We rent -- our place is being sold at a short sale. What do we do?
March 11, 2010 10:05 AM Subscribe
Our condo in California is being sold at a short sale. We lived in the house for two years, our landlord loves us, but he has another house and it sounds like he's "underwater" on both houses. We've offered to buy the place, but everything I've read here and elsewhere on the interwebs make short sales sound like a tremendous nightmare. We really don't want to move. What are our rights, what should our strategy be? We've never owned a house before - help!
We moved in to the place in May of 2008 with a year's lease. Last year, the landlord extended the lease at the same rent for another year (which he didn't have to do, it could have gone month-to-month, but we think he liked the stability of us as tenants).
So last Sunday he emailed us to say that we'd have to leave in May because the house was going into a short sale. This was the very day after we paid a fair amount (all in cash) for a nice used car. Argh. Such timing.
So my husband emailed our landlord back and said we'd be interested in buying the place (we'd expressed interest in the past). The landlord told us that he though we'd be paying just over half of what he paid for it five years ago.
My husband has excellent credit, and his parents are willing to loan us so money so we can make a downpayment (which could be as much as 15% of the purchase price -- this is not an FHA home).
But then I started doing research on short sales, and it seems that our landlord wouldn't be driving the process -- it would be the bank or whatever entity owns the mortgage would be determining the selling price. It also appears that if we're lucky and if the owner of the property accepts our bid, it would take months to close (whcih means we wouldn't get that nice $8k credit as first-time homeowners).
So -- what are our rights as renters? I would think it would make sense to keep us on as renters until the house is sold, but I'm not a big megabank with a heart of stone in front of my building.
Do we have a shot at buying this place as a short sale? Should the fact it's a short sale affect the price? (It seems crazy to me to pay market rate for a house that has these financial strings attached.) Where can I find a realtor or attorney with expertise in short sales from the buyer's perspective?
As I mentioned, we've never bought a place before, so there's been a steep learning curve. Any first-time homebuying advice would be welcome. I've loooked at previous threads (especially about short sales) but some of them are from a couple of years ago, and I think things have changed since them, and I'd appreciate any fresh (or even not-so-fresh perspectives).
Sorry this is so scattered, but I'm at my wit's end here.
We're in Contra Costa County, in case that makes a difference.
We moved in to the place in May of 2008 with a year's lease. Last year, the landlord extended the lease at the same rent for another year (which he didn't have to do, it could have gone month-to-month, but we think he liked the stability of us as tenants).
So last Sunday he emailed us to say that we'd have to leave in May because the house was going into a short sale. This was the very day after we paid a fair amount (all in cash) for a nice used car. Argh. Such timing.
So my husband emailed our landlord back and said we'd be interested in buying the place (we'd expressed interest in the past). The landlord told us that he though we'd be paying just over half of what he paid for it five years ago.
My husband has excellent credit, and his parents are willing to loan us so money so we can make a downpayment (which could be as much as 15% of the purchase price -- this is not an FHA home).
But then I started doing research on short sales, and it seems that our landlord wouldn't be driving the process -- it would be the bank or whatever entity owns the mortgage would be determining the selling price. It also appears that if we're lucky and if the owner of the property accepts our bid, it would take months to close (whcih means we wouldn't get that nice $8k credit as first-time homeowners).
So -- what are our rights as renters? I would think it would make sense to keep us on as renters until the house is sold, but I'm not a big megabank with a heart of stone in front of my building.
Do we have a shot at buying this place as a short sale? Should the fact it's a short sale affect the price? (It seems crazy to me to pay market rate for a house that has these financial strings attached.) Where can I find a realtor or attorney with expertise in short sales from the buyer's perspective?
As I mentioned, we've never bought a place before, so there's been a steep learning curve. Any first-time homebuying advice would be welcome. I've loooked at previous threads (especially about short sales) but some of them are from a couple of years ago, and I think things have changed since them, and I'd appreciate any fresh (or even not-so-fresh perspectives).
Sorry this is so scattered, but I'm at my wit's end here.
We're in Contra Costa County, in case that makes a difference.
My husband has excellent credit, and his parents are willing to loan us so money so we can make a downpayment (which could be as much as 15% of the purchase price -- this is not an FHA home).
Stop right there. Don't buy an non-FHA home. Why? Because the next guy you sell it to is going to have just as hard a time coming up with the down payment as you are.
