Real estate short sales can provide some great deals if you can wait out the 3-5 month process. They are becoming more common in today's market and harder to ignore (as many agents have chosen to do). Why would agents choose to ignore real estate short sales? It's because they are more complicated, take much longer to close escrow, and their outcomes can be uncertain.
To begin May 2009, metro Phoenix foreclosures accounted for 40% of all listings in the Phoenix area real estate market. Real estate short sales accounted for 58% of all active metro Phoenix foreclosure listings. However, this is the first month that Metro Phoenix foreclosures consisted of more real estate short sale listings been REO property listings. This is due to the fact that most of the homes that sell in the Phoenix area real estate market are REO properties and because more homeowners are trying to avoid foreclosures.
If you decide to pursue a real estate short sale, be aware of the "non-purchase money" 2nd mortgage. A non-purchase money mortgage is one that was used for more than the purchase of the house. For example, a HELOC ( home equity line of credit) is a non-purchase money second mortgage. Such a loan may have been used to consolidate debt, take a vacation, or buy a new boat/car. In other words, the repayment of this kind of loan is for more things than just the house. In contrast, a purchase money second mortgage was taken out at the time of purchase and used exclusively to buy the house.
Lenders who hold the note for a non-purchase money mortgage are far less likely to let the homeowner walk away from the house without repaying a higher portion of the loan. Many feel that the homeowner will still be enjoying the benefits of their debt consolidation, vacation, or new boat/car long after they sell their home on a short sale. Therefore, they feel the homeowner should take more financial responsibility and may ask them to sign a promissory note for up to one half of the second mortgage. Many times these promissory notes will be "zero" interest loans for up to 15 years.
So here is the real problem: if the listing agent and seller don't do their homework up front (to determine the intentions of the non-purchase money second lender), a buyer could be waiting up to three months to negotiate a short sale -- only to find out the second mortgage requires a large promissory note and the seller refuses to sign it. When this happens the second mortgage holder will not sign off on the sale of the home and it's will go to the trustee's sale. The buyer has invested months of emotional commitment to the house only to have the deal blowup.
Comments