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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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5 Tips for Buying a Foreclosure in Atlanta

Posted on 22 April 2009 by Carl Martens

About a year and a half ago I purchased my first home (pictured throughout this article).  The home was also a foreclosure.  Now a year and a half later I can say that I am almost finished with the rehab work on the house.  Speaking from experience, I plan to provide you with 5 tips for buying a foreclosure in Atlanta.

1.) Hire a Knowledgeable Agent

Any Realtor holding a license in Georgia can write an offer on a foreclosure.  However, working with a Realtor that is a Certified Distressed Property Expert (CDPE) will greatly improve your chances of not only identifying a great deal, writing a good offer, but ultimately get you to the closing table.  It is important to not only hire an agent that is knowledgeable with foreclosures, but one that is also a local expert on the area of interest.  This can make a world of a difference as more often than not news of a foreclosure catches the ear of a local expert before anything becomes official.

atlanta-foreclosure-dining-room2.) Be Able To Buy Without Having to Sell

This is a bit of a segue into the next tip.  Unlike typical sales contracts sellers (the banks) are not willing to accepts offers contingent on the purchaser selling his or her home.  The banks want to get the foreclosed properties off their books as quickly as possible and there is no guarantee on when or if your home will sell…especially in today’s current market.

If you want to buy a foreclosure and your home is currently under contract with a firm closing date be prepared to obtain short term housing as a predictable negotiation and closing on an REO is very unpredictable.

3.)  Submit a “clean” offer

Often times the lender on a foreclosure will have multiple offers on the same patlanta-foreclosures-for-saleroperty so your offer needs to be clean.  A clean offer is one that is simple and straight forward.  The best clean offers are those that require little or no financing.  Prior to writing the offer on my current house I had lost out on what I thought was a magnificent find to someone that made an all cash offer.  I knew I was entering a multiple offer situation (I was the sixth party) and as such I submitted a very clean offer; full price (plus $101…just to be safe), minimal closing costs, and a quick close.  I got the house.

When buying a foreclosure, make your best offer up front.  This should be the offer that if you get the house you are ecstatic and if you don’t get the house you are comfortable knowing that it wasn’t meant to be.  Take into consideration the cost of repairs and improvements and what the after repaired value might be.

4.) Obtain a Home Warranty Policy

I typically don’t recommend purchasing extended warranties, but a home warranty when buying a foreclosure is something I would highly recommend.  That being said, it is still up to your discretion if a home warranty is a good investment or not.

Here are three reasons I think a home warranty policy is a must:

  • Most policies offer a package level that will cover pre-existing issues.  This is crucial as foreclosures are most always bought “as is”
  • Foreclosures are often neglected and as such general maintenance is usually not performed increasing your risk for needed repairs.
  • Unless you have experience buying foreclosures you will most likely blow through your budget, a home warranty helps guard you against unwanted surprise repairs that can really wreak havoc on a budget.

If the house is only a couple years old, chances are you won’t need a home warranty.  More often than not, you can include the purchase of a one year  home warranty policy into the contract.  The first year is always the toughest, so why not safeguard yourself?

5.)  Whatever You Think You Know You Do Not Know

atlanta-short-sales-for-saleThis can really “make or break” you.  You decided to purchase a foreclosure because you wanted to cash-in on another’s misfortune.  As such, it is very important that you calculate the costs and return on your investment associated with the property.

If you think you can renovate a bathroom for $2,000 plan on the cost to be around $4,000.  Unless you are an expert and have extensive experience with repairs and renovations double your estimations.  Naturally you will estimate the cost of repairs and renovations to be low because of your desire to see value and a large return on your investment.  If you aren’t sure how much something might cost, contact an expert and have them provide you with an estimate.  This way you’ll know what you’re getting yourself into before it is too late and you have no recourse.

Bonus Tip:  Plan for the Unexpected

Always give yourself some wiggle room.  Depending on the size and complexity of the house, always set aside a sum of money for unforeseeable repairs and renovations.  My home warranty tip helps, but it is still a good idea to figure in an amount of money for the unexpected or miscalculations in repair or rehab costs.

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