this is a great question that seems so simple, but really is difficult to answer in few words because so many people (some who really should know better) don't use them correctly!
A SHORT SALE is a property marketed for sale where the funds expected to be realized by the sale will be insufficient to pay for the mortgage(s) secured by the home and the seller is not in a financial position to make up the difference. The sellers, therefore, intend to enter into a negotiation with their lender(s) to forgive a portion of their loan(s). As property cannot be transferred without the full release of liens, the approval of the homeowners' lien-holders (3rd Party Approval) to accept the writing-off of the loan(s) must be a condition of the Contract For Purchase and Sale.
A FORECLOSURE is a property that has been legally repossessed through the court system's foreclosure process by one of the former owners' lien holders after the owners' failure to pay their mortgage.
Unfortunately, while these terms should be stand-alone definitions, there can be some confusing usage of the term foreclosure as a property that is "IN FORECLOSURE" is one where a lien-holder has filed a case in court (referred to as under Lis Pendens) to begin the foreclosure process. There are two stages to being In Foreclosure: the Lis Pendens being filed and the the case is waiting for the assignment of its court date (still around 18 months from filing date), and then later of having a Judgement Date assigned.
Many folks refer to REOs as Foreclosures, but realistically they should be called Bank-Owned, as some REOs have become bank-owned properties through processes other than foreclosure such as "Deed in Lieu" where an owner cedes the property back to their lending bank rather than going through the court process.
So, if you're asking about what is the difference in the kind of sale a Short Sale will be vs. a Foreclosure, there's actually a spectrum answers as there are at least three different kind of Short Sales:
1. Simple Short Sale
The property will not be sufficient to pay for its mortgage and the seller will be negotiating forgiveness of part of their loan.
2. Short Sale In Foreclosure
The foreclosure has been filed in court. Buyers must pay close attention to the timing of the filing and if the judgement date has been assigned as the foreclosure process runs concurrently with the short sale negotiation process, and if the sellers' negotiator hasn't managed to get a judgement date postponed or suspended, the home could be foreclosed on while the short sale is being negotiated.
3. Short Sale with Multiple Mortgages (or other primary liens) to be negotiated.
Even more complicated, because even though mortgages are placed in order of priority (First Mortgage, Second Mortgage, etc.) each mortgage must be individually negotiated, the terms of each negotiated settlement disclosed to the other lien-holder and each negotiation must be approved within the same time frame.
The type of mortgage to be negotiated can affect the timing of closing as well. Any FHA loan will have an insurer who will be making up the difference of the loan to the bank, so there will also be negotiation with the insurer as well.
The timeline for closing the sale of these different kinds of properties varies greatly. REOs can close in as little as 15 days for a cash sale. Short Sales can take at least 6 months, or more, or never close, though there are new Federal Guidelines which may reduce this timeline. Unfortunately, these guidelines are so new, we are not able to see if they've actually begun to have an effect!
These is no simple answer to your question, as you can see, because each listing really is unique, so really you're best bet is to learn about each listing individually from a Realtor you can trust.
Tuesday, April 17, 2012
Tuesday, March 6, 2012
What's the typical process when buying a short sale?
The process for purchasing a short sale has many of the same basic steps as any property purchase, but each of those steps have their own unique characteristics.
Of course, as with any real estate purchase, the very first thing you need to do is to get your financing organized. In order to submit any offer, you will need to provide proof of ability to pay for the transaction whether by cash (you'll need a bank statement less than 30 days old), personal financing (e.g.line of credit statement less than 30 days old) or a credit pre-approval. You need to get into a relationship with a lender so that once you've obtained your pre-approval it can be re-issued without a full run of your credit, because repeated credit checks can bring your rating down.
Partner with a Realtor. You absolutely need an advocate who has the training and support to get through the short sale process. Ask what their experience and success rates are, some companies and agents are better at closing short sales than others.
If you are in the position to be able to consider short sales, do consider all types of sales. There are bargains to be found in all categories, just as there are gems and turds in all categories. Limiting yourself to just one may prevent you finding your best property.
Prepare yourself for a long process. While there are some short sales that can close quicker (few, very few!) the average time-span between offer and closing is 6 months and can be as long as a year, if it ever closes at all. So, don't terminate your lease yet! Be prepared to place a chunk of change in the form of an Earnest Money Deposit where you will not have access to it for the length of the closing process.
You will need to prepare yourself for disappointment. In Orlando more than 30% of short sales that go to contract never close. If you do find a great home and get your offer accepted, don't stop looking for other options. You absolutely cannot count on ever getting to the closing table.
As with placing any offer, make sure you read and understand the offer contract thoroughly. Short sale contracts are more complex than a traditional sale's. If you are confused or concerned, please have a real estate lawyer go over it with you! It will be well worth the few hundred dollars vs. worrying you've made a mistake.
