Short Sided Short Sale
or should it be short sighted?
Additional Hurdles
Last week we made several offers on homes -
one a short sale and one a foreclosure. That seems to be the
way of the market now and believe me there are some great
values in premium neighborhoods.
A couple things to remember in dealing with a lender:
On a short sale you might be dealing with a few more surprises
than you expected once you get down to submitting a contract.
For example, a short sale is prior to foreclosure so the lender
has agreed to sell the property for less than what's owed.
They will still try to save any equity that is left in the property.
One thing that might screw up a deal is back taxes could
be owed and the bank will get you "the buyer" to pay these.
Let's say property taxes weren't paid last year so in addition
to the sales price you'll have to pay back taxes plus penalties
as part of your closing costs. These add up, so you would want
to find this out before you commit to a contract.
You can use a rough estimate of 2.5% for property taxes,
Texas is among the highest in the nation, however there's not
a state or city income tax and the low cost of living and housing
balance that out.
So if a property is $900,000 - and property taxes weren't paid
last year an additional $22,500 would be added to the closing costs.
Now that's sobering...
Another Scenario
Now let's say the seller has two notes from the same bank,
generally in Texas the second lien holder wouldn't have
any recourse in collecting what is owed them.
Since the same lender has two notes they are going to try and
collect on the second note too. Even to the point that they'll not
forgive that note and will refinance that loan to the original owner
so they get something.
Can you imagine still paying a note on a property that'll be
a constant reminder of a mistake you made? Also the original
owner would have to agree to this, so that's another cog in the
wheel.
Now, That's a bad deal for everyone involved unless the price is
so good that it works to buy the property.
Don't forget about repairs or updates the property might need
because the lender is more than likely not going to do these either.
Keep things in Focus
In shopping for short sales and foreclosures there are many other
variables involved that might make the transaction a bad deal.
Might be a good idea to find those out before you agree to agree.
Sometimes a short sale is not a good buy!
