JACKSONVILLE, Fla. – April 17, 2009 – House hunters hoping to take advantage of falling prices and low mortgage rates are likely to run across short sales in today’s real estate market.
Don’t get caught short by the twist and turns involved in the deals.
In a short sale, the seller and buyer agree to a price lower than what the seller needs to pay off the mortgage and various costs associated with selling a home.
The seller asks the mortgage holder to write off the difference. There’s no guarantee the bank will accept that loss, so the entire deal can turn into a no-sale.
But home buyers able to handle that uncertainty can zero in on some attractively priced homes. Financially pressed sellers are eager to get a deal, and lenders don’t want to be saddled with the property through foreclosure. The challenge for buyers is the waiting game – it can take 60 days or more for the mortgage holder to make its decision, said Jeff Marks, a real estate lawyer with Ryan and Marks Attorneys in Jacksonville.
“They have to have a stomach for it because it will take longer,” he said. “But if they can wait it out, they will get a wonderful deal financially.”
The number of short sales has been rising, according to the National Association of Realtors.
The Northeast Florida Association of Realtors shows about 18 percent of the residential properties on its multiple listing service are classified as short sales. The Northeast Florida Association of Realtors covers Duval, Clay, Putnam and part of the northeast portion of St. Johns counties.
Short sales aren’t for everyone, said Sam Kellum, a Realtor with Watson Realty who is president of the Amelia Island-Nassau County Association of Realtors.
“There are a lot of pitfalls to short sales, and buyers need to be aware of them,” Kellum said.
He said it’s possible the seller will sign purchase agreements with more than one buyer and send all those agreements to the mortgage holder for review. The seller can do that because the purchase agreement will say the sale still depends on the mortgage holder accepting a payoff for less than what’s owed. If you sign a purchase agreement with a price of $180,000 and another prospective buyer subsequently offers $190,000, the higher bid has a clear advantage.
Also, short-sale homes are sold “as is” because the owner, struggling to pay the mortgage, isn’t going to pay for any repairs.
The owner might have fallen behind on routine maintenance and termite treatment, said Ulrich Leinhase, owner of Maximum Success Inc., in Jacksonville, which does seminars around the state for real estate professionals. He said a home inspection is essential in short sales.
With all that in mind, Leinhase said, getting a short sale to the finish line depends on open communication between buyer and seller.
He said one of the first questions any buyer should ask is whether a home is a short sale. A buyer’s Realtor can easily check the Multiple Listing Service for that information from the get-go.
If the seller agrees to a lower price during negotiations, the buyer should ask again whether the seller will be seeking approval for a short sale at the lower price. Sometimes, the price cut will put the home into short-sale territory.
There is no state or federal law that requires a seller to provide any disclosure forms for a short sale.
Local Realtor boards set their own policies about how they will handle such disclosures for Realtor-assisted sales, so the disclosure will vary by area.
The Northeast Florida Association of Realtors has required its Realtors to include a short-sale form in purchase agreements since 2005.
In November, the association added a provision that buyers have a right to know about other purchase agreements the seller signs with interested buyers.
Ryan, who is general counsel for the association, said that gives a prospective buyer a chance to back out if someone else offers a higher price, rather than wait months without realizing his offer is no longer the best one on the table.
Another key feature for buyers will be the length of time given to the seller for getting the mortgage holder’s approval. The time constraint is negotiable. Ryan said lenders are swamped. Their justification for accepting a short sale is they can avoid the expense of foreclosing on the property. They balance that against how big a financial hit they’ll take by writing off a portion of what’s owed on the mortgage. The bigger the write-off, the longer it will take to get a decision, Leinhase said.
“It shouldn’t be called the short sale,” he said wryly. “It should be called the long sale.”
Copyright © 2009 The Florida Times-Union
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