from the seller, the seller has to get it to them quick. I can’t tell you the number of times that I’ve had a file stall because I called my client for signatures or some other paperwork that the bank requested, and my client did not provide it in a timely manner.
3) The seller doesn’t really want to sell. This is unfortunate, but it happens. Some sellers are only using a short sale as a stall tactic to stay in the home as long as possible without making a mortgage payment. Oftentimes, their real estate agent and/or their attorney is not even aware of this.
4) The seller may be using the short sale as a method to commit fraud. Some sellers really don’t want to move, and they find creative ways to avoid having to leave — such as having a friend or relative purchase the home at a low price through a short sale. This is fraud. Unfortunately you, a true “third party”, may never have a shot because the seller already knows which offer he is sending to the bank.
5) The seller is uncooperative. You may want to measure for blinds, or measure for furniture. The seller, on the other hand, probably still occupies your dream home and may not want to let you in. Homes going through a short sale are often owner-occupied, and the owners a) are not usually paying their mortgage, and b) don’t have a lot to lose if the short sale falls through.
Despite all of this, many short sales are a success. I’m not trying to deter you from short sales, but I think you, as a buyer, should have reasonable expectations and be aware of the pitfalls!