Getting an offer accepted on a short sale usually requires very little negotiation and it is not unusual to go to contract substantially below asking price. What you've got to remember is that your offer is 100% contingent on the sellers' lien holders approving the sales price. You will need to be prepared to begin the negotiation process again once the lender's representative(s) enter the conversation. You also need to be familiar with the "AWC" (Active With Contract) status that has been introduced to our MLS. Many sellers are soliciting multiple offer contracts to be held in line for the sellers' lien holders to review. This is a good thing for the sellers (and the lien holders) but puts offerors at a distinct disadvantage, because what's the point of having a contract accepted if it's not really accepted? Your offer can be written to require that once an offer is accepted the listing is placed "PNC" or "under contract", but the seller may not accept that. You also need to keep in mind that the negotiations with the sellers' lenders is not just with you, it is also between the sellers' and their lenders too. The seller is negotiating forgiveness of what is often a substantial amount of money. The bank may require them to pay a lump sum of money or take on a new unsecured debt and the sellers may not want or be able to meet these requirements and back out of the process completely. So, until your offer has received that 3rd party approval, you need to behave as if you do not have a contract at all and KEEP LOOKING.
You need to be prepared to pay more closing costs with a short sale. The sellers are most likely in a position that they are unable to provide much in the way of closing cost assistance. Repair allowances may not be available. There are often negotiation fees that the buyer may be required to pay.
But, don't give up hope! Short sales can and do close! As long as you are prepared and willing to go along with the flow, we can get this done.
Happy Hunting!
Of course, as with any real estate purchase, the very first thing you need to do is to get your financing organized. In order to submit any offer, you will need to provide proof of ability to pay for the transaction whether by cash (you'll need a bank statement less than 30 days old), personal financing (e.g.line of credit statement less than 30 days old) or a credit pre-approval. You need to get into a relationship with a lender so that once you've obtained your pre-approval it can be re-issued without a full run of your credit, because repeated credit checks can bring your rating down.
Partner with a Realtor. You absolutely need an advocate who has the training and support to get through the short sale process. Ask what their experience and success rates are, some companies and agents are better at closing short sales than others.
If you are in the position to be able to consider short sales, do consider all types of sales. There are bargains to be found in all categories, just as there are gems and turds in all categories. Limiting yourself to just one may prevent you finding your best property.
Prepare yourself for a long process. While there are some short sales that can close quicker (few, very few!) the average time-span between offer and closing is 6 months and can be as long as a year, if it ever closes at all. So, don't terminate your lease yet! Be prepared to place a chunk of change in the form of an Earnest Money Deposit where you will not have access to it for the length of the closing process.
You will need to prepare yourself for disappointment. In Orlando more than 30% of short sales that go to contract never close. If you do find a great home and get your offer accepted, don't stop looking for other options. You absolutely cannot count on ever getting to the closing table.
As with placing any offer, make sure you read and understand the offer contract thoroughly. Short sale contracts are more complex than a traditional sale's. If you are confused or concerned, please have a real estate lawyer go over it with you! It will be well worth the few hundred dollars vs. worrying you've made a mistake.
Getting an offer accepted on a short sale usually requires very little negotiation and it is not unusual to go to contract substantially below asking price. What you've got to remember is that your offer is 100% contingent on the sellers' lien holders approving the sales price. You will need to be prepared to begin the negotiation process again once the lender's representative(s) enter the conversation. You also need to be familiar with the "AWC" (Active With Contract) status that has been introduced to our MLS. Many sellers are soliciting multiple offer contracts to be held in line for the sellers' lien holders to review. This is a good thing for the sellers (and the lien holders) but puts offerors at a distinct disadvantage, because what's the point of having a contract accepted if it's not really accepted? Your offer can be written to require that once an offer is accepted the listing is placed "PNC" or "under contract", but the seller may not accept that. You also need to keep in mind that the negotiations with the sellers' lenders is not just with you, it is also between the sellers' and their lenders too. The seller is negotiating forgiveness of what is often a substantial amount of money. The bank may require them to pay a lump sum of money or take on a new unsecured debt and the sellers may not want or be able to meet these requirements and back out of the process completely. So, until your offer has received that 3rd party approval, you need to behave as if you do not have a contract at all and KEEP LOOKING.
You need to be prepared to pay more closing costs with a short sale. The sellers are most likely in a position that they are unable to provide much in the way of closing cost assistance. Repair allowances may not be available. There are often negotiation fees that the buyer may be required to pay.
But, don't give up hope! Short sales can and do close! As long as you are prepared and willing to go along with the flow, we can get this done.
Happy Hunting!
