This may be the best market in years for buyers looking for a home with built-in equity. The one simple reason -- motivated sellers. At the extreme end of the motivated seller category are the sellers who have missed months of payments and are headed towards foreclosure. They are being hounded by creditors and need to sell quickly. When they receive an offer for less than the payoff amount of the loan prior to foreclosure, and the lender approves it,  this is called a “Short Sale”. If the seller has proof of hardship with no funds to make up the difference between payoff and offer, many banks will often accept a figure below the mortgage payoff to prevent further holding and interest expense. If they don’t, they have to wait for a sheriff’s sale and may have to take back the house. Enhancing the seller’s willingness to sell prior to foreclosure is a key law passed that started January 2008 eliminating taxes on the forgiven debt by banks in many cases. In the past, the government taxed this forgiveness of debt as income. A $50,000 seller debt forgiven by the bank could place an extra $15,000 of tax burden on the seller. Now there is no income tax.
 
Banks and mortgage companies have recently been barraged with a glut of foreclosed homes. According to a recent Indianapolis Star report, over 53,000 Indiana homes were in foreclosure or heading that direction in 2007. There are a variety of reasons why people can’t or won’t pay their mortgage bills. Some would argue that the prior loose lending practices enabled questionable clients to easily purchase properties with minimal down payments. These will wash out of the system due to the fact that lenders have again learned a valuable lesson about risk vs. reward. Others say that the local builders’ production rate pumped home inventory levels far above demand, resulting in little appreciation and a tougher resale process for those who were no longer able to afford their mortgage payment. And there are always the stories of bad things happening to good people. Unforeseen life changes with job loss or medical issues may also have triggered defaults on mortgage payments. 
 
“Hundreds of properties are sold through this process each month. Short Sales offer a tremendous opportunity due to the increased inventory levels in the current market,” said Robert Nice, local real estate attorney and owner of The Nice Law Firm. According to Nice, “It is better to buy the day before or the day after a sheriff’s sale. The sheriff’s sale presents traps for the unwary buyer and should be reserved for highly experienced investors.” 
 
Many Short Sale properties will be sold “AS-IS” without disclosure. Therefore the buyers should be certain to consult professionals before consummating these types of transactions. These professionals include a qualified home inspector, a seasoned REALTOR, and a real estate attorney. “The inspector will identify potential problems in the structure and mechanicals of the home. The Realtor will focus on coordinating and managing the negotiations between the bank, seller, and buyer. The real estate attorney will review the contractual language and other legal requirements imposed by the lender.” said Nice.
 
How do you get started with Short Sales? It is in the best interest of these motivated sellers to hire a REALTOR to market the property and negotiate offer(s) with the bank and buyer. This can be a complex negotiation involving several parties where the real estate agent has responsibility for representing the seller’s and/or buyer’s interest and not the bank’s. Buyer’s need to be patient since it does take time to get purchase agreement approval. Work with seasoned professionals to guide you through the process.