Short Sales

Short sales - Young lady standing on head at beach
A short seller is upside down, meaning they owe more on their mortgage than their home is worth.

Short Sales

 

When the owner of a property owes more to the lender than the property is worth, called being ‘upside down,’ this is how short sales are defined, or potential short sales. Short sales can be caused by numerous factors.

A drop in the U.S. real estate market like what happened in 2008, when the sub prime lending crisis caused many properties to lose as much as 70% of their value, or other factors like lack of upkeep on the property,  an increase in crime in the area, an economic slowdown, or the discovery of something negative in the area can cause a property to lose it’s market value.

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Short sales - Man's hand holding stack of cash
A short seller may never recover the lost value on his home.

So, as a result, a borrower may find himself making large payments on a home that may never recover the lost value. In order for the borrower to get out from under this loan, they may approach the lender and ask them if they are willing to accept a short sale, or less money than what the loan was originally granted for, and what is owed on it.

Many times a realtor will assist the homeowner with the communication with the lender, and help set up the short sale for the homeowner.

There are two types of short sales: approved short sales, and unapproved short sales.  An unapproved short sale is where a homeowner will attempt to sell the home for what he can get without the lender giving it’s blessing for the sale. More back and forth is needed for the bank to approve the short sale.

 Short sales Red haired young lady looking frustrated
An unapproved short sale can drag on for many months, causing a lot of frustration.

An unapproved short sale can go on for many months, as the lender may or may not accept the offers that are generated. It is the lender’s decision wholly to participate or not. They may wait to see how many offers come in, and for what price before they accept any,or they may do nothing at all.

It is possible to find a great deal as a buyer of this type  short sale, but is not ideal for someone with a timeline for making a home purchase.  An investor that doesn’t need the home to live in, is best suited for pursuing an unapproved short sale.

Short sales - young man jumping
An approved short sale can provide a buyer with a great deal.

Once an offer has been accepted by the lender, it is then considered an approved short sale.  If this sale falls through for whatever reason, usually financing,  the property will go back up on the market as an approved short sale.

An approved short sale, on the other hand, has the lender’s approval for the sale, and these normally go through in a much smoother fashion. but lenders normally do not approve short sales unless the homeowner shows that he is unable to live up to the mortgage obligation.

The bank is saying that it wants to sell the property, and is in agreement with the realtor, and the homeowner regarding the sale, and that any other lien holders on the property have also given their approval.

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If a buyer moves quickly with an approved short sale, it is possible to get a great deal, but the approved short sale can sell quickly, as the price is normally low, and the lender is willing to close within a reasonable amount of time.

Short sales are listed on the Mulitple Listing Service, or the MLS. All Realtors have access to this information, and by hiring one, you will be given this information.  A Realtor can also give you information regarding other bargain properties, such as government foreclosures, and bank foreclosures – REO’s, as well as, other listed homes on the market.

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Pre Foreclosures

Pre Foreclosures

What are Pre Foreclosures, and how do they work?

Pre foreclosures person presenting credit card
Pre foreclosures are the result of the homeowner failing to make his mortgage payments.

Pre foreclosures are properties that are in default due to the property owner not meeting his obligation to pay an outstanding mortgage amount that is owed for at least the previous 90 consecutive days.

A pre foreclosure is not the same as a short sale.

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Pre foreclosures rural-courthouse
Pre foreclosures are started when the lender files a notice of default.

The pre foreclosure point is started  when the lender files a notice of default in non judicial foreclosure, or lis pendens, in judicial foreclosure,( depending on the state ) on the property, which is legal notification to the property owner that the lender will start actively pursuing legal action if the debt is not paid. The property owner now has the chance to pay what is owed to the lender or, if he chooses, can attempt to sell his property prior to it going into foreclosure.

These notices of default are found in your local newspaper, and on some real estate websites. They are often under the Foreclosure section, but are not technically foreclosures until the default period expires, and the homeowner has not paid what is owed.

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If the homeowner pays what he owes prior to foreclosure period, the pre foreclosure stops.

If the homeowner pays what he owes, this will end the foreclosure pursuit of the lender.  It is vital to know if the property is still available before spending a lot of time and energy on it.  The surest way to determine if the property has been reinstated, is to call the attorney or trustee attached to the particular foreclosure. These folks can let you know if the property is still available, but won’t be able to give you specific answers about the property.

The default period, the amount of time between when the lender notifies that the property is in default, and when the property is in foreclosure can last several months or more.

 

This is at the discretion of the lender. Most lenders would rather the existing borrower pay what is owed, than have to take the property back, and resell it.  Lenders are in the business of making loans. They are not in the real estate business.

It is very possible for an investor to strike a good deal during this period of time. The homeowner may be willing to take a steep discount from what his home is worth, in order to get out from under his debt obligation that he is having trouble paying.

man-couple-people-woman-medium
The homeowner may not be in a dealing mood after he or she receives the notice of default.

Be aware that the owner may be getting deluged with phone calls, mail, and in person, of people wanting to buy his home. He may not be open to the idea at first, but may change his mind as he gets closer to the date of losing his home.

It is also possible that he will list his home with a real estate agent.  If this happens, you chances for a great deal decrease somewhat, but, the homeowner may be willing to make a deal as his time as owner is about to end.

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Time is of the essence with pre foreclosures.

Whether or not the homeowner is willing to make a deal will depend also on the amount of money that is still left on the loan, and the market value of the property, which will determine how much equity is in the home.  If there is more owed on the property than the property is worth, called being ‘upside down’,  it would then be considered a short sale situation.

Time is of the essence, however, in this pre foreclosure situation, as the property must close prior to the home falling into foreclosure.  Once it becomes a foreclosure, the homeowner no longer owns the property, the lender does, and the homeowner is then out of options.

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