This is the fourth post in a multi-post series on things to consider when you’re deciding whether or not to buy a short sale. So far, we’ve covered 1) What’s Your Time Frame for Moving? 2) How much under market value are you purchasing the property for? and 3) How experienced is the listing agent?
In a short sale, it’s already challenging enough to try to get the seller’s main lender to accept a lower price on the sale of the property. If other loans on the property exist, it can get very complicated, which brings us to the topic of this post:
Does the seller have more than one home loan?
Home owners often have just one home loan. Virginia is a trust deed state (I’ll cover the definition of trust deeds in another blog post), so this loan is called a first trust. However, it’s common for home owners to get a second loan on their property. Often, buyers will get a second trust at the time of purchase to help increase the size of their down payment. It’s also common for home owners to tap into the equity on their property after they’ve owned the home for a while through a home equity line of credit (HELOC). Both of these instruments can be very helpful to home owners.
However, in short sales, the existence of these other loans complicates an already complicated situation. The holders of each of these bank notes (the lenders involved with each loan) have to give their approval on sale of the property. Often, the second trust holder is forced to take proceeds from the sale that represent an even lower percentage of the loan amount than the first trust holder. This can sometimes make it difficult to get the second trust holder to be cooperative.
All this to say that as a buyer, if you know going into a short sale that several loans or lines of credit exist, you know the sale is going to be a longer, more complex process and that the chances for success could be somewhat diminished.
Please click here for the next post in this blog series on the short sale process.