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You should consult an attorney for advice regarding your individual situation.
Contacting an attorney does not create an attorney-client relationship. Do not send,
e-mail, or provide confidential information or information you do not wish to be
publicly disseminated until such time as an attorney-client relationship has been
established and requested to do so by an attorney.
Copyright 2009 Law Office of Craig W. Little, P.A. All rights reserved. You may
reproduce portions of this site or materials available at this site for personal and
non-commercial use. All copies of portions of this site or materials available at this
site must include this copyright statement.
Web Articles
Analysis of Short Sales of
Residential or Commercial Property
Buyer's Considerations
Is Buyer a Good Candidate for a Short Sale?
A successful buyer in a short sale transaction must be patient.
It is also helpful, if not truly necessary, that they have
prearranged the financing for the purchase of the short sale
property. They must be flexible as to when they close on the
short sale property and capable of taking property “as is.”
These are necessary qualities for buyers who intend to
purchase property in a short sale.
If the buyer is considering buying a short sale property simply
because they believe that short sale equates to a distressed
sale and therefore automatically a fantastic deal, they should
reconsider a short sale purchase. Lenders must approve the
short sale and lenders are not required, obligated, or even
necessarily inclined to forgive a portion of the loan they made to
the property owner and approve the short sale. The lender
always has the fallback position of foreclosing on the mortgage.
Therefore a lender will only approve a short sale if they believe
they will not get a bigger pay down on the loan by foreclosing on
the property and reselling the property at a later date. To
determine if the short sale will result in the bigger pay down of
the loan, lenders gather all available information so they are
making an informed decision when they examine requests for
short sales. So buyers must be aware that short sales generally
close somewhat below market value, but sales that are
dramatically below market value do not generally get approved
by the lenders. But purchasing property at somewhat below
market value is still a good deal for the buyer, especially if they
can add value in other ways such as repairing or updating the
property or by allowing the passage of time to permit the
property to appreciate.
Also lenders are already losing a portion of their loan principle
in the short sale, therefore they are unlikely to agree to pay for
additional costs outside of those which are necessary to close
the transaction. Such additional costs that the lender is unlikely
to pay for include repairs, maintenance, or home protection
plans. Therefore the buyer takes a short sale property “as is”
and they must be capable of owning property that may not have
been properly maintained because the short sale seller has little
incentive to maintain the property.
And the potential buyer of a short sale property must also be
aware that in some short sale transactions, the buyer’s closing
costs for a short sale may be higher than with a traditional real
estate transaction. Lenders will often discount the commissions
they will pay in a short sale transaction. So if the buyer enters
into a commission agreement with a broker that does not
include contingencies for the lender discounting the
commissions, then the buyer may be responsible for the
shortfall in the broker’s commission that the lender did not pay.
And lenders may refuse to pay certain closing costs traditionally
paid by sellers.
The short sale buyer must also be aware that the timing of the
short sale transaction is even less within the control of the buyer
and seller than with a traditional real estate transaction. The
necessity of obtaining the lender approval for the short sale
adds an additional step to the process of closing a traditional
real estate purchase. This additional step can take anywhere
from several weeks to several months and it is completely
beyond the control of the buyer and seller. And if there is more
than one loan secured by the property then the lenders’
approvals will almost invariably take even longer because the
junior loan holder will, in most cases, be receiving very little for
their loan, therefore they will hold out for a better price or to
negotiate better terms for themselves because they are under
no pressure to decide quickly. Therefore if the buyer must
close on the property within a certain period of time, then they
may want to rethink a short sale.
Return to Buyer's Short Sale Considerations
Residential or Commercial Property
Buyer's Considerations
Is Buyer a Good Candidate for a Short Sale?
A successful buyer in a short sale transaction must be patient.
It is also helpful, if not truly necessary, that they have
prearranged the financing for the purchase of the short sale
property. They must be flexible as to when they close on the
short sale property and capable of taking property “as is.”
These are necessary qualities for buyers who intend to
purchase property in a short sale.
If the buyer is considering buying a short sale property simply
because they believe that short sale equates to a distressed
sale and therefore automatically a fantastic deal, they should
reconsider a short sale purchase. Lenders must approve the
short sale and lenders are not required, obligated, or even
necessarily inclined to forgive a portion of the loan they made to
the property owner and approve the short sale. The lender
always has the fallback position of foreclosing on the mortgage.
Therefore a lender will only approve a short sale if they believe
they will not get a bigger pay down on the loan by foreclosing on
the property and reselling the property at a later date. To
determine if the short sale will result in the bigger pay down of
the loan, lenders gather all available information so they are
making an informed decision when they examine requests for
short sales. So buyers must be aware that short sales generally
close somewhat below market value, but sales that are
dramatically below market value do not generally get approved
by the lenders. But purchasing property at somewhat below
market value is still a good deal for the buyer, especially if they
can add value in other ways such as repairing or updating the
property or by allowing the passage of time to permit the
property to appreciate.
Also lenders are already losing a portion of their loan principle
in the short sale, therefore they are unlikely to agree to pay for
additional costs outside of those which are necessary to close
the transaction. Such additional costs that the lender is unlikely
to pay for include repairs, maintenance, or home protection
plans. Therefore the buyer takes a short sale property “as is”
and they must be capable of owning property that may not have
been properly maintained because the short sale seller has little
incentive to maintain the property.
And the potential buyer of a short sale property must also be
aware that in some short sale transactions, the buyer’s closing
costs for a short sale may be higher than with a traditional real
estate transaction. Lenders will often discount the commissions
they will pay in a short sale transaction. So if the buyer enters
into a commission agreement with a broker that does not
include contingencies for the lender discounting the
commissions, then the buyer may be responsible for the
shortfall in the broker’s commission that the lender did not pay.
And lenders may refuse to pay certain closing costs traditionally
paid by sellers.
The short sale buyer must also be aware that the timing of the
short sale transaction is even less within the control of the buyer
and seller than with a traditional real estate transaction. The
necessity of obtaining the lender approval for the short sale
adds an additional step to the process of closing a traditional
real estate purchase. This additional step can take anywhere
from several weeks to several months and it is completely
beyond the control of the buyer and seller. And if there is more
than one loan secured by the property then the lenders’
approvals will almost invariably take even longer because the
junior loan holder will, in most cases, be receiving very little for
their loan, therefore they will hold out for a better price or to
negotiate better terms for themselves because they are under
no pressure to decide quickly. Therefore if the buyer must
close on the property within a certain period of time, then they
may want to rethink a short sale.
Return to Buyer's Short Sale Considerations
Law Office of
Craig W. Little, P.A.