A Close Look at Buying a House on Short Sale

Buyer, Foreclosures

What is a short sale?

A short sale is a sale that is initiated by a mortgage company, sometimes at the owner’s request, and is expected to bring in less money than is owed on the original mortgage. The proceeds will be ‘short’ of the balance, leading to the term ‘short sale’. Before a mortgage company agrees to a short sale, they first consider the following:

Will they give the owner/seller a break by allowing the sale,
Whether it would be more profitable to them to repossess and resell the house in a traditional sale
What the general market looks like
Whether or not there is a co-signer or other party who might be responsible for paying off the balance of the loan.

How do I buy a short sale?

If you learn of a house you may wish to buy in Jacksonville Beach real estate on short sale, your first step needs to be to contact the potential seller’s mortgage lender (the bank or company that holds the loan). Ask the potential seller to sign a general release or authorization to allow the bank or mortgage company to talk with you. Once that is signed, send the mortgage company or bank the signed authorization. The authorization should go to the ‘loss mitigation’ department in a larger bank of company, or directly to the loan officer in a smaller community bank. Make sure the release and accompanying letter are well presented and appear professional.

Next, call the lender. Ask them if they would consider a short sale, and what information they will need to complete a sale if they decide to approve it.

The lender is likely to ask you some very specific questions about the current owner’s financial problems. You may want to have a ‘hardship letter’ available, written by the owner, which details their financial hardship and provides an explanation of why they believe a short sale should be an option. Include copies of medical bills, paycheck stubs, and other supporting data that will convince the mortgage holder to release the home. If the mortgage company or bank decides to give the buyer a break and release the house for short sale, they will conduct a study of properties in the St. Augustine homes area and compare the properties to the one you are interested in, in order to see what the property is worth in the current market. This is called the ‘price option’. While the lender is acquiring this information, apply for a mortgage to purchase the property.

What comes next?

The lower the price option, the more likely the bank is to short sale. Once the bank has agreed to a sale, they will want to see an estimate of closing costs. Determine how much commission the real estate agent will receive, what payments will be needed to pay off any liens and taxes, when the closing date will be, and any other expenses normally covered in a real estate closing. At this point, assuming you have had financing approved, the deal will close and the short sale is complete.

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