@JMMD wrote:
How exactly does it work to buy either a foreclosed house or a short sale? Do we just make an offer like a typical loan offer? What about short sale(This house is also FSBO)? I came across one house that has this in the ad: Priced low for SHORT SALE with XXXXXX Bank ($210K). Sold As Is. $275K without Short Sale or realtor fees. Does that mean we can't make an offer lower than $210K? Anything we should be on the lookout for? Thanks!
Completing a short sale is lengthy. One of the red flags I see in your post is that the seller isn't using a Realtor. In a short sale the seller does not pay any Realtor fees at all, they are paid by the lender so why wouldn't he use a Realtor that does short sales on a regular basis? Most of us that do work with short sales have attorney teams - because it really does take a team to get the short sale done.
It is time consuming even if it is a "simple" short sale. Complex short sales can be accomplished but you need a good attorney team especially if you aren't going to have a Realtor involved. The attorney's that work on short sales range in expertise from excellent to awful, so you would have to research that aspect as well.
There is a tremendous amount of paperwork the seller has to provide to the lender about their finances in order for the lender to approve the short sale. The paperwork the lender requires includes tax returns, bank statements, pay stubs, W-2's or 1099's, financial statements, Purchase and Sale Agreement, etc. There is no guarantee that the sellers lender will accept a short sale offer even if everything is provided. It is up to the 'investor' that owns the loan.
You should be on the lookout for the following (but this is only a start and not a complete list):
1) Who is going to negotiate the short sale? and who is going to pay for the short sale negotiator/attorney? You or the seller? Usually the seller pushes those fees over to the buyer because they don't have the money to pay the short sale negotiator, yet they want to choose the short sale negotiator (attorney or title co). The lender won't pay those fees.
2) Where is the EMD going to be held - with an attorney that represents the seller or you?
3) How many mortgages are on the property? A short sale has to be approved by each lienholder. Some mortgage servicers are cooperative and others are not. There is an apparent incentive for the lender to foreclose rather than accept a short sale, especially if there is a very small first mortgage and a large second mortgage. So you have to know the structure of the debt on the property before you venture down that road.
4) How many other liens are on the property? HOA? other debt? Other common liens include water bills and other services. Those have to be paid in order for you to get clear title. Some sellers have IRS liens on the property too.
5) Has it been f/c already by the HOA? I have seen this quite a few times where the short sale occurs after the HOA foreclosure. This makes it quite complex.
There are other things to look out for in a short sale but the above gets you started.
EDIT: Buying a f/c is easier because you are only dealing with the asset manager. When I talk about f/c, I mean the full foreclosure where the bank owns it and not just an HOA foreclosure where the ownership is temporary. The difference between a f/c and a regular sale is that the asset manager (represents the seller) is usually slow to respond to offers and their addendum to the contract completely changes the terms to a standard contract. Make sure you read and understand those changes and how they affect you. I always suggest that you get an attorney of your own when purchasing a f/c. Get one to review the title insurance at a minimum. They aren't that expensive and well worth the fee. This applies especially if you are a cash buyer.
