A brief look at short sales

Looking for today’s best housing bargains?

Consider buying a so-called “short sale” - if you have enough patience to wait months for such a deal to go through.

Short sales are real estate transactions where financially strapped homeowners sell their places for less than their unpaid mortgage balances.

Lenders agree to “eat” the difference, as doing so often costs less than seizing and reselling houses in today’s weak market.

“Over the past three to six months, (lenders) have really become aware that short sales are (often) the best way to reduce their losses,” said Travis Hamel Olsen of the National Short Sale Center, which helps sellers and real estate agents set up such deals.

Olsen said short sales help not just banks, but consumers as well.

Sellers benefit because short sales damage their credit less than foreclosures do.

As for buyers, they can often get homes for 10 percent or more below market value, Olson said.

But there’s one major drawback: Short sales can take huge amounts of time to complete.

That’s because lenders often take their sweet old time approving such deals.

After all, banks were never set up to handle the millions of distressed properties in America today. Lenders are also reluctant to concede that they’ll never get back all of homeowners’ unpaid mortgage balances.

“Short sales should be called ‘long sales,’ ” said ZipRealty.com’s Leslie Tyler. “In some cases, it could take months for a buyer to hear back from a lender.”

Short sales’ other potential negatives include:

Complex requirements. Before a lender will OK a short sale, the seller must submit paperwork proving financial hardship. The buyer or seller must also provide an appraisal showing that the home is worth less than the current mortgage’s unpaid balance.

You’re kept in the dark. Not only do short-sale buyers have to wait months for a bank to consider a deal, but the lender won’t update you as the process moves along.

“As is” sales. In standard home sales, sellers often give buyers cash at closing to cover any needed home repairs.

Not so with short sales. Properties are usually sold “as is,” even though financially strapped homeowners have often fallen behind on maintenance.

So, hire a good home inspector to check any short-sale property out.

Deals, not steals. Banks will consider discounted offers on short sales, but not out-and-out “lowballing.”

Rob Jenson, a real estate broker in foreclosure-wracked Las Vegas, said lenders will only OK offers more or less in line with what nearby comparable homes have recently sold for. “The misconception is that banks should be happy to get (a problem home) off of the books,” he said. “They are - but (only) to a certain point.”

It’s not just about money. A short sale is only a bargain if it’s a home that you really want, not just a cheap place to purchase.

“One thing to not lose sight of is you’re buying a house to live in,” ZipRealty’s Tyler said. “Buy a house that you like.”

Distributed by McClatchy-Tribune Information Services.

Article URL: http://www.bostonherald.com/business/general/view.bg?articleid=1164711