Buying a short sale? Here are some ways we can protect you.
Short sales are still going strong in the Chicago area. We have only partially recovered from the market crash of the 2000’s, and some areas of the city have not seen much recovery at all. Plenty of homeowners are still looking to rid themselves of negative equity. At the same time, mortgage companies are desperate to avoid the cost of foreclosure, and to get bad mortgages off their books. So, there are still many deals to be had in the short sale marketplace. We represent both buyers and sellers in short sales, but this article addresses short sales from the buyer’s perspective.
There is no doubt that buying a short sale can save you thousands of dollars in price versus a conventional purchase of a like property, but with that savings comes increased risk, and the possibility of very significant deferred costs. As your attorneys, we can help you understand your risk, ensure that you do all of your proper diligence, and create an exit strategy in case the deal goes sour.
So, what are some of the disadvantages of a short sale, anyway, and what can we do about them as your attorneys?
Delays. For one, there is the lag time between your offer is accepted and and closing. The short sale offer has to be accepted by the seller’s lender before the deal can close. The process of short sale approval can take more than a year. I have even seen two years. So, a short sale is often an exercise in patience for the buyer. As your attorneys, we can insert a clause in your contract that gives you a right to terminate the deal if there is no approval after a certain amount of time has passed. Because you may not want to wait forever.
Building Code violations. For obvious reasons, short sales just happen to have a high likelihood of being cited for code violations, especially in Chicago. You want to know about these pitfalls immediately, not at the closing table after you’ve waited your 6 months for your offer to be approved, and certainly not after your closing. One of our first actions when we represent a short sale buyer is to check the municipal database for violations, if it exists. In Chicago, you can find some code violation info online. In the suburbs such as Oak Lawn and many others, we aren’t always so lucky. If we do find violations, we can ask the buyer to address them prior to closing, or request that the contract price be lowered accordingly.
Buyer may be asked to pay closing costs that are seller’s responsibility per contract In short sales, the seller’s lender is going to be absorbing the seller’s closing costs. Or so you thought. In many instances, the sellers lender will refuse to pay some costs which are normally seller’s responsibility. Sometimes when we get the final closing statement, we find that the seller has shifted all of the denied expenses to the buyer. In this situation, we will object. Just because it is a short sale does not mean the seller can’t pay for some of the costs. One cost that is nearly ALWAYS denied by the short sale lender is the plat survey. Surveys are really important – normally you don’t want to close without one, because you could be missing something important, like an encroachment. Without a survey, the title company won’t provide coverage over defects that could have been revealed from the survey. We can address the lack of survey by asking for the seller’s old survey from when seller purchased the property, plus an affidavit from the seller that he/she has not made any improvements to the property that would cause an encroachment over the property lines.
Buyer may be asked to take subject to defects in municipal inspections In what is often an unreasonable attempt to control blight, many Chicago suburbs have implemented strict inspection requirements. In other words, before village transfer stamps can be issued the property may need to undergo a rigorous inspection. With a short sale, the buyer will often be asked to sake subject to the inspection defects and will have a set amount of time to cure them before the village will impose fines and sanctions. In some cases, the village will even deny occupancy until the defects are cured. In a short sale, because there is an inspection fee, sellers will often try to defer the inspection until short sale approval. We will generally deny this request. You want this inspection to happen immediately after the contract is executed, because you simply need to know what repairs you’re committing to make.
Above we have described just some of the ways we can protect you during the short sale process. If you are buying a short sale, the importance of having quality, independent representation is greatly magnified. If you are thinking of putting an offer in on a short sale, do not hesitate to call us for a free consultation.