Short sale caused by a home line of credit? Newbie needs help!

[Chris M.]

Hey guys, we are currently communicating with a seller who inherited an old home from his mother who passed away and he is an absentee owner. He opened a line of credit on the house that he ended up becoming delinquent on. Now he's working with the bank issuing the credit line on a short sale of the house. I am pretty sure we are going to pay for this home in cash, and we are working with an agent who already sent us a contract. The price they're asking is about $10,000 less than the total that is owed on the delinquent line of credit, hence it being a "short sale." I'm going to be honest: this is all totally new to me and I'm a bit worried that we're going to sign this contract then turn around and find out there's some huge issue going on we weren't made aware of, although I don't know what it could be. The home is a couple thousand bucks behind on property taxes and needs some repairs. I am doing a physical inspection myself in a few days, but due to a tight deadline placed on this deal by the bank, we don't have time to set up a professional inspection and it is an older house. 

My question is this: based on the situation described above with a short sale on an older home is there anything we have to make sure that we do/check on? 

Again, total newbie here. I am of course going to verify that everything is legit with the bank. I'm also going to study what to look for in a house inspection and how to estimate repairs better. Also going to check for the 10th time that there's no weird tax/zoning issues with the home. But there's so much I don't know about the short sale process. Is there something we need to prepare for? Fees? Steps?

This is the closest I've been to finally owning my first piece of real estate, so any advice you guys can give me would be a huge help. Thanks all and hope to hear from you.

[Michael Ealy]

Originally posted by @Chris M.:

Hey guys, we are currently communicating with a seller who inherited an old home from his mother who passed away and he is an absentee owner. He opened a line of credit on the house that he ended up becoming delinquent on. Now he's working with the bank issuing the credit line on a short sale of the house. I am pretty sure we are going to pay for this home in cash, and we are working with an agent who already sent us a contract. The price they're asking is about $10,000 less than the total that is owed on the delinquent line of credit, hence it being a "short sale." I'm going to be honest: this is all totally new to me and I'm a bit worried that we're going to sign this contract then turn around and find out there's some huge issue going on we weren't made aware of, although I don't know what it could be. The home is a couple thousand bucks behind on property taxes and needs some repairs. I am doing a physical inspection myself in a few days, but due to a tight deadline placed on this deal by the bank, we don't have time to set up a professional inspection and it is an older house. 

My question is this: based on the situation described above with a short sale on an older home is there anything we have to make sure that we do/check on? 

Again, total newbie here. I am of course going to verify that everything is legit with the bank. I'm also going to study what to look for in a house inspection and how to estimate repairs better. Also going to check for the 10th time that there's no weird tax/zoning issues with the home. But there's so much I don't know about the short sale process. Is there something we need to prepare for? Fees? Steps?

This is the closest I've been to finally owning my first piece of real estate, so any advice you guys can give me would be a huge help. Thanks all and hope to hear from you.

 1. Ensure you get a paperwork from the bank that the shortsale payoff is indeed the shortsale payoff and have it signed and received prior to closing. Sometimes, banks can change their mind and not go through with the shortsale. Crazy, I know but I've seen it happen.

2. Have the title checked to ensure there are no other mortgages or claims, or encumbrances. Having the title check ensures the seller is indeed the owner or the sole owner.  Sometimes, in a shortsale, the borrower is just one of the owners on the title (like husband is on the loan but not the wife but both are on the deed or in some states, you need the permission of the wife to sell the house even if she is not on the deed).

3. And on inspection - ensure the big ones are checked. Mechanicals - like HVAC, plumbing, etc. Structural - like the roof, foundation, etc. Those are big ones that will cost big money if there are problems you were not able to see or inspect.

Keep the above in mind. A shortsale is pretty much the same as a regular sale except you're dealing with the bank (and their documents and sometimes, silly rules) in addition to the seller.