GUIDELINES REGARDING THE PURCHASE OF FORECLOSURES AND SHORT SALES

 

The following are guidelines that potential buyers should keep in mind when thinking about purchasing a foreclosure or short sale property.

 

  • Patience is key when dealing with short sales.  Please prepare yourself for long delays.  A majority of lenders are located outside the state of Minnesota.  Different time zones, the number of banks involved, and the overall number of short sales going on in today’s market can slow the process down.  If you are a buyer looking to close on a specific date, foreclosures and short sales might not be an option for you. 

  • Both foreclosures and short sales are listed and sold based on their current market value, given the condition and other factors used to determine value.  Generally speaking, they are sold at a significant discount.

  • Many lenders required the use of their purchase agreement (contracts) instead of the standard Minnesota-approved forms.  The purchase agreement provided by the listing agent may not be the same as required by the bank, so we may have to complete two separate contracts.  The lender may also have additional required addendums to sign.  These addendums are written to protect the lender.  Because these documents can be filled with unfamiliar contract terms and are not standard to Minnesota, they may complicate the offer to purchase – making it necessary to seek advice from a real estate attorney. 

  • Once an offer is written, each offer response time varies.  It can range from 2-14 days (or more) for a foreclosure.  Short sales can take up to 3 months or more.  You may or may not have the right to revise or withdraw your offer to purchase during the bank’s decision-making process.  This must be clarified by each individual listing agent.  All offers/revised offers must be in writing. 

  • Time is of the essence, as the bank may continue to review and accept other offers up until your offer is fully executed by all parties and delivered back to the bank. 

  • Many lender-mediated properties receive multiple offers.  We may or may not be informed of a multiple offer situation.  The listing agents suggest you make your best offer first.  Unfortunately, we cannot expect a counter offer.  The homes are usually priced to sell quickly. 

  • Lenders usually require a specific amount of earnest money.  A personal check is sufficient to make the offer, but will not be cashed until final acceptance.  Typically, lenders require a cashier’s check to be hand-delivered to the listing agent within 1-2 days of final acceptance.  Earnest money is non-refundable once all contingencies are removed.  You may lose your earnest money if your financing falls through.

  • Lenders prefer cash offers.  They may even accept a lower cash offer over a higher bank-financed offer.  For cash offers, a verification of funds must accompany the offer (i.e. bank statement or a ltter from the buyer’s bank). 

  • For financed offers, a pre-approval letter must accompany the offer.  In addition, some lenders may require that you be pre-approved with a bank of their choice.  However, the lenders cannot force you to ultimately use their bank.