SHORT SALES

Definition: A short sale occurs when a property is sold and the bank/lender will accept less than what the seller owes on the mortgage or mortgages, thereby releasing the seller from ownership or claims to the home. Sellers must provide a “hardship” letter to the lender explaining why they have to sell. Some examples are divorce, death of spouse, loss of job, having to move etc.  

Buyers will go after short sales to get a cheaper deal. These homes are priced usually considerably cheaper than what the rest of the neighborhood is asking for similar homes.

Just know that very few short sale homes will close in the typical 30 day closing. They will generally take upwards of 60-90 days.

Hire an Agent with Short Sale Experience

Only work with a Realtor/agent who has experience working with short sales (Bill and I have worked with plenty of short sales.) You need an experienced short sale agent if you expect to close at all because there are a lot more details and deadlines that have to be followed. An agent with experience in short sales will not only expedite your transaction but more importantly will protect your interests. Your Realtor/agent will check to see who all owns the property (who actually has Title to the home), whether the seller has been given Foreclosure notice already and how much is actually owed to the bank/lender.

Many times there are two loans (standard 1^st mortgage and 2^nd equity loan) on the home in question and therefore 2 lenders will have to be satisfied.  If there is a total of 2 mortgages on the home for a total of $200,000, with $175,000 due to the 1^st lender and $25,000 due to the 2^nd, and you offer $125,000 on a home asking $130,000, the 2^nd lender will get nothing unless the 1^st agrees to give part of the proceeds to the 2^nd lender in order to get the cooperation from them.

Submit Documentation & Purchase Offer to Lender

Once the seller of the home has accepted your offer, it will be sent to the lender for approval. Until the lender agrees to the price you are offering, you do not have a contract. While your offer is being considered by the Lender, there may be other offers coming in and your offer may be rejected if it is not the highest or best offer. Keep in mind that after careful research with you and your Realtor, submitting a low-ball offer on an already great deal of a home most likely will be topped by another higher offer and you will have to go out looking again for another great deal.

The lender will also want to receive a copy of your escrow (deposit) money check. Until your offer is accepted, your check will not be deposited at the Title Company and actually be cashed. A pre-approval letter from YOUR lender/mortgage/bank person will also have to be submitted. Because lenders take longer than sellers to process all the paperwork and make decisions, you will want to give a time limit from which you can rescind your offer and move on to another home. Most lenders will make a decision within 2 to 3 weeks and your Realtor will be checking to make sure it is in the hands of the decision-making person and will update you with the process.

Your Realtor/agent will submit a CMA or Comparative Market Analysis of the home, and will also obtain their own BPO or Broker Price Opinion to confirm the value of the home.

You will be asked to purchase the property "as is," which means no repairs. You will pay for your own inspections (as in conventional contracts), appraisal and survey. Once your inspector finds what the home needs in repair, the lender will not contribute anything towards them as they usually do when you are purchasing from a seller directly. Keep in mind you are getting this home at a deal anyway, and so no your limits on what you will pay to repair the home before you even hire and pay an inspector. After an initial home inspection, there may be need for a separate roof, sewer or septic tank, electrical or plumbing expert to inspect the home further. Their fees are not refundable. However, your Realtor/agent will make your offer contingent on the home not costing you more for repairs then what you are willing to pay. You may pull out of the contract should those repairs exceed your limit.

FORECLOSURE PROPERTIES

Definition: A foreclosure property is a home when a notice of default of payment by the seller has been filed in the public records. It means the owner has stopped making mortgage payments of at least two payments and the lender has given notice that unless the payments are brought up to date, it will sell the property to the highest bidder.

If the home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale. Buyers see profit in buying foreclosures because they can often buy the property for the amount owed on the mortgage and having instant equity.

Keep in mind that unlike Short Sales, most Foreclosure properties are not available for inspections prior to purchase.  Here are some things to consider before you rush to purchase one:

1. Who Is Living at the Property?  If there are people still living in the property, whether renters or owners, you will have to evict them. You most likely will have to hire an attorney. Many times tenants will retaliate if they are being sued.
2. Condition of Foreclosed Homes. Because these homes are purchased “as is”, there is no guarantee as to the condition. And when sellers know they are being foreclosed upon, many times they no longer take care of the home or strip the home of appliances, hardware, fixtures etc.

REOs – REAL ESTATE OWNED