Foreclosure & Short Sale Information
Foreclosure & Short Sale Information
"Short sales", and pre-foreclosures are terms often incorrectly used interchangeably. Although a short sale can be a pre-foreclosure it is not always.
What is a Short Sale:
A Short Sale is when the seller is trying to sell their home for less than what is owed on it. If the seller will be unable to pay the difference at the time of closing then he will need to obtain the bank/lenders approval (“3rd party approval”) to “sell short” of what he owes before the home can be sold to another party. A home isn’t necessarily in pre-foreclosure for it to be a short sale; they may have been able to keep up with the payments avoiding the pre-foreclosure process.
What is Pre-foreclosure:
Pre-ForeclosureIf a homeowner doesn’t make timely payments and falls too far behind, the homeowner will eventually receive a notice of pre-foreclosure. Once a homeowner is made aware that their home is in pre-foreclosure, they either make arrangements to get caught up, decide to sell (which may or may not equate to a short sale) or the home eventually is foreclosed upon.
RealtyTrac.com and other similar sites:
When a homeowner is notified that his home is in pre-foreclosure, that information becomes public record. Many websites such as realtytrac.com have systemized a way of profiting from the information by making the property’s information as well as the homeowner’s information, available to those willing to purchase a membership to their site. In most cases the homeowner is unaware and even shocked to hear that their situation has become public.
The cons to consider when making an offer on a short sale:
- Offers are subject to 3rd party approval (banks/lenders). Even if the seller accepts the offer, the offer is not legally accepted until it is accepted by the 3rd party. Currently it is averaging between 2-3 months before getting an initial response from the 3rd party to the offer. Patience is important.
- Banks aren’t bound by the same rules as agents and due to the amount of short sales and number of them accumulating on their desks; they frequently make decisions that are unfair or unpredictable to both the buyer and the seller.
For instance, you can make an offer on a short sale and it may have been in line for review on the bank desk for over a month, because an agent is required to keep the home listed as active until the bank has accepted an offer, other offers can continue to accumulate and compete with the first one submitted. Cash offers are going to compare better than those with lending and requests such as closing costs and/or contingencies are considered a burden frequently turned away or even ignored. The Lender/bank can collect and review all offers at once and choose which to accept vs. in a typical sale where the seller is bound to make a decision within a reasonable amount of time.
- An offer on a short sale is frequently competing with investors paying cash. Investors will make offers on several short sale homes in the hopes of capturing a small percentage at a good price. They don’t have an emotional attachment to the home.
- If you do obtain 3rd party approval, transactions are currently averaging 3-4 months to close and with little to no guarantee of getting the home. If you are a first time home buyer and/or do not have a solid loan, it’s possible that by the time you’re ready to close, your loan program may no longer be available leaving you with no possible way to purchase a home, the short sale or any other.
- Anything can happen on the home stretch be prepared for the possibility that you will pay for an inspection, an appraisal and find at the last minute that the seller is unable or unwilling to sell.
- The majority of homes in a short sale situation need work, typically deferred maintenance and occasionally a lot more. Since many of the short sales are also in pre-foreclosure you can expect that many have likely had limited funds to keep up with the general maintenance of the home.
- It is possible that while you are waiting for the bank to respond to your offer; the home gets foreclosed on anyway.
- Many agents will not or do not want to work with short sale transactions. Because of the time involved, frustration of not being able to assist in the process, and often times the reduction if not loss of commission by the end of the process, there is little to no incentive to enter into a short sale transaction for most agents.
What is a Foreclosure?
Foreclosures are still auctioned at the courthouse steps. There is no opportunity for inspections and its cash only. If the bank can’t get what they need at auction then it becomes bank owned, is passed to an agent and goes back on the market anywhere from fair market value to a steal of a deal for quick sale. In the latter case expect multiple offers.
In summary:there are so many short sales that the banks can’t keep up and the time to process is taking longer. Agents are frustrated because they have little to no control and buyers & sellers are frustrated because they can’t get any timely answers. There are few guidelines established where the banks are concerned and little predictability. Those that have the advantage are investors/cash paying buyers that have no particular attachment to the home and plenty of time to wait.
BUY BANK OWNED (not Short Sales)
When you can, purchase bank owned homes. They get back to you in days not months, are typically priced very well and although the ride is bumpy it's typically short!