Buyers Beware!

There is a trap out there lurking for buyers who don’t ask their agents the right questions.  The MLS is now flooded with listing that are in foreclosure or listed at or below the amount needed to pay-off the sellers loan and cover selling costs.  Sellers are making a last effort to sell their properties before the property goes to foreclosure sale.  These are called short sales, because the sale is sort of money to cover the loan and selling costs.  The lender must agree to take less than the amount needed to pay-off the loan and any interest and penalties due for the sale to become final. Sometimes these listings are clearly marked “subject to lender approval” and sometimes they are not because the property is listed slightly above the amount needed to cover the loan and the selling costs.  In either case the buyer needs to proceed with great caution.  Lender approval usually takes weeks and many times can take months depending on the lender.  Sometimes these sales have to go before a loan committee for approval and the committee only meets periodically.  The lender can say no and then all the time and effort put into the sale is lost.  If you decide to buy one of these listings there are several things you need to do.  First, is to realize the time frames in the standard purchase and sale (P&S) agreements need to be changed to allow for the lender approval.  You do not want to have an inspection and pay hundreds of dollars until you know for sure you have a deal and the lender approval in place.  The P&S states the buyer will have the inspection within 10 days after both parties have signed the agreement.  Second, the P&S states the buyer will apply for a loan within 10 ten days.  Here too you may want to change this time line.  Once you apply for a loan the lender usually orders an appraisal and this costs the buyer money. There are two addendums you should consider.  One is to make the time lines start two days after the buyer and seller receive the lenders written approval of the P&S.  Second, there should be an addendum allowing the buyer to cancel the deal unilaterally and have their earnest money deposit returned if the lender doesn’t approve the P&S within three weeks or by a given date.    Finally, you if you decide you want to try and purchase one of these properties I recommend you contact a real estate attorney and have them explain all the issues and have them write the needed addendums.  This will cost you a few hundred dollars but it is worth every dollar. In my opinion these deals are not the best deals available in this market, because they have little or no room to negotiate a major price reduction and they are subject to a third party’s approval.  There are many great deals out there for qualified buyers who are willing to make low offers and walk away if they don’t get the deal.