You want to buy a house in the Hamptons, but you also want to pay a rock-bottom price. Is a short sale something you should consider? Maybe, if you have the stomach for it. What exactly is a short sale? It's an alternative to foreclosure that usually works out for a better deal both for sellers and lenders. The lender agrees to accept a mortgage payoff amount less than what is owed to facilitate the sale of the property; the remaining balance of the loan is forgiven. The lender takes a loss, but probably less of a loss than it would get if it foreclosed. The seller gets out from an unaffordable debt.
For buyers, while you may be able to snag a bargain, there's also a good possibility the sale won't complete. And if you need to get a mortgage to purchase the house, you may have to negotiate rates several times with your lender, as the lengthy short-sale process may cause your locked-in rate to expire. However, if your purchase is a second or vacation house, the uncertainty of a short sale may be acceptable to you.
So how do you get started? Find a property via an agent, word of mouth or through a FSBO ad. You can also look at legal ads or search courthouse listings. Figure out how much is owed on the property in relation to its approximate value. If it's a lot, that's a good candidate for a short sale. If it isn't, the seller might be able to sell it for enough to satisfy the loan.
View the property. Does it need work? How much will that cost? Short sales are as-is, remember. Make sure you find an attorney experienced in short sales to help you through this long process.
Next, line up financing. You may be able to get a mortgage from the existing lender, which can save time. You will have to contact the mortgage-holder on the property anyway and possibly fill out their short sale application. A good sized down payment and being a good credit risk are crucial for the lender to approve your application.
You will have to create a proposal. This should include:
·The purchase and sale contract signed by you and the seller.
·A hardship letter written by the seller explaining why they cannot pay the loan now and in the future.
·A statement of the property's value: either a formal appraisal or a broker's opinion on price. The lower, the better, obviously.
·A list of the costs and liabilities of the property. Is it a money pit? Make it clear the lender is better off unloading it on you.
You will probably have to negotiate with the lender on price. Be ready to walk away if the lender doesn't meet a reasonable price. You want a good deal but not to be saddled with a nightmare.
If all of these steps go through—and remember, the deal can fall apart at any time—congratulations! You bought a house in the Hamptons at a great deal! Pop the champagne and hit the beach. [Curbed University]