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How to Buy a House
by Selling it Short
By Christina
Cheddar • Bankrate.com
Two steps in was all it really took. I stood there
on the landing of the condominium unit surveying the sunken living
room and dining room. I noticed how the oversize paned windows looked
out on a treed courtyard. I looked at the shiny hardwood floor stretching
toward the kitchen. I pictured cozy evenings in front of the fireplace,
and that was all it took. It was love at first sight.
I tried to keep my head, as it reeled with the first
throes of infatuation. I focused on the carpet stains, the age of
the stove, the leak under the kitchen sink, the wear on the kitchen
floor and, most important, the poor condition of the bathroom tile.
But these seemed like mere blemishes on my new love's face.
"I want to make a bid," I told my real estate agent.
I was a reluctant home buyer. Egged on by my parents,
who chanted "Build equity" like a mantra, I was only looking at
the local real estate market to appease them. Although I knew purchasing
a home rather than renting was the financially responsible thing
to do, I wasn't sure I wanted the commitment of homeownership. But
now I had found a place that was very "me." My initial reservations
vanished.
Back at the office, my real estate agent collected
the data about what comparable units in the complex had sold for
recently, and discovered why the unit had been on the market for
nearly a year. The previous owner had been renting the unit, and
the renters were sloppy. The place hadn't been "showing well," as
real estate agents like to say. But the seller was motivated to
sell. Without the rental income, the property was becoming a financial
burden. Armed with that information, we made a low bid, substantially
below market value, and were stunned when it was accepted without
any haggling.
Now I was really excited. My bargain hunter instinct
had been triggered. Dropping everything, I rushed to the agent's
office late one evening to put the process in motion.
When I arrived, I learned it wasn't going to be a
typical sale. Since the seller had purchased the property at the
height of a real estate boom in our area, the seller's mortgage
debt was higher than the current real estate market could support.
We were going to attempt a "short sale." In a short sale, the borrower
strikes a deal with the lender to split the difference between the
sale price and loan amount, which still must be paid. A short sale
can help to prevent foreclosure and bankruptcy.
The laws governing this complicated transaction vary
from state to state and require the advice of an attorney familiar
with both real estate and bankruptcy law. I was told that the seller
would send a proposal to the lender, and I would postpone applying
for my mortgage until the seller received approval from the lender.
Since I wasn't in a rush to move, I agreed.
I wish things progressed smoothly from there, but
they didn't. During the five months that it took to complete the
purchase:
- I received a mixture of good and bad advice.
- I learned how emotional the home-buying process
can be.
- I learned a lot about myself.
I could have walked away from the deal at several
points. However, I stood firm. Like a tenacious terrier with its
jaws locked around its favorite chew-toy, I was determined to move
into my beloved property. The first mistake I made was letting my
heart get the best of me, and falling in love with the place. Typically,
buying a home is the biggest purchase you make in your life. Your
aorta isn't exactly equipped for the job. It requires more dogged
number crunching and a cool, calm thought processes.
I also should have been more thorough in checking
my attorney's credentials. It helps to find an attorney with experience
in short sales. It most likely would not have changed the outcome,
but perhaps I would have been more aware of the risk that the deal
could fall apart, causing me to lose the money I spent applying
for a mortgage, obtaining a home inspection, ordering title work
and other legal fees.
Another common mistake made by buyers of properties
through a short sale is to begin to feel personally involved in
the difficult financial situation faced by the seller. Short sales
are often prompted by economic trouble brought on by a death in
a family, a disability or a divorce, said Edward Jung, a Realtor
associated with Coldwell Banker in the San Francisco area who has
made a personal commitment to help 100 families avoid foreclosure.
Buyers must avoid feeling somehow responsible for the seller's situation.
For people who find themselves facing foreclosure,
Jung advises them not to wait too long to seek professional help.
There is often only a small window of opportunity to benefit from
foreclosure alternatives.
In Jung's experience in California, short sales often
take between 90 to 120 days to transact, which is longer than conventional
real estate deals. Any longer than that and the bank will often
begin foreclosure proceedings. In my case, the deal unraveled about
a week before I expected to close for reasons that still seem murky
to me. I felt as if I had been stood up on prom night. I had a signed
mortgage commitment and completed the title work on the property
in hand, and it wasn't clear whether the property was still the
seller's to sell.
The sudden realization that I had no recourse hit
me like a bucket of cold water. There were legal options, but my
lawyer said they were likely to be time-consuming (in other words,
costly) and ultimately ineffectual. Still smarting from the deal
gone bad, I tried to catch my breath and convince myself it wasn't
an indictment of my financial savvy.
Don't worry. There's a happy ending.
Two weeks after my rude awakening, the phone rang.
It was my real estate agent. She had just learned the bank had foreclosed
on the property, and there would be another chance to make an offer.
After three mortgage commitment extensions, two more months of waiting,
another round of bid negotiations and an eleventh-hour snafu that
nearly snagged the deal at the last minute, I closed.
The re-negotiated price was slightly higher than my
original offer, but still below the general market price. Also,
since it was a foreclosure, I bought the property "as is" -- leaky
pipes and all. But it's mine, and I feel I got a deal. I've been
happily living in my humble abode for more than a year. It's likely
that even with a fickle real estate market, I'll be likely to turn
a nice profit when I sell the spruced-up place.
-- Posted: Oct. 2, 2000
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