What Woodward and Bernstein Can Teach Us About Short Sales
This past weekend I watched Woodward and Bernstein yet again as they did a little bit of recon work in order to expose the Watergate scandal. Believe it or not, it is that kind of intense due diligence that is often required when working with distressed properties.
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When identifying a distressed property to purchase (or when taking a short sale listing), the first thing you need to do is obtain some sort of property profile or preliminary title report. Some agents may be able to access property profiles through their local MLS; others may have access to title company websites. Then, once you have the information at hand, you need to read carefully. (Don’t just throw the paperwork in the file.)
In a short sale, agents will need to collect authorization, financial information, and other necessary items from all of the individuals named on the title report and the loan. If Uncle called you about the short sale and Grandma (the owner) is in Europe for three years, you are still going to have to work with Grandma. So, this means that you may have some upcoming challenges. When purchasing a short sale, confirm that you are actually working with the seller or the seller’s authorized designee.
The second item to review on the property profile or preliminary title report is the number of liens that currently exist against the property. What kind of institutional and non-institutional liens currently on the title report? The first lien holder will usually pay junior lien holders (if they are banks) a little bit of money to release their liens. But, if there are non-institutional liens against the property, you are going to have to speak with the seller to see whether s/he will be willing to participate in obtaining the release of those liens. A significant number of liens would be your second clue that you have some additional work cut out for you. If the bank is not going to pay off non-institutional liens, is the buyer willing to kick in some money in order to do so?
A third item to review on the property profile or preliminary title report is whether some sort of pre-foreclosure proceedings (such as a Notice of Default) have been filed against the property. Each state has different foreclosure laws and time frames, and it is important to be familiar with the time frames in your state. If pre-foreclosure proceedings are listed on the preliminary title report, check the date that these proceedings were recorded. Was it yesterday? Was it three months ago? Know that if it was three months ago, you do not have much time before the actual foreclosure. This may be your third clue that this short sale transaction may not be smooth sailing.
None of the advice I have provided here would land me the Pulitzer Prize. However, knowing how to conduct this level of investigation will definitely help you to save time and identify short sales transactions that will likely result in a successful closing.