How to Buy a Pre Foreclosure Home

A pre-foreclosure is also known as a short sale. Yet, the moniker is somewhat of a misnomer as the transaction itself is anything but short. However, for buyers willing to weather the storm of short sale transactions, there are incredible deals to be had and great discounts to reap as a reward.

What is a short sale?

A short sale is a pre-negotiated transaction between a lender and distressed homeowner where the parties have agreed to sell the house for less than the mortgage balance in lieu of foreclosure. For homes with little equity, this is a great solution for the seller, but a better one for a buyer as purchases can be completed for well under market values.

The nuts and bolts of a short sale transaction….

Short sale transactions are nearly identical to any other real estate transaction minus a few minor details. Short sales are sold “as is”, meaning that the lender will not concede to repairs, nor will they provide seller concessions for closing costs. As agent participation is required, a real estate agent will be able to guide buyers through the finer points of a short sale transaction.

When a buyer writes an offer to purchase a short sale, the best strategy is to come as close to the sales price as possible. If the buyer needs assistance with closing costs on the transaction, concede the sales price should be written a bit higher, and the closing costs taken out of the difference between the sales price and the amount of concession.

The seller has no say in the sales price, as they are not netting any proceeds, which in many cases, can make for a smooth transaction as the bank looks at the sale as a monetary transaction without attaching sentiment or personal bias a private seller may.

Once the offer to purchase is complete, a short sale addendum will be required. This addendum specifies that wait times on offer responses are lengthier than a typical transaction and that a written offer does not constitute lender acceptance until the lender provides written approval and/or a counter offer. Wait times can be a few days to a few weeks, depending on the backlog for the lender. Buyers negotiating a short sale need to be patient and flexible.

After the lender has accepted the offer, the buyer will deposit earnest money in escrow and wait to close. Short sale closings can be tricky if the seller has liens on the property or the title is not clear, making patience a must in the last few weeks of a transaction on the part of the buyer. From offer to close, buyers should budget at least 60 days for the entire process.

A few key points about short sales:

• Real estate agent participation is required. Buyers can hire their own representation or use the services of the agent holding the listing.

• Since short sales represent a “deal” for many buyers, expect competition. In other words, bidding far below the asking price could mean a denial of the offer altogether.

• Buyers serious about purchasing a short sale, should hire a home inspector before submitting an offer to review the property for structural damage as the home is sold “as is”.