Should I Purchase a Home with a Short Sale?

Anthony Pierpont
Anthony Pierpont

The question on whether you should purchase a home that needs a short sale is a very complicated question.  To answer that question you need to know what a short sale is and how a short sale is done.  What is a short sale?  It is one or two of the loans on the home allowing a sale of that home for less money than is owed on it.

Short sales can be done before the home goes into foreclosure and in some states that have a period of redemption, after the foreclosure and sheriff sale.  It is also important to know that short sales and foreclosures are handled by two different departments within the lending company.  Short sales are handled by the Loss and Mitigation Department while Foreclosures are handled by the Real Estate Owned Department or better known as the REO.  Both of these departments have different Vice Presidents in charge and each are liable for their losses.  Something banks and those departments in those banks do not like.

It is also very important to understand where each loan or lien stands on the property.  Tax liens are always in first place.  That means if there is a foreclosure they are paid before anyone else.  If there is money left over then the other lenders are paid according to which place they fall.  The first and initial loan is in first place after tax liens.  So if there are no tax liens then the first mortgage is paid in full first before the other lenders or liens on the home are.  If you have a second mortgage that is always in last place.  They rarely get anything and if they do it is always pennies on the dollar.  Because of this risk second loans always have a higher interest rate.


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