Last month I came close to making a fairly novice mistake on a short sale I was purchasing. This was a property I was buying for my personal residence and I had finally received an accepted offer from the bank after 6 months of negotiating. I was excited that the bank had finally accepted my offer and without thinking, I began spending money towards the transaction without waiting for the title work to come back.
In any short sale transaction, getting the bank to approve a discounted payoff does not necessarily mean you are in the clear. It is still necessary to make sure that there are no title issues that might impede the process.
As was the case in my transaction, the bank had finally agreed to my price, but in running title, my closing attorney found multiple judgments against the seller. Having waited on the bank as long as I had, I was anxious to finally close on the property and simply didn’t wait until the title work was back. I had already spent money on inspections and other miscellaneous expenditures when I got the news. In the end, the seller was able to work through the judgments and get them cleared in time to close on the property. However, had he not been able to do this, I would have been stuck holding the bag on these expenses.
Let this serve as a word of caution to those investors who are negotiating short sales (or any investment property for that matter). Sellers who are in distress may represent a great opportunity to buy property at a discount, but they also have a much higher likelihood of liens, judgments and other potential title issues. Learn from my (near) mistake and make sure you work through any title issues before spending unnecessary money or time on the transaction.