Orlando-based title-insurance company has tips for buying short-sale properties
Charles J. Kovaleski, president of Orlando-based Attorneys' Title Insurance Fund Inc., has some advice for people interested in trying their luck at buying a home that's headed for foreclosure through a technique called a "short sale."
That's where a lender agrees to accept less than is owed when a property is sold.
The practice has been around for years but has accelerated in recent months, Kovaleski said, especially as nearly one in five U.S. mortgage borrowers owe lenders more than their homes are worth, according to a recent report by First American CoreLogic -- and nearly one in three in Florida.
For buyers interested in the short-sales market, there are deals to be had, but only if the consumer expends the effort to understand the process.
Here are some tips from Kovaleski, whose company, known as The Fund, has been in business for more than 50 years and supports a network of more than 6,000 attorney agents statewide who practice real estate law:
TIP: The buyer should understand the property in question, before starting negotiations.
TIP: Establish a time line -- if your time frame is tight, this might not be the option for you. Lenders are taking longer in excess of 60 days in many cases to approve short-sale proposals. In some cases, buyers can accelerate the bank's decision by offering to pay with cash. As a general rule, the more deficient a seller is with the lender, the longer the negotiation can take. If you begin negotiating on a short sale, talk with your real estate attorney about a contract that provides you, as the buyer, a way out of the deal if the seller does not conclude negotiations with the lender within a specified period of time.
TIP: Make sure that all paperwork is completed on time. Missed deadlines can delay the time before closing.
TIP: Know all the lien holders. Find out what liens there are on the property. All liens will need to be satisfied, including both primary and secondary holders, before a contract is approved. Holders of secondary liens might hold up a short sale until they're paid, to minimize potential losses. Check for holders of tax liens as well as mechanic's liens.
TIP: Make a reasonable offer. One that is too low creates more delay. Your real estate broker can assist by compiling a comparative market analysis, which indicates the prices of similar property in your area. Seen from the other side of the deal, the lender is trying to minimize loss on a property when dealing with a distressed borrower. While lenders aim for fair market value, there's anecdotal evidence that banks may be enticed by offers that are least 90 percent of what an independent broker figures the home is currently worth. Knowing the market value is a critical element in making an offer.
TIP: Examine the costs: Even though there may be a discounted purchase price involved in a short sale, all of the other costs remain. You should get an estimated closings statement for the short sale including expected sales price, unpaid loan balances, real estate commissions, outstanding payments and late fees which your real estate attorney can compile for you.