Ranch style home in North Salinas, California With the housing market in constant flux, many people are trying to take advantage of “Short Sales” to get into the home of their dreams. A “short sale” is where the bank or lender agrees to allow a house to be sold for the less than the balance of the mortgage due on the home.The theory is that the bank or lender is attempting to reduce their losses with a “something is better than nothing” approach. For some people, this has been good news. They have procured homes for less than they would normally have to pay for their dream home.
This lure is especially lucrative for people who have recovered from bankruptcy, have rebuilt their savings, and now want to continue their rebuilding through a home purchase. At first glance, the concept of getting more for less sounds like a great idea to anyone. However, skimping on good information can turn your dream home experience into a nightmare.
Bankrate.Inc ran an article highlighting the experiences of one such consumer, Adam Melson, with his short sale. He found and purchased a home through a short sale, thinking that he was getting a good buy, especially considering the condition of the house and the neighborhood where it was located. Melson also skipped important things like a home inspection.
After the deal was signed, he discovered other problems which included termite and water damage which resulted in a $40,000 remodeling tab. Whether you have gone through bankruptcy or not, absorbing an unexpected $40,000 tab can be financially crippling, and send many people back to the bankruptcy court.
To prevent a relapse back into bankruptcy with a short sale, use many of the same principles that you learned during bankruptcy. First off is know what you are getting and why. Many people get into financial trouble because they do emotional spending. The same happens in home sales… you fall in love with a house and you just have to have it.
The allure also tends to blind you to the little things that become big problems later, like cracks and uneven flooring. Do not pass them off as mere character traits of the house. Take the time to get quality information about the house. Some states do not require lenders to make disclosures about problems with the home.
If the sale involves a foreclosed home, the lender may not even be aware of issues that an original homeowner would normally list on a disclosure form. Do not assume that the lack of disclosure means that no issue exists with the house. Invest in a quality inspection before you make an offer. After you receive the inspection, ask questions if you don’t understand the report. Also leverage your insurance agent and ask them if there are any risks they see that will be reflected by way of higher premiums for the house.
Bankruptcy is a process which takes diligence. If you make the effort to rebuild after bankruptcy, make sure that you do not repeat the same mistakes which originally lead you down the bankruptcy path. Controlling emotional spending, planning expensive purchases, and knowing the value and hidden costs of large expenses will help you prevent making the same mistakes. No one wants to file for bankruptcy. If you are being bit by an unexpected debt associated with a short sale, bankruptcy may be your best option for resolving new debt issues.