There are benefits to purchasing short sales. First, let’s establish the difference between short sales and foreclosures. Unlike foreclosures, short sale properties are not owned by the banks. However, because the sale of the property will result in not enough proceeds to fully pay off the mortgage, the bank has to approve the sale. Therefore, short sales are a great way to purchase a property at below market value.
From the borrowers perspective, short sales are highly preferred because they have less impact on a persons credit than a foreclosure. Short sales are also preferred from a lenders perspective because they preserve the value of the property. For example, a person selling a short sale is not going to cause damage out of spite. Short sales also save money by avoiding foreclosure and eviction costs, and finally, short sales get the property off the banks books much quicker than foreclosed properties.
However, short sales do have a few downsides. The first one being, timing. Currently banks are overloaded with bad debts and it takes months for a short sale to get approved. The typical time span is usually 90-120 days. Next, after waiting all that time, it is possible the bank will not approve the short sale, or try to negotiate to a number that is not comfortable for you, the buyer.
The least desirable situation which can occur is the short sale property can get foreclosed upon while you are waiting. This means you have to start the process all over again since the bank now owns the property. This situation is tedious because short sale departments and foreclosure departments do not talk to each other. The bank walks down both paths at the same time and tend to whichever comes first. The good news you can avoid risk by doing your due diligence.
You can review court documents to see where the foreclosure is in the process, and if the seller is appropriately fighting the foreclosure. If the borrower does not put up a fight, a foreclosure can happen in the matter of a few months. If the borrower puts up a fight, he/she can drag it out for at least 18 months, and sometimes up to three or four years. Make sure your realtor is savvy enough to point you in the right direction on where the foreclosure is in the process,. Since you will need an attorney for the purchase always consult with him/her for their opinion.
New Urban Property Services can provide expert advice on navigating the purchase of a short sale or foreclosed property. If you have questions about the process or general real estate questions contact us today! 312.502.8213. You can also visit our websites which show case our other services Live By Transit and School Sparrow.