Categorized | Short Sales

10 Step Guide to Buying a Short Sale

Posted on 05 October 2009 by Carl Martens

Foreclosures have been relatively common over the past few years, however short sales are becoming increasingly more common and we wanted to put together this guide to help you with purchasing a short sale.

  1. Identify potential short-sales – The best way to do this is to link up with a Realtor that is a Certified Distressed Property Expert (CDPE), they will be able to help you locate pre-foreclosures in your area.  You’ll want to identify how much is owed on the home in relation to its approximate value.  Avoid those homes with a lot of equity in the home as the lender will likely prefer to foreclose and resell closer to the market price.
  2. View the property – Inspect the property and determine how much money it will cost to repair or renovate it.
  3. Do your research – What’s the property worth?  What do other similar homes in the surrounding area sell for?  You make your money when you purchase property, not when you sell it so this is a very key step.
  4. Find all liens and mortgages – Learn about possible liens on the property and which lender is the primary lien holder.
  5. Figure out the financing – You will want to be pre-approved and qualified for a loan prior to submitting an offer.  It might take long to hear back from the lender once an offer is submitted, but once approved the lender will want to move quickly…sometimes in as few as 20 days.
  6. Contact the lender – You will need the homeowner to complete and sign (notarized) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.  Once you have this signed, you or your CDPE agent should speak with the loss mitigation department or the resource recovery department.
  7. Complete the lender’s short sale application – most lenders require that you fill out their corporate documents specific to a short sale.
  8. Assemble the proposal – The proposal consists of a package of materials including the application, authorization letter, the purchase and sale contract, a hardship letter, a statement of the property’s value, detail of the costs and liabilities, and a settlement statement.
  9. Negotiate – As with most real estate transactions, it is likely the lender will reject your offer and come back with a counteroffer.  Be ready to negotiate and determine what the maximum amount you’re willing to spend so that if you walk away from it you don’t regret it knowing that it was more than you were willing to spend.
  10. Seal the deal – Once all three parties have reached an agreement – you, the seller, and lender – then get everything officially recorded.  Setup a closing, get financing all under way, fulfill any special stipulations per the contract and close…the property is now yours!

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