Foreclosures and Short Sales           


Homeowners who do not meet their mortgage loan obligations have foreclosure proceedings initiated against them. Usually this occurs after the mortgage becomes 90 days delinquent. Some homeowners don't realize that they can attempt a "Short Sale" in order to minimize the damage done to their credit. When people decide to walk away from the home or are unsuccessful in a loan modifiaction or short sale, they bank repossesses the home and assumes ownership.

Buying Foreclosures

Foreclosures present an excellent opportunity to buy a home at a discount. In most cases Foreclosures or Bank REO (Real Estate Owned) property can be purchased at up to 80% of current market value. But of course, there are reasons why this discount happens. First, Foreclosures (REOs) are usually in distressed or poor condition. This may include various stages of disrepair such as missing appliances, damaged interior walls, doors and cabinetry. Usually the maintenance has been neglected on these homes as well. Pools could be green and landscaping and exterior could be unkempt. Second, The bank will not pay for repairs to the home before you buy it. Banks sell REOs "AS-IS". Third, In most cases REOs are sold to the buyer for CASH. The reason for this is that competition is fierce for these discounted propeties and a cash transaction lessens the risk of the home not closing. Also, because most of these homes need repairs, only Conventional financing could be available. In the end cash is usually king.

Short Sales

Like foreclosures, homeowners who do not meet their mortgage loan obligations have foreclosure proceedings initiated against them. Usually this occurs after the mortgage becomes 90 days delinquent. However, banks realize that they lose more money when they repossess a property than they would if they allow the home owner to sell the property for less that what the owner owes on it. This is called a "Short Sale". Short Sales are a win-win for the bank and the home owner. The bank saves money and the hassle of having to repo the home and the home owner gets out from under the burden of the home. A short sale is much less damaging to their credit than a foreclosure.

Buying Short Sales

Short Sales also present an excellent opportunity to buy a home at a discount. In most cases short sale property can be purchased at up to 85% of current market value and are usually in much better condition than foreclosures. Short sale properties are also usually easier to finance than foreclosures because in most cases they are in better condition. of course, there is also a downside to buying short sale properties. The bank is usually unwilling to make repairs as with foreclosures, and the short sale process, from the time a contract is drawn up can sometimes take up to 120 days. So, If you need a home right away, short sales would not be the best way to go. However, if you have time an patience, a short sale is an excellent opportunity.

You're a good candidate for a short-sale purchase if:

You're very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.

Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you're preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.

You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

Some of the other risks faced by buyers of short-sale properties include:

Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.

Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.

No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.

Note: This website provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.


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