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How to buy a short sale?

Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.
If there are two loans, you could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.

Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent.
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.

Qualifying the Property and Seller for a Short Sale
A lender is unlikely to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven.
A seller I know once demanded that the buyer slip the seller $1,000 to be given the right to purchase the seller's property. We said no. This is fraud. The lender legally pursued that seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller receives no money because the lender is losing money.

Submit Documentation and Purchase Offer to Lender
Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.

Give the Short Sale Lender Time to Respond
Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel.
Some lenders submit short sales to committee, but most can make a decision within two to three months. Get a name and phone number for the appropriate contact at the lender. Don't send an offer blindly to a department.

Understand Short Sale Commissions
Regardless of the commission the seller has agreed to pay, the lender is actually the entity paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your agent.
If you have signed a buyer's broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.

Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.
It is extremely important that a buyer obtain a home inspection. Back to How to Handle Short Sales

(From about.com)

 

 

 

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It's a perfect time to buy a Short Sale - a great deal in the real estate market. Some sellers are forced to sell their homes without profit. During a "short sale", the home is being sold less than the cost the owners owe for the loan on their home. Here is how to go about negotiating the best price on a short sale home.

1 Choose a licensed realtor that preferably has worked with short sale property before.

2 Find a desirable property being sold
With your realtor, find a property for your residence or investment that is being short sold by the seller. Properties may be advertised this way or not, but the longer a property has been on the market, the more price reductions it may have and will have a greater chance at being short sold by the seller. Wording in the listing that all offers will have to meet seller' s bank approval is a tip off that it is a short sale.

3 Negotiate the price to the fair market value
Make an offer. Here is where it gets tricky! You may have a house you want listed at $295,000. The owners may have paid $350,000 for the property and were forced to sell for whatever reason. Now, owners and their realtor may know the appraised value (let's say $300,000) and what the bank is already willing to take but are not obligated to tell you. Your offer will need to be as close to the appraised value of the property as possible. First understand that the owner's lending bank will be the deciding factor whether or not your offer will be accepted. But also know that the owner has the right to reject your offer if they feel it is too low as well. If you make an offer for $250,000 they can ask the bank to approve your offer, but if the home is appraising at $300,000, the bank is likely to reject it.

4
If your offer is rejected, you can make another higher offer. Do not waste time making offers of $1000 increase more each time. This will waste time, and you may lose the sale. Make a fair market offer.


Remember: Homes are appraising for MUCH LESS than what most owners have paid for the homes. Owners are "Upside Down" in their loans and this forces them to Short Sell. A Fair Market Offer still means you are getting a FANTASTIC Deal and saving HUGE amounts of money! If the home is appraising at $300,000, the bank will likely take close to that, so offer within roughly $25,000 of what property appraised. Once your offer is accepted by the bank as well, you should be able to close on the home within 30 days if your finances are in order.

(From ehow)

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