I’m always looking for a bargain, whether it’s in home goods, clothing, makeup, shoes, vehicles, vacations or rental properties. So I’m constantly on the lookout for a great deal. And right now, there are hundreds of them, in every city in the nation. I recently purchased a foreclosure for $35,000 that sits on a cul-de-sac with homes that are worth $75-85,000. It took about $5000 to get it up and running but it looks great, and I’m going to rent it out and make a very nice return on my investment.
Last year, I came a cross a similar deal . . . actually, it was even better. The house was a little bigger, and cheaper yet, so I jumped on it and put in a full price offer of $25,000. Of course, so did about six or seven other investors. When that happens, you must give your highest and best offer. So, I offered $30,500. When I didn’t hear anything from my realtor after about a week, I called to see what was up. “It’s a short sale,” she said. “This may take a while . . . or a really long while.”
I knew what a short sale was. The homeowner owed more on the property than it was worth, and the home is put up for sale. For instance, if he owes $50,000 and my offer is only $30,000, that’s what makes it a short sale. The sale price doesn’t cover what is owed on the mortgage, but the lender and homeowner work it out. Sometimes.
It gets very sticky when there’s a second mortgage on the home. If he owes 30K on his first mortgage and 20K on his second, the lenders often end up fighting it out as to who gets the money offered up in the short sale. The primary lender may say the second mortgage holder will only receive a couple thousand dollars of the proceeds. But the second mortgage holder can come back and say it will scrap the deal if it doesn’t get at least five thousand or more. So, you can see how these short sales can drag on and on, especially if there is more than one lender involved.
That was the case with the great little house I bid on last year. After three months, I got tired of waiting. Another good deal came along, I put in an offer, it was accepted and I withdrew my offer on the short sale property.
The lesson learned was this: in the future, I’ll check to see if there’s more than one lender involved, if I try to buy a short sale property.
The sad thing is, it’s a lose-lose situation to have these properties just sit. It doesn’t help the recovery of the real estate market at all. It doesn’t help homeowners, who are trying to avoid foreclosure by doing a short sale. It can take months for loan servicers to agree on a price . . .
And sadly, 11 million homeowners owe more than their homes are worth and, according to CoreLogic, another 2.5 million have only 5% equity. Those people — if they want to sell — must cover the difference or ask the bank to take a loss via a short sale.
Short sale? Not! The red tape, the hassling back and forth . . . they should rename it “long sale.” And in the meantime, the housing recovery continues to be in stall mode . . .