Blog by Beebe Cline

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5 Risks in Buying a Short-Sale Home — and How to Handle Them

Short sales can be great opportunities for home buyers to maximize the bang for their buck. But much like foreclosures, they can have hidden problems that can erase or even cost more than the potential savings.

A short sale occurs when a homeowner has fallen so far behind on payments that there are liens on the property — most commonly from lenders or tax agencies. The homeowner can’t afford to pay those liens in full, and works out a deal with the lien holders that allows for the sale of the home, with the proceeds settling all the debts.

The result: The debtor can walk away without a credit-killing foreclosure, the creditors get paid, and the buyer gets a sweet deal. Unfortunately, the original homeowner often has been struggling so long that the buyer is saddled with unforeseen maintenance, financial and legal problems.

That’s not to say that there aren’t some great deals to be had — especially for a first-time buyer who may be looking for a chance to get into a starter home at below-market costs — but it’s crucial for buyers to go in with their eyes wide open.

Here’s how to handle five common risks when you’re buying a short-sale property.
5. Closing drags on. Short sales can take much longer to close as banks work to approve the deal, and legal problems due to unresolved liens create unforeseen delays.

The solution: Plan ahead. Understand that it may take six months or more to close. Have a backup plan in place so you have an affordable place where you can stay in case you need to move out of your previous residence before the new home is ready.