After the place is sold, you most likely have until the lease runs out, if the new buyer wants to move into the place himself, but YMMV depending on the state.
posted by deanc at 10:18 AM on March 11, 2010 [1 favorite]
Stop right there. Don't buy an non-FHA home. Why? Because the next guy you sell it to is going to have just as hard a time coming up with the down payment as you are.
After the place is sold, you most likely have until the lease runs out, if the new buyer wants to move into the place himself, but YMMV depending on the state.
posted by deanc at 10:18 AM on March 11, 2010 [1 favorite]
We bought a short sale. Other than the 2 month wait to hear anything on our offer, it was pretty much transparent on our end.
If the bank approved the landlords short sale, they want to Make sure it sells. Otherwise they're just wasting more money than they would if they just foreclosed in the first place. The fact that you're currently living there might help to prioritize you as a serious buyer in their eyes.
In all likelyhood, you'll get a little bit of a deal over a standard sale. If you're interested, who not go for it? I'm not sure you have much to lose.
posted by csimpkins at 10:21 AM on March 11, 2010
If the bank approved the landlords short sale, they want to Make sure it sells. Otherwise they're just wasting more money than they would if they just foreclosed in the first place. The fact that you're currently living there might help to prioritize you as a serious buyer in their eyes.
In all likelyhood, you'll get a little bit of a deal over a standard sale. If you're interested, who not go for it? I'm not sure you have much to lose.
posted by csimpkins at 10:21 AM on March 11, 2010
IMHO, the main drawback in buying a short sale is the waiting and not knowing. You could wait months before the bank gives you the thumbs up or down. Most people are looking to move on a schedule, so that is a problem for them, but for you, less so. It's not like you have just sold a place you need to be out of quickly, but settling before June 30, which is the deadline for the tax credit, is very unlikely. Getting that credit could certainly be an incentive, but were you thinking about buying any home to try to get it? If not, it really doesn't factor into the equation.
As for your comment "It seems crazy to me to pay market rate for a house that has these financial strings attached.", that is nothing to worry about. If you do in fact get the house, all those strings will be taken care of at the settlement table and you will end up with a house free of them. At that point there will be two new financial strings: your new mortgage and the loan to your in-laws. But then, those strings will be attached to any home you may purchase.
posted by juggler at 10:40 AM on March 11, 2010
As for your comment "It seems crazy to me to pay market rate for a house that has these financial strings attached.", that is nothing to worry about. If you do in fact get the house, all those strings will be taken care of at the settlement table and you will end up with a house free of them. At that point there will be two new financial strings: your new mortgage and the loan to your in-laws. But then, those strings will be attached to any home you may purchase.
posted by juggler at 10:40 AM on March 11, 2010
Also did a short sale and the major deterrent was delay, which wouldn't be an issue if you are already living in the house. But I am wondering, if it is a condo, is just your condo being sold or is the whole house (with other condos as well)? If it's the latter, might get a bit more complicated.
posted by beyond_pink at 10:42 AM on March 11, 2010
posted by beyond_pink at 10:42 AM on March 11, 2010
I bought my house as a short sale. Nobody knew it was going to be a short sale going into it - long and what seemed terrible at the time but in retrospect was just really super fucking annoying story here - but once we all knew, it went like a regular sale, only it took longer. Much longer, as in several months (four, to be specific), so the real problem would be if your mortgage approval runs out and you have to start the process up again. The reason it took so long was the evil monster called Bank of America, who kept refusing to okay anything at all. However, this all happened over a year ago, thus before banks got used to short sales. They're still not common around here but I bet in California they are really getting used to them fast. What counts is that in the long run I got my house - no, I didn't get a super deal; it was pretty much fair market - and I also got the tax credit for 2008 even though the final closing was in January 2009.
Go and talk to a real estate attorney. Ask your real estate agent or any agents you know who they use for closings and the like, call them up and have a consultation. They can give you good advice and many of them handle short sales all the time.
posted by mygothlaundry at 10:49 AM on March 11, 2010
Go and talk to a real estate attorney. Ask your real estate agent or any agents you know who they use for closings and the like, call them up and have a consultation. They can give you good advice and many of them handle short sales all the time.
posted by mygothlaundry at 10:49 AM on March 11, 2010
My house was a short sale and it all wrapped up very quickly - in about two weeks once we got things rolling. It all depends on whatever agent the bank assigns to the case and how quickly they want to/can move things.
posted by mikepop at 10:59 AM on March 11, 2010
posted by mikepop at 10:59 AM on March 11, 2010
Response by poster: beyond_pink: No, it's just this one unit. Phew.
deanc: Hadn't considered that (the FHA angle). I don't get why some condos are FHA-approved and others aren't -- there are only two FHA-approved condos in our zip-code. However, other units in our complex seem to sell OK (although recently not at the level they sold for a few years ago, but that goes for nearly all housing in our area).
mygothlaundry: I did read your story yesterday as part of my research. What a pain! I hope you're correct about banks getting a bit savvier about short sales.
