Serving Baton Rouge & Surrounding Areas
Stacy Branyan, Realtor
In a short sale, the owner of the property is trying to sell it at a price that is less than he or she owes on the mortgage. Before the purchase agreement can be accepted and the transaction can close, the seller's mortgage lender must agree to accept that amount. For this reason, this can be a more difficult purchase than a foreclosure. Not only must the first mortgage holder agree, but also second mortgage holders can delay or stop these transactions. That means the negotiations can be time consuming, taking several months, and frustrating for a buyer who has little control over the process.
A short sale is being sold by the owner, so they are required to fill out a property disclosure form telling you of known problems with the home. This is an advantage over a foreclosure. While short sellers are motivated to sell and repair their credit, they could have skimped on essential maintenance. A thorough inspection will minimize your risks and inform you of needed repairs, however, the lender or the owner will not pay for repairs. This will be the responsibility of the buyer.
If you have a home to sell before you can close on the purchase of the short sale property—or you need to be in your new home by a certain time—a short sale may not be for you. A lender will not accept a contingent purchase agreement on a short sale property.
In a bank foreclosure sale (also called Real Estate Owned or REO), the previous owner of the property has either given the keys back to the bank and abandoned the home, or the bank has taken back the property and forced the former owner to leave. In either case, the bank owns the property. Banks are often eager to find a qualified buyer and unload these properties, so the buyers of these properties often pay less than they would have if they had purchased a similar property in the same neighborhood that wasn't in foreclosure. The bank sells the home “as-is” and requires the buyer to sign documents releasing the bank of any liability.
The foreclosure process is lengthy, so often times these properties have been sitting unoccupied for months, if not longer, and have suffered damage due to weather and neglect. It's important to have a thorough inspection to minimize your risks, but understand that the inspection is for informational purposes only. The bank will not make any repairs. On foreclosed properties, it is typically the buyer's responsibility to have the utilities turned on for inspections. Doing your homework with a foreclosed property will save you time, money, and complications. Knocking on neighbors’ doors to see what information they have about the home, the neighborhood or the previous owners can prove valuable.
Owner's insurance policies are optional when purchasing a home, but they are recommended for properties that have been through foreclosure. These policies will protect you. They pay court costs and attorney's fees if someone challenges your ownership or tries to collect on an unsatisfied lien arising from work done before you took ownership. If a claim is found to be valid, owner's insurance will cover your actual loss—up to the face amount of the policy.
Buying a home that is a short sale or a foreclosure can save you money. And so, as you enter the market either for the first time or as a seasoned buyer, you should be on the lookout for “distressed” sales. You might find a great property you’d otherwise have overlooked if you disqualified foreclosures and short sales. Distressed sales tend to be priced from 5 percent to as much as 15 percent below the current market value. But it also can turn out to be an expensive mistake if you don't shop carefully and get help from a real estate professional with experience negotiating these transactions. I have helped many buyers successfully navigate the process of buying these types of properties. Here's some information about buying Baton Rouge area foreclosures and short sales. For more information, contact me at 225-229-0451 or firstname.lastname@example.org