The questions frequently being asked today are buying short sale properties are safe? What are the risks associated?

Currently a massive number of house owners are underwater – the worth of their units being less than the loan due amount. To avoid foreclosure the best option for them is to opt for a short sale. The lenders too are not eager to foreclose anymore; they are realizing that by agreeing to a short sale they lose less than if they opted for foreclosure.

It is known as short sale because the amount agreed upon is short of the loan due amount. The borrower and the lender have to work together to close such a deal. Previously the banks inordinately delayed giving its nod but lately they have reversed their stand.

Apparently it seems that the buyer gains from a short sale but the truth is that everybody gains from a short sale except the buyer and the seller.

Suppose the buyer pays $400,000 for a house that had been originally bought for $500,000. It does not mean that the buyer pockets an equity of $100,000 because in all probability the seller at the time of purchase when the housing segment was in boom had paid too much for it.

During the boom years the banks were over eager to lend and allowed the house to be over-mortgaged; it meant that the mortgage was more than the real value of the house. Although illegal the appraisers were pressurized by the banks to inflate the property’s worth.

There are strict rules about being eligible to put up the property for short sale but many realtors, lacking ethics, pushes the seller into it minus the eligibility factor. The seller has to prove to the lender that he or she is in hardship. Many realtors skip this step.

Lenders insist upon a CMA or comparative-market-analysis or a BPO or broker-opinion-price. This way the lender will know which route to follow – foreclosure or short sale. Meanwhile the potential buyer wastes a lot of time waiting for the lender to give the green signal.

Lenders do not want to pay for certain expenses in a short sale – repairs, pest inspections etc.

If the seller is in default then there is the danger of a pending foreclosure suit if the lender delays in giving an answer. Sometimes there are two mortgages on the property. Usually the second lender does not want to give the permission because the latter’s share from the purchase price is negligible after the first holder chips in.

There are some lenders who nose in and make changes at the eleventh hour. They do so if the market mood changes or new laws come into enforcement. The lenders have lawyers attending on them all the time but this is not the case with buyers.

There is also the question of commission for the agents. If the lenders do not pay what the agent wants for doing extra work, the seller has to make up for it. Closing costs are also often pushed on to the buyer. Regarding closing the upper hand is with the lender.

The seller too may back out at the last minute if he or she notes that a foreclosure is better than this long drawn hassle. Although the seller can buy another house within two years after a short sale and in a foreclosure after seven years, if the seller is not thinking of buying this advantage has very little meaning.

Thus it is not easy to answer the questions – buying short sale properties are safe? What are the risks associated?

Source: http://www.foreclosurequestionsguru.com/buying-short-sale-properties-are-safe/