I guess I just want to make sure that we can still live in the house while the offer is considered, especially if the process extends beyond May. Then the question becomes: who gets our rent? Who is responsible for repairs? (We've been doing the minor ones ourselves.)
These are all great answers, folks -- keep 'em coming!
posted by potsmokinghippieoverlord at 11:03 AM on March 11, 2010
deanc: Hadn't considered that (the FHA angle). I don't get why some condos are FHA-approved and others aren't -- there are only two FHA-approved condos in our zip-code. However, other units in our complex seem to sell OK (although recently not at the level they sold for a few years ago, but that goes for nearly all housing in our area).
mygothlaundry: I did read your story yesterday as part of my research. What a pain! I hope you're correct about banks getting a bit savvier about short sales.
I guess I just want to make sure that we can still live in the house while the offer is considered, especially if the process extends beyond May. Then the question becomes: who gets our rent? Who is responsible for repairs? (We've been doing the minor ones ourselves.)
These are all great answers, folks -- keep 'em coming!
posted by potsmokinghippieoverlord at 11:03 AM on March 11, 2010
I don't get why some condos are FHA-approved and others aren't -- there are only two FHA-approved condos in our zip-code
To be FHA-approved, a condo complex must have at least 75% of the square footage be residential (a factor for buildings with ground-floor retail), and the large majority of the units (I don't remember the threshold) must be owner-occupied rather than owned by landlords/investors.
I was in the process of buying a condo which I later found out was not FHA approved. I realized that while I would be able to come up with the 15%-20% down payment required, I didn't want to deal with potential buyers having to themselves wonder about coming up with that: when I sell a condo, I want the buyer to look at it, decide he wants it, and buy it with as minimum a hassle as possible. Once I found out that the unit wasn't FHA-approved, I walked away from the deal with no regrets.
posted by deanc at 11:18 AM on March 11, 2010
To be FHA-approved, a condo complex must have at least 75% of the square footage be residential (a factor for buildings with ground-floor retail), and the large majority of the units (I don't remember the threshold) must be owner-occupied rather than owned by landlords/investors.
I was in the process of buying a condo which I later found out was not FHA approved. I realized that while I would be able to come up with the 15%-20% down payment required, I didn't want to deal with potential buyers having to themselves wonder about coming up with that: when I sell a condo, I want the buyer to look at it, decide he wants it, and buy it with as minimum a hassle as possible. Once I found out that the unit wasn't FHA-approved, I walked away from the deal with no regrets.
posted by deanc at 11:18 AM on March 11, 2010
Do yourself a HUGE favor and before you make any decisions regarding buying a home read every article on the Doctor Housing Bubble blog. It addresses (in painful, excruciating detail) the train wreck that is the California real estate market. Unless you are in one of the (relatively rare) reasonable markets (like the Riverside area near LA) the only reason to jump into the market now seems to be if a) you can comfortably lose six figures in equity in the next 2-4 years, or b) you are planning on being trapped in your home for 20 years and are pretty sure you'll be able to make the payments during that time. FYI, Contra Costa county isn't really a very reasonable marketplace- after a quick casual survey it reminds me the LA west side, which is completely insane. From my own experience (living in LA for the last 4 years, and having lived in CA for the last 35 years) it's currently a renter's paradise in almost every city in CA, and you will be MUCH better off putting the difference in price between renting and buying (interest, property tax, maintenance and upkeep, closing costs, etc) into a low-risk investment until the housing markets stabilize. Yes, you might have to consider moving every couple of years, and yes, it's not as easy to justify putting time, money, and effort into improving a property. But every reasonable indicator (mortgage default rates, foreclosure rates, shadow inventory accumulation, job losses, availability of credit, the looming Alt-A and subprime mortgage meltdown) makes jumping into the market now a very dicey proposition, best approached with much care and research. Best of luck to you!
posted by Pachycerianthus at 12:02 PM on March 11, 2010
posted by Pachycerianthus at 12:02 PM on March 11, 2010
I hate short sale horror stories, but they have a basis in fact. My husband and I have a short sale home (single family) currently under contract and have submitted an offer on another. For us, it has worked this way:
1. Find house we like.
2. See that it's a short sale (We have literally only seriously considered ONE house out of dozens that was a regular sale. In our price range, it is the only option in this market. It sucks, big time.)
