As foreclosure rates hit record levels, more sellers are asking their banks or mortgage companies to do a short sale. How does that work? In a short sale, the seller arranges for a mortgage lender to accept a price that is less than the amount they owe on the property. In most cases, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn’t have to go through a foreclosure, and although the seller’s credit rating will drop, it may be a little less then a foreclosure.

Buying a home in a short sale usually means that the bank will not pay for any inspections. Therefore it is imperative that a buyer obtain a whole house inspection, termite report and carefully review a title report for easements and liens that may affect the property. If the house is in the country, then the well should be checked for production and possible harmful minerals. The septic system should also be checked out and boundary lines verified by a licensed land surveyor

Speaking of title reports, if you are a buyer; remember that there could be two loans on the property, a first senior loan and a second junior loan. If you are buying the home for $125,000 to pay off the first loan and there is a $75,000 second on the property, then you have just bought a home for $200,000.

For a very good example of what I’m saying go to

Rocklin & Roseville Today article

That is a real horror story of Bank of America refusing to work with the seller to the extent that (according to the story) it may kill the short sale.

As a buyer, you may have to wait anywhere from six weeks to six months to finally complete the sale. Banks work by committees and we all know how committees work, slowly. Of course while you are waiting, someone else might submit a larger offer and you are out of the picture with your purchase and the short sale turned out to be very long indeed!

Questions? Email John O’Dell
Real estate broker, civil engineer and general contractor