When Are Short Sales A Good Buy?

There are more listings these days taken under "short sale" conditions, and naturally, buyers are looking for a good buy. For the agent, the Southern California MLS now accommodates property searches based on this category as well as for bank-owned properties, but what will be involved for the buyer? For example, in Cerritos, there are about 27 short sale listings out of 80 4-bedroom houses on the market. In the Wrigley and general California Heights areas in Long Beach, out of a search of 34 houses under $500,000, about 12 are noted to be short sales. In Huntington Beach, 35 out of 115 houses listed under $750,000 are showing as short sales in the MLS.

First of all, initial disclosure of the short sale by the seller and listing agent is absolutely critical, and should be placed in the MLS listing. A "short sale" is where the owner owes more than the current market value of the property, and where the lender forgives a portion of the loan to match up with the market. The transaction and sale is legally between the buyer and seller, but the fact is the bank will have the ultimate voice in approving the amount of sale. If you're a buyer in a hurry, you may have to be very patient because it's not likely that even if the seller agrees upon a 30-day escrow period, that the bank will be getting around to it that fast. The closing period will likely be closer to 60 days. Much depends on the personnel in its loss mitigation department.

Contractually, make sure you as a California buyer of a 1-4 unit property have completed the Short Sale Addendum as part of your purchase contract and which discloses the contingency of the seller's receipt of a short sale approval by the lender(s) (remember, there may be a second loan by a separate lender which will also have to be negotiated). And, the lender reserves the right to accept other offers, so if the price is not right for them, your offer might sit on a desk while the lender waits for a better offer. Since you don't want to wait forever for lender approval, you will want to insert a realistic date into your contract for the lender's response which enables you to contractually cancel and move on. If the property is an exceptional price for the area, be aware that you may be competing with other offers, even though the market is otherwise slow.

On the postive side, banks are less interested in going through the more costly foreclosure process, and they really would rather approve a seller's short sale, and if the short sale package is presented (some listing agents are not presenting one until they get an offer from a buyer) and dealt with on a timely basis, then the buyer may have some luck. The key is to finding a house you really want, and having the ability and the time to wait out the process.

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