Buyer beware of Florida short sales

The so-called short sale occurs when a bank bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the mortgagee.

A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. A short sale does adversely affect a person's credit report, though the negative impact is typically less than a foreclosure. Depending upon other credit information it is typically possible to obtain another mortgage 1-3 years after a short sale.

The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property.

Some unscrupulous individuals including agents are paying a small amount such as $100 to the mortgagor to have a claim on the property. They are then advertising the property as a For Sale by Owner (FSBO) distress sale with a come on such as 'make any offer.' Typically the asking price is thousands of dollars under the fair market value.

When the 'mark' makes a offer on the property, they are told there is another contract on the property and the unscrupulous agent tells the 'mark' they must increase the bid. The buyer may have to increase several times to get the property in the phoney bidding war.

If an agent is involved in one of these bogus short sales, they will tell you not to call the office, because the don't want the business owners or managers to know about the transaction. The agent may also suddenly go on vacation and tell you to call their cell phone or a special phone number.

One of my relatives actually bid on one of these properties and got a multi-page binder faxed back that was illegible. The relative walked away from the property and got another agent.

Short sales generally take many months to complete and many agents advise their clients to avoid them. If you make a bid on a short sale in which the property is heavily discounted, and hear back that another contract is pending, you may be wise to walk away and look for another property.

source: http://en.wikipedia.org/wiki/Short_sale_(real_estate)

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