Short Sales: A Buyer's Guide

As the Housing Bubble continues to let out air and drags down the Economy, many Sellers find that the value of their home has decreased BELOW the amount they owe to their lender (the BANK). I actually have a client that owes $420,000 on a home that is now worth $200,000! How can a Seller avoid foreclosure and limit the damage to their credit? The answer is Short Sale!



For a Buyer, this can present a terrific opportunity to purchase a home at an outstanding value, while still retaining the ability to perform inspections and get a home that has not been "trashed" by a angry homeowner. There are some considerations for Buyers and what follows is a list of things every Buyer of Short Sales should know.



1. Short Sales are not Short! The term Short Sale refers to a Seller "shorting" the amount owed to the Lender. It is not uncommon for a short sale to take as long as 6 months or more.



2. Buyers need to be pre-qualified or pre-approved by a lender and present a letter to the seller with the offer. This is a terrific idea with any sale ( I always do it) but the seller's agent has to put together a packet to send to the Lender, and part of this packet is proof that the buyer can perform.



3. Buyers need to find out who the seller's lender is. This can be helpful because a savvy buyer's agent can know approximately how long a transaction could take.



4. As crazy as this may sound: Each lender deals with Short Sales differently. Countrywide originated many of the loans in the last 3 years, so understandably, they get the most requests of short sales. As a result, they probably take the longest to approve.



5. Only 20% of short sales close. Why? Buyer's get cold feet or find something else, Lenders reject offers and in rare cases, Sellers get loan modifications.



6. The Lender is actually not the owner of the loan, they are a company that services the debt. What does this mean? They collect and distribute the money paid on the mortgage. Many times the loan is bundled with many other loans and sold to investors. Each investor has their own criteria as to what steps need to be taken.



7. Buyers should keep looking for a house, even if they have an offer accepted by a seller. Why? Because the offer could be rejected; the house could be foreclosed on; or they could miss out on another sale that isn't Contingent on Lender approval. A buyer doesn't have a fully executed contract until they have Lender approval.



8. NEVER release the Earnest Money deposit to an escrow company or a seller. You want full control over that money and you never know what will happen. This does not apply to traditional sales, probate sales or REO sales, just Short Sales.



9. Make clear in the offer or with the Listing Agent that ,if accepted, your offer should be the ONLY OFFER submitted to the lender. Any other offers should be put in a back up position. Every additional offer that gets presented to the lender will only SLOW DOWN THE PROCESS. This benefits no one, not the buyer and not the seller.



10. Be ready to accept the property AS-IS. The big question here is whether to perform inspections upon acceptance by the seller. I say yes, but there is an inherent risk: if the transaction falls apart, you lose out on the money spent on inspections. On the other hand if you wait until approval by the Lender, you may find an adverse condition that will affect the desirablity or the amount you want to pay. If you do choose to wait and you request the lender to make more concessions, you run the risk of extending the approval process (which could result in foreclosure) or being told by the lender, "NO".



11. Be prepared to have long periods of time without an answer or an update. Why? Because the agent commonly has no contact with the Lender's Negotiator. To be precise, they have a don't call us, we'll call you mentality. This does not mean that the listing agent shouldn't call after all the squeaky wheel gets the grease.

It's best for a buyer of a Short Sale to be flexible in the sale as to the close date and the process. Pick a reliable agent to help you through the process and have faith that the deal will close...eventually.



For more information about distressed sales, short sales or foreclosures call Andy @ 707-616-3456 or email me: andy@azalearealty.com





Opinions expressed on this blog are those of Andy Parker and not those of any other person or entity.

Humboldt County Real Estate - Foreclosures and Short sales

FORECLOSURES IN HUMBOLDT

I get asked quite a bit about Foreclosures in Humboldt. The perception is that these properties are available for a "song". The reality is this: they can be quite a mess! The former owners can be quite messy or destructive (wouldn't you be?)
At times you can walk into a foreclosure and wonder, "How can someone live like this?" A distressed sale or a foreclosure is when a savvy investor can make quite a bit of money.

There are a number of ways to profit on distressed properties, the first way is the short sale.

While not a foreclosure, the short sale is when a seller (with the lender's approval) sells a home for less than is owed on the property. Commonly the Lender will agree because the Foreclosure process can be very long and costly. The process of the short sale is hampered properties that have a second deed of trust on them. The entity that holds the second deed of trust is second in line to get paid, so because they will commonly be left holding the bag, they will not agree to a short sale, thus allowing the property to go to a Trustee's Sale.

The next way is the trustee's sale
The holder of the note in foreclosure will auction off the note to the highest bidder. At this point a second deed of trust holder has an option, let the second deed go unpaid or buyout the first deed. This is the reason that the second trust deed always has a higher interest rate, more risk = higher reward.
To cash in on the foreclosure at this point takes a ready source of cash because the holder of the first trust deed wants cash or cashier's check. These sales are noticed in the Legal Section of many Newspapers as is the total amount due.

If the sale nets less than the total amount due between the First Trust Deed and the Second Trust Deed, the first is paid off and the second is wiped out. Not all encumbrances are removed from the property, there may be a mechanic's lien or a tax lien that is still on the property. You can find out if such encumbrances exist at the county recorders office. You'll need the Assessor's Parcel Number (APN) and you can perform a search to see if the seller has more recorded encumbrances.

If you do purchase a foreclosure at this stage, one major concern could be whether it is occupied. The former owner or a tenant could be living in the home. In either case if you want them out, contact an eviction service. These people could potentially stay for a long time if you aren't proactive in removing them.

If you do purchase a foreclosure at a trustee's sale, BEWARE! Presumably, you won't have any inspections, so be aware that adverse conditions could possibly exist either with the structure or associated systems such as a septic tank or water supply.

The Last Way to buy a foreclosure is through a broker. If the trustee's sale doesn't net a buyer, it becomes bank-owned or real estate owned (REO). These foreclosure properties are then marketed through a Broker . It is not necessary to have the Bank's broker represent you in a transaction, you can use your own Realtor. The one thing to be mindful of is this: Inspections are shortened by the Bank, usually 5 days. The best bet is to arrange inspections prior to an accepted offer.

Another concern is this: the bank will not be willing to negotiate the price down, so be ready to walk away from the transaction if they don't negotiate a major issue that is uncovered during your inspections. These listings are usually priced below market competition. Why? The Banks are not in the business to own property, they lend money, so it is possible to buy a home below market value and at an outstanding deal!

If you have a question about foreclosures or how you can profit from them, feel free to call me at 707-616-3456 or email @ andy@azalearealty.com

FOR A LINK TO FORECLOSURES CLICK HERE: