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Developer Owned Short Sales - Tricky!
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I represent both buyers and sellers of Destin, FL short sales and every situation is different. Sometimes they can be very easy and some times short sales can be extremely complex. Some of the greatest challenges you will encounter when working on short sales will involve junior liens because the junior lien holder can prevent the short sale from taking place. Developer owned short sales can be a haven for liens and this creates a complex situation.
I am currently working on five developer-owned short sales (3 different developers) and two of them have been extremely complex. The current housing crisis has created a number of developer owned short sales. On newer projects the developer may still hold a number of units that are worth less than the balance to the bank. The bank will often prefer to work with the developer to sell these units in pre foreclosure or short sale. A short sale saves the bank money because they do not have to proceed with an expensive foreclosure. Below are some things that you will need to know if you plan to purchase a developer-owned short sale.
- Be prepared to negotiate the contract. You are dealing with a developer and a bank and they love to negotiate. Be prepared to counter at least 3 times. If not, you may be leaving money on the table. Most developers are master negotiators and they will not show you all of their cards until they feel you have made your final offer.
- Make sure you hire a good closing attorney and purchase title insurance. There is a strong chance that there are current and future leans from contractors, property taxes, HOA or condo association dues, and other liens. A title insurance policy should protect you against any future liens and the title search will identify current liens. In a short sale, the current liens will have to be cleared prior to closing.
- Do not be surprised if your closing is delayed because issues pop up. The bank and developer may have to negotiate past liens and this can take some time. If the property is upside down and the bank forecloses, the junior liens will be wiped out at foreclosure, leaving the junior lien holders nothing. In a short sale, the seller or bank will try to clear the liens for pennies on the dollar. Many lien holders may prefer that the developer get foreclosed on because they are upset with the developer. This creates the need for a strong negotiator.
- Financing may be a challenge - You may have trouble obtaining financing through your normal resources. Fannie Mae has restrictions regarding the number of developer owned condo units. This should not be a problem but it can be somewhat of a challenge.
Developer owned short sales are not easy, but they can be done. An ideal short sale situation includes one lender and no junior liens. In our current environment, junior lien holders like 2nd mortgages and home owners associations are experienced in dealing with short sales and they will work with sellers and lenders; therefore, these types of junior liens are normally not a problem. A good short sale listing agent can deal with second mortgage holders and HOA's. Also, back property taxes always get paid at closing and our standard FAR/BAR contract makes this the responsibility of the seller or bank. Sellers and banks may have more difficulty dealing with the strong willed general contractor or local roofing contractor because they are upset and would like to see the developer foreclosed on.
I love short sales! Short sales will be a major player in solving our current housing crisis.
Clayton Bonjean, Broker, MBA, CDPE
www.mainsailrealtycompany.com
850-585-1284
brokerclayton@mainsailrealtycompany.com
