At some point during almost every initial buyer consultation, I get asked about short sales and foreclosures in Boston.
With so much in the news regarding these properties, clients want to know if they can pick up a distressed property in Boston at a great bargain. Sometimes, but not always, bargains can be found. But the buying process can be a lot more difficult with distressed properties.
I start out by pointing out to clients the difference between a short sale and a foreclosure. The biggest misconception is that both of these property types are the same and both can take a long time to close and move into. Since this is the first of a two part series on short sales and foreclosures, let me start with short sales.
What is a Short Sale?
On a short sale, the current owner of the property owes more on the home then it is worth at current market value. Not only do they need to find a buyer who will sign an offer, they also need the BANK to agree to the price and forgive the remaining balance.
For example: If you bought a condo in 2006 for $380,000 and the current market says the home is now worth $340,000 you would have to get the bank to forgive the balance of $40,000.
Why are Short Sales so time consuming?
Getting the bank approval to forgive a portion of the mortgage owed can be a time consuming process. First, contact has to be made with the holder of the loan (it may or may not be the bank servicing the loan and collecting payments) to see if they would even consider a short sale. Two things must happen:
- The seller must show a financial hardship for the loan holder to begin the process.
- The bank must agree to the price offered as fair market value.
The listing agent handling the the process had better know what they are doing. Hardship paperwork has to be submitted just so and in a timely manner. And most of the time the bank will not indicate a price they would accept or even start the process until an offer from a buyer has been submitted and accepted by the seller. So the listing agent needs to come up with a value for the home that they hope the bank will agree to as “fair market value”. The house is then put on the market and hopefully offers are submitted. The owner of the home signs off on the offer but the final decision is still up to the bank.
Once an offer has been sent to the bank, they send out an appraiser and have a BPO (Broker Price Opinion) done. If you are lucky, this is done in a timely manner, and your offer will fall somewhere within the appraised amount and be accepted. Or the lender may come back with a counter offer, at which point there may be more negotiations, and hopefully the deal may still come together after some back and forth.
For this all to happen you can often wait 3-6 months for an answer while the process goes on. There are a couple of pitfalls that delay things. One is that there are appraisers being sent who do not understand the areas they are appraising and the home valuation will not fall within a realistic range. Second is that all this back and forth with appraisals, bank staff, listing agents, hardship paperwork, attorneys, etc. can take more time than you’re willing to wait. Many banks have improved and refined the short sale process recently, but it is still a lengthy process. Sometimes, you’ll even see an “approved short sale”. This most likely means that their was an original buyer who had an offer at a price that was suitable to the lender, but for some reason that buyer may no longer be in the picture to buy the home.
The acceptance from the bank will need to be read and reviewed carefully by an attorney like Alex Spiro for terms and conditions. There may be some conditions the sellers need to fulfill in order to close and I guarantee that will now want you to close this sale ASAP! Banks like to operate on their terms and their time frame, unfortunately. So be ready for that.
Are there many Short Sales in Boston on the market now?
Boston is a large market area with a lot of different areas and neighborhoods. In most of the areas of Boston there are few to none short sales or foreclosures. However, if you think you are up to the challenge of finding one and buying one, I’m happy to assist you in trying to locate one of these properties. You can start by looking at this complete list of distressed properties in Boston to see if there is anything available now in an area you want to buy.
