FORECLOSURES AND SHORT SALES EXPLAINED

Unfortunately, in today’s market, foreclosures and short sales are more prevalent than ever. With the state of the economy, unemployment and other factors, many homeowners are struggling to pay their mortgages. As a result, there are many bank-owned and short sale listings out there to choose from for today’s buyers.

Below is an explanation of Foreclosure and Short Sale Properties:

FORECLOSED PROPERTIES:

A foreclosure is the forced sale of real estate to pay off a loan on which the owner of the property has defaulted. The seller of a foreclosure is then not a normal home owner, but instead is a bank or lender. If the property is a home, it has typically sat vacant for months or longer by the time of listing. These homes are typically winterized (water drained from pipes, main water supply turned off, etc.) to protect it.

When the property is listed, the lender has already prepared for the sale and completed the appraisals needed to establish the list price. The purchase price that is ultimately accepted by the lender is determined by the number of offers received and the lender’s motivation to sell.

SHORT SALES:

A short sale occurs when an owner cannot sell his or her property for enough to cover the mortgage(s). Essentially, the amount still owed on the mortgage(s) is greater than the value of the home. In a successful short sale, the lender agrees to sell the property for a discounted payoff. If there is more than one lender involved in the short sale, all lenders must agree to the discounted payoff. Once your offer is accepted by the seller, the lender(s) must perform appraisals and determine if their investors will agree to take the loss. This process can take months.

If the home owner has signed the purchase agreement prior to sending it to the lender, all future offers will be considered backup offers in most short sale situations. Usually, only the first offer gets sent to the bank. The closing success rate of a short sale is much less than foreclosures, as the homeowners may decide they no longer want to sell or give up, or the lender(s) may decline offers or not review short sale offers quickly enough in order to allow a successful closing before foreclosure. The number of lenders involved and which lenders are involved also affects the potential success of the short sale. With two, three or more lenders or lienholders involved, a short sale is less likely it is to succeed.

Remember, acceptance of the offer by the lender(s) is only the first step; other lien holders may not approve the sale or may request to be paid in full at closing. It is imperative to ask if there are other lien holders involved in a property in addition to the mortgage lender(s). For example, townhome associations are not likely to forego their lien against the property for unpaid dues/assessments. They usually require the outstanding money to be paid at closing; and the lender may not be willing to pay them.