Today’s real estate market has an abundance of short sale, foreclosure and distressed properties available. These properties can be wonderful opportunities for first time homeowners, move-up or move-down buyers and investors. They may not always be a terrific “deal” because of condition, comparables or the seller/lien holders position.

A short sale occurs when a lien holder is willing to accept less than the full mortgage pay off.  They “short the loan” to allow the homeowner to sell the property. A property is a candidate for a short sale when all liens, plus costs of sale, exceed the market value of the property. These liens included mortgage liens, mechanic’s liens, tax liens, unpaid judgments and unpaid HOA fees.

Lenders usually agree to a short sale rather than foreclosure since a foreclosure can cost the lien holder an estimated $60,000 and take up to 18 months to complete. It is also better for the homeowner to have a short sale. It avoids the foreclosure/bankruptcy position with all of its credit/financial restrictions and stigmas.

Short sales can be VERY TIME CONSUMING and require patience from absolutely everyone involved: seller, buyer, Realtor, attorney and lender. Buyer’s offer acceptance and approval of offer can range from 2 days to 2 months or more. Some short sales have been known to take as long as 6 months from beginning to end. As of 2008 the average time was 8.1 weeks according to the National Association of Realtors. The lien holder has the final say. If there is more than one lien holder on the property that can slow down the process significantly.

A foreclosure sale deals with the lien holders. It occurs when the lien holders take possession of a property. It can occur after the attempt at a short sale process. In a foreclosure sale there is usually no “wiggle” room for any repairs. These properties are 99.9% of the time are an “as is-take it or leave it sale”.  The banks/lien holders have done their homework and know the comparables in the market.

Many times foreclosure sales, like short sale properties have suffered the abuse of the homeowner. There are distressed properties that have had all the appliances, doors, windows, cabinetry and even furnaces and ac units removed. Foreclosure sales are lengthy sales but most often not as lengthy as a short sale purchase.

When navigating the sea of a distressed property purchase there are some basic guidelines:

• Work with an experienced Realtor who knows the procedure and the subject property comparables
• Sales are on a mostly “as is”—“take it or leave it” basis
• Properties will need repairs and may not have appliances, electricity or even a furnace
• Always have any inspections of the property upfront—contractor, termite, radon etc.
• Consider the cost of repairs in the offering price
• Don’t expect these sale types to flip for a great price
• Don’t expect “bargain-basement” prices—banks know the comps
• Financing can be difficult if the property is in deplorable condition
• Develop a working relationship with a mortgage/finance person
• Be sure and use an attorney who is familiar with distressed property sales
• Sign a buyer’s agency contract with your Realtor
• Allow a lot of time for a closing in most cases—expect hassles and delays
• Expect more paperwork and communications between you, your Realtor, mortgage officer, inspectors and attorney
• Remember to work within your budget—purchase price plus repairs (inside and out)

Navigating the sea of distressed properties can be rewarding if you follow the above route. By working with an experienced Realtor you will not hit as many rough “seas”. It is never simple but can be worth the trouble. Remember the adages “caveat emptor” and “be prepared” and your process will be as comfortable as possible. It will certainly be “smoother sailing” by following these guidelines.

For more detailed information on how to buy a distressed property or for a list of currently available local distressed properties, experienced attorneys, mortgage officers or home inspectors, contact us  via email:  maureen.spriggs@cbexchange.com or call 847-441-1028 the 24/7 voice mail and we will respond quickly.

Maureen Spriggs
Realtor, Coldwell Banker