3. Realtor pulls her comps and all her research and we come up with a fair offer.
4. Submit offer to seller with Short Sale Addendum that has some extra legal stuff in it to cover our butts in the process.
5. Wait.
In the case of the house we have under contract, we did some negotiating with the seller on price before they signed the contract. However, since it's still subject to their lender's approval, it doesn't really mean a whole lot. The biggest challenge is how motivated and well-educated the sellers are about the short sale process. They have to submit paperwork and documentation to their lender for a short sale to be approved. Also, I have heard that the more the seller's agent and/or attorney bug the bank, the faster a short sale may be approved. In our case, the sellers and their agent are idiots, hence we kept looking and put an offer on another home.
If it makes financial sense for you to buy without counting on the FTHB tax credit, you don't have a lot to lose. Just don't count on things happening quickly and don't expect to close in time for that sweet pot of $ from the government.
posted by misskaz at 12:57 PM on March 11, 2010
1. Find house we like.
2. See that it's a short sale (We have literally only seriously considered ONE house out of dozens that was a regular sale. In our price range, it is the only option in this market. It sucks, big time.)
3. Realtor pulls her comps and all her research and we come up with a fair offer.
4. Submit offer to seller with Short Sale Addendum that has some extra legal stuff in it to cover our butts in the process.
5. Wait.
In the case of the house we have under contract, we did some negotiating with the seller on price before they signed the contract. However, since it's still subject to their lender's approval, it doesn't really mean a whole lot. The biggest challenge is how motivated and well-educated the sellers are about the short sale process. They have to submit paperwork and documentation to their lender for a short sale to be approved. Also, I have heard that the more the seller's agent and/or attorney bug the bank, the faster a short sale may be approved. In our case, the sellers and their agent are idiots, hence we kept looking and put an offer on another home.
If it makes financial sense for you to buy without counting on the FTHB tax credit, you don't have a lot to lose. Just don't count on things happening quickly and don't expect to close in time for that sweet pot of $ from the government.
posted by misskaz at 12:57 PM on March 11, 2010
I guess I just want to make sure that we can still live in the house while the offer is considered, especially if the process extends beyond May. Then the question becomes: who gets our rent? Who is responsible for repairs? (We've been doing the minor ones ourselves.)
This is where you need a lawyer. My lawyer drew up a lease agreement with the sellers and all my rent money went into an escrow account that was eventually applied towards the final price of the house. I paid for repairs with the agreement that if the whole deal fell through I'd be reimbursed. misskaz is right though that a whole lot depends on how motivated the seller and the seller's agent are. My seller was a little out there - she disappeared for days at a time - but her agent just kept on calling the banks. It takes a lot of effort on the seller's part so think realistically about how motivated your landlord really is to sell.
posted by mygothlaundry at 1:46 PM on March 11, 2010
This is where you need a lawyer. My lawyer drew up a lease agreement with the sellers and all my rent money went into an escrow account that was eventually applied towards the final price of the house. I paid for repairs with the agreement that if the whole deal fell through I'd be reimbursed. misskaz is right though that a whole lot depends on how motivated the seller and the seller's agent are. My seller was a little out there - she disappeared for days at a time - but her agent just kept on calling the banks. It takes a lot of effort on the seller's part so think realistically about how motivated your landlord really is to sell.
posted by mygothlaundry at 1:46 PM on March 11, 2010
My girlfriend and I just officially concluded house-shopping today because the seller accepted our offer. We gave him an offer yesterday.
From what our Realtor/friends/family/the internet has told us, a short sale would have done two things 1) Probably gotten us a better price on a house, but of course not guaranteed, and 2) Taken for fucking ever. So, yeah, I would try to find somewhere else because I highly doubt you'd make the April 30th cutoff for signing the contract to get the $8k.
Good luck!
posted by InsanePenguin at 4:32 PM on March 11, 2010
From what our Realtor/friends/family/the internet has told us, a short sale would have done two things 1) Probably gotten us a better price on a house, but of course not guaranteed, and 2) Taken for fucking ever. So, yeah, I would try to find somewhere else because I highly doubt you'd make the April 30th cutoff for signing the contract to get the $8k.
Good luck!
posted by InsanePenguin at 4:32 PM on March 11, 2010
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posted by potsmokinghippieoverlord at 10:06 AM on March 11, 2010