short sale questions

Hi folks,
just wondering if anyone had experience with buying an abandoned, short sale? The property has been vandalized inside and noone has lived there for months. From what we have heard they havent made any payments for 90+ days and just walked away from the property...does anyone know at what point does it then become a foreclosure?

Re: short sale questions

It generally takes years for a property to be foreclosed upon. "In foreclosure" is sort of an inaccurate term, because a bank has either foreclosed on a home or it hasn't.

In NY, we have judicial foreclosure, so the bank needs to file a lawsuit, and it can take years for a final judgment to be entered, giving the bank possession of the home. (That's basically what foreclosure is -- the bank takes the home back because the homeowner hasn't paid the mortgage according to the terms of the mortgage loan agreement).

Usually, once a homeowner is 3 months behind on their mortgage payment, the bank will notice of a lawsuit. Then the house is categorized as a "lis pendens" -- there is a lawsuit pending on it. But homeowners stay in their homes for years after they go into lis pendens status. The judicial process is slow (and the courts are backed up), and every time an owner files bankruptcy, the foreclosure proceedings are stayed (so sometimes there are multiple owners, like a husband and wife, and they can each file bankruptcy individually).

I think I read on average that it takes 7-10 years for foreclosure proceedings to conclude!

As far as a short sale that is in poor condition/has been abandoned... you are usually buying a short sale "as is." The price should reflect the condition, but typically you won't be able to negotiate repairs with the bank the way you might with an owner/seller. If the house is in poor enough condition, you will probably need to get a 203(k) rehab loan -- which is a special type of FHA loan by which you can roll the costs of repairing the house/bringing it to habitable condition into your mortgage. Other types of financing won't be possible.

Hope this helps! Let me know if you have other questions.

Re: short sale questions

thank you for that clarification..it is listed as a short sale and we have been pre approved for a rehab loan..we just dont know if we should stay away from this particular home considering the circumstances..i love the location and it has alot of potential.. do you know if a short sale is easier to get in to when the home has been vacated?

Re: short sale questions

It really depends on the circumstances. Whether a short sale goes smoothly or is difficult to get approved really depends on the cooperation of the seller, the bank, and who is negotiating with the bank (is it the real estate agent? an attorney? a short sale company?), and how experienced the negotiator is/how much leverage he/she has.

If a home is vacant and in disrepair, it may make sense for the bank to cut its losses.

But the seller may not be cooperating with the short sale, which can really hinder the chances of the sale getting approved quickly. Most banks require the sellers to submit financial information and other documentation to illustrate that they have suffered some sort of hardship (death, divorce, illness, job loss, relocation, etc.) that has made it impossible for them to continue to pay their mortgage. Sometimes short sales really go very slowly because the seller isn't providing the needed info. If it's on the market, the seller must have agreed to list it (they still own the home and have their name on the deed). But then sellers sometimes drag their feet or are working with inexperienced agents/attorneys who don't have the knowledge to navigate the challenges of a short sale.

Before you proceed, I would just try to find out more information about the short sale -- does the bank know the home is on the market, is the seller fully cooperating, who will be handling communications with the bank, and all of that.

If you have a good agent and a good attorney working on your side, that also helps. If not, I recommend you find people who can help you with this.