6 Reasons to Stay Away from Short Sales

Although short sales look like an attractive deal at first glance, when you look closer, you see they are a disaster waiting to happen. You will find that most short sales do not even make it through round one of negotiation.

There are many people involved in a short sale. A short sale usually happens, as of late, when a homeowner defaults on their mortgage and they are looking to get out of the obligation before a foreclosure happens. In order to sell the home, they have to put it at a discounted rate, below market value. Sounds like a good deal, but is it?

False Price Given

Many times listings will have prices listed that look like amazing deals. More times than not, they have not even cleared that price with the lender. In these cases, the selling price isn't even close to what was originally stated to draw in the buyer.

Lender Response Time/ Loan Agent

A buyer is looking to move into a home in a reasonable amount of time. They would like a move in date, or at least move in week. In the case of a short sale, lenders do not have the fastest response time. Short sales are usually put on the back burner. When they are finally addressed, they get little time and are often pushed to the side.

Even if your lender gets back with you, conformation on acceptance to short sales is averaging about 3 months before you even have a sign of progression. This is often times too late and the home is already in the foreclosure process.

Sub Lien Holders and Secondary Lien Holders

Even if the primary lien holder gives the OK and can settle on a price, there are often times other lien holders that will not. Instances where this might occur are a second mortgage on a home, refinance, construction bill and more. When more than one lien holder is involved, it becomes three times more difficult to get a short sale through. This is because each lien holder wants to get the most out of their investment.

Personal Reasons Attached

The short sale could be due to a divorce or death. In these cases, there are many other legal issues involved in the sale of the home. Not only is the lender involved, but attorneys, a newly divorced couple, secondary lien holders and more.

Bad Credit Rating

The seller, even after a short sale, will have a mark on their credit. When the home is sold, the lender marks the home as a short sale to the credit bureaus which indicates that the homeowner did not meet their obligations to the lender but was able to get out of the deal. This could harm your chances of receiving a loan in the future, although it is not quite as bad of a mark as a foreclosure.

Equity vs. What Is Owed

With many short sales, the amount owed far exceeds the amount that is in equity. Therefore, the home will only be able to be reduced so far as it is. Most buyers look for great deals on short sales not even considering that the bank will only go so far. This is especially true for those homes that have had multiple refinances.

For the most part, short sales are not a good idea for the buyer or the seller. It becomes an exceptionally bad idea if the seller is very close to foreclosure.