Is a Short Sale a Good Option for Me?
If you’re in the market for a new home in Maryland, you may have seen homes listed as “short sales,” but you may not have had a chance to learn more about how these sales differ from conventional home sales. In a future post, we’ll explain why a seller might consider short sale or foreclosure when behind on their mortgage, but read on for information about short sales in Maryland from the buyer’s perspective, and some of the pros and cons to buying a home via short sale.
What is a short sale?
When a homeowner owes more on their home’s mortgage or other loans attached to the property than the home is worth, the owner can, with their lending institution’s approval, attempt to sell a home through a short sale. Whether or not the seller will owe the difference between the home’s value and their debt (known as the deficiency) depends on the contract existing between the seller and their lender. Generally, the homeowner attempting to sell their home via short sale will not be formally approved for a short sale until they receive an offer that the bank deems worthwhile. While a seller is not allowed to receive any portion of the profit from a short sale, they may be motivated to accept the highest offer possible in order to reduce the amount of any deficiency they could owe.
Pros and Cons for Purchasers
Pro: Buyers are often able to get a home for under market value.
Since the owner in a short sale is seeing the debt they owe become more and more unmanageable by the day, they don’t have the luxury of waiting for a lucrative offer to come around. Provided the homeowner’s bank is motivated to complete the sale, this can result in a good deal for the buyer.
Con: Short sales can take time, and are more complex.
In a short sale, there is an additional lender approval hurdle that must be cleared before a sale can be completed. Both the buyer’s lending institution and the seller’s must approve of the sale price reached by the buyer and seller themselves, since the seller’s bank may end up taking a substantial loss on a short sale. Banks have been known to take weeks or months to decide whether or not to approve of a short sale price, leaving an eager buyer stuck in limbo. Since the timeline of a short sale can be protracted compared to a conventional sale, the standard deadlines in a sales contract for the buyer to obtain inspections and approval on a loan generally need to be made contingent on approval from the seller’s financial institution. It is important to hire a real estate attorney who is familiar with short sales and can draft a sales agreement that will protect your interests and help you make the right purchase for the right price.
If you are considering purchasing a home in Maryland, seek a qualified, knowledgeable, and experienced attorney to assist you in the complex process of purchasing property, and contact Annapolis real estate lawyer Matthew S. Evans III for a consultation at 410-626-6009.