Connecticut Select Homes | Fairfield County CT Real Estate

Everyone wants a bargain and today’s real estate market seems flooded with homeowners upside down on their mortgages. While distressed properties may offer great opportunities for investors, short sales in real estate are rarely easy or expeditious transactions. Whether you’re investing in a short sale, a foreclosure, or other “discounted” real estate, you can expect plenty of bumps along the road to a closing.

Short sales are designed to prevent home foreclosures. By definition, they occur when the proceeds from a sale of real estate fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor or home owner. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt.

Investors should know that in a short sale negotiation, the bank is calling all of the shots. It’s the lender, not the homeowner, who has the right to approve or reject a proposed sale. The lender’s decision is influenced by both the current real estate market and the borrower’s financial situation. Once the decision has been made to proceed with a short sale, the lender determines the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure.  It is also the lender who approves the final sale price – in many cases a buyer and seller may agree on terms only to have the bank reject an “accepted” offer.  Beware – this entire process could take several months and it’s not uncommon for buyers to feel as if they’ve fallen into an abyss!

You can prepare yourself for a short sale purchase in several ways:
Gather information about the seller.  Learn as much as you can about their financial situation, the Realtor, and attorney they’ve hired. Ask your Realtor to determine if the sellers have started the approval process with their lender. Go into the process ready, willing and able to face uncertainty. Understand that after weeks or months of waiting and more waiting, the short sale may not be approved.  Ensure that inspection contingencies are included in your offer to purchase a property.  If (or more typically “when”) the inspection shows any problems, you can’t rely on renegotiating the price with the bank to fix them.  The inspection contingency will, however, allow you to back out of a deal completely and without penalty. Know that if and when the sale is finally approved, closing dates aren’t firm. Don’t leave yourself without another place to live in the interim!  Hire a real estate attorney and Realtor familiar with short sales. These professionals will offer invaluable advice and guidance throughout the process.

And finally, keep looking for other properties…because you never know!

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