Our New House is a Victim of the Recession (Part 2)

7 Nov

This is the situation in which you try to work a short sale deal.  A short sale is when you, the buyer, try to strike a deal with the bank who is the current mortgage holder with the seller who is in default.  Once the homeowners have proven hardship in that they cannot pay their mortgage the bank will determine how much of the mortgage debt they are willing to write down and then sell the house to the new buyers at a discount to the current mortgage amount.  You always buy a short sale house ‘as is’ meaning no repairs are going to be made by the current owners so everything is left up to the new buyers.  Usually there are multiple liens on these kind of homes so each subsequent lien holder also has to agree to take a payoff that is significantly less than what is owned to them in the second mortgage.  Typically any home owner association fees are unpaid, utility bills are unpaid and sometimes property taxes are unpaid.  As a buyer of a short sale you must be very diligent to ensure all these liens are satisfied prior to sitting down at the closing table so that you will not be liable for any of this outstanding debt.  It is a very tricky situation so you have to exercise extreme diligence and be very thorough in these matters.  Since the bank was not progressing at all with our short sale on the second house we found we continued our search.  About a month ago I found out that the first house we liked, that was under contract in February when we first found it, was back on the market.  The contract had fallen through.  A different set of buyers had initiated a short sale deal last February.  During the process of their short sale the owners ended up filing bankruptcy.  Because of filing bankruptcy the short sale was halted and nothing could happen with the house until the bankruptcy was settled.  In the midst of all those months the potential buyers ran out of patience and decided to move on.  Once the bankruptcy process was over the house could then be addressed again.  That is when we came back in the picture.  This past August we looked at the house and put in our contract.  At least the front part of the short sale process, deeming the current owners a relevant hardship, was already through the bank so that has expedited our part of the deal.  As of now we are through the portion of the deal where the secondary liens have been negotiated down with the other lien holders and the bank has negotiated with us on our initial offering price.  We now have an accepted contract price with the bank.  Stay tuned for more updates.

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