Monday, March 5, 2012
Tips For First Time Home Buyers
My absolute very first recommendation to first-time home buyers is:
Get pre-approved for financing before you even begin to look at potential properties! While most people have a good sense of what they can afford as a monthly house payment, doing the math backwards to what that number represents as a home price is not easy. You need to know what price range to shop in, because searching above your means will only lead to disappointment in the homes you actually can afford. The other facet to a pre-approval is the discovery of glitches in your credit that could lead to problems. In this marketplace the standard of practice for placing an offer to purchase is that proof of the buyers' ability to pay for the home must be provided ALONG with the offer. Even with financing contingencies in the offer, most sellers will not even consider an offer from a buyer who does not provide a pre-approval.
Be prepared to do a lot of work and spend a lot of time to find your new home. It is not just the shopping that is hard, the bidding process can be quite demanding and draining on your psyche! The fact is that homes that are in good condition, priced fairly and are easy to close are few and far between and will be highly competed for. You need to be prepared for bidding wars (multiple offer situations) where you are asked for your "highest and best" offer with no knowledge of what another bidder has offered. And, you need to be able to weather the stress and disappointment of being outbid. Short sales continue to dominate the market and they take, on average, at least 6 months to close. You cannot begin this process with only a month or two left on your lease. The average processing time for a loan is still in the 30-day-range.
Partner with a professional. A Realtor is your partner and your representative in the purchase of your home, and they will cost you nothing! In fact, a Realtor's expertise and experience in negotiation can get you a better price, and, if a sticky situation does arise, they have the resources to find solutions and resolutions. While a Buyer's agent is paid for their work by the Sellers at closing of the transaction, they owe full fiduciary responsibility to you.
Make a list of what you want in a home and then be brutally honest with yourself about what is a genuine "Need To Have" vs. "Nice to have." Having unrealistic expectations will only lead to disappointment.
Be patient, but be prepared to move fast if the right property comes up!
Listen to your agent's recommendations! We really care about what you want and really love helping people find a perfect home.
.
Do your own research. Search sites like melissadata.com , spotcrime.com and bestplaces.com to learn more about communities. But, be skeptical about negative vs. positive comments. Remember: most people who are dissatisfied with something will tell someone else but only a few people who were happy or who's expectations were met will pass that information on.
If there is a community that you really like, take the time to visit it at different times of day and on different days of the week. Feel free to talk to folks who live in the area about their community.
Finally, learn to look beyond the surface. Try not to let the colour of the walls (paint is cheap), the way a room is furnished (just 'cause it's a nursery now doesn't mean it won't make a great den) or an owner's taste in furniture distract you from the bones of a home. A cute trim does not make up for a layout that doesn't suit your needs and the lack of a fence is an easily solved problem, but poor drainage is not.
Happy searching! This is an absolutely amazing time to step onto the first rung of the property ladder.
Get pre-approved for financing before you even begin to look at potential properties! While most people have a good sense of what they can afford as a monthly house payment, doing the math backwards to what that number represents as a home price is not easy. You need to know what price range to shop in, because searching above your means will only lead to disappointment in the homes you actually can afford. The other facet to a pre-approval is the discovery of glitches in your credit that could lead to problems. In this marketplace the standard of practice for placing an offer to purchase is that proof of the buyers' ability to pay for the home must be provided ALONG with the offer. Even with financing contingencies in the offer, most sellers will not even consider an offer from a buyer who does not provide a pre-approval.
Be prepared to do a lot of work and spend a lot of time to find your new home. It is not just the shopping that is hard, the bidding process can be quite demanding and draining on your psyche! The fact is that homes that are in good condition, priced fairly and are easy to close are few and far between and will be highly competed for. You need to be prepared for bidding wars (multiple offer situations) where you are asked for your "highest and best" offer with no knowledge of what another bidder has offered. And, you need to be able to weather the stress and disappointment of being outbid. Short sales continue to dominate the market and they take, on average, at least 6 months to close. You cannot begin this process with only a month or two left on your lease. The average processing time for a loan is still in the 30-day-range.
Partner with a professional. A Realtor is your partner and your representative in the purchase of your home, and they will cost you nothing! In fact, a Realtor's expertise and experience in negotiation can get you a better price, and, if a sticky situation does arise, they have the resources to find solutions and resolutions. While a Buyer's agent is paid for their work by the Sellers at closing of the transaction, they owe full fiduciary responsibility to you.
Make a list of what you want in a home and then be brutally honest with yourself about what is a genuine "Need To Have" vs. "Nice to have." Having unrealistic expectations will only lead to disappointment.
Be patient, but be prepared to move fast if the right property comes up!
Listen to your agent's recommendations! We really care about what you want and really love helping people find a perfect home.
.
Do your own research. Search sites like melissadata.com , spotcrime.com and bestplaces.com to learn more about communities. But, be skeptical about negative vs. positive comments. Remember: most people who are dissatisfied with something will tell someone else but only a few people who were happy or who's expectations were met will pass that information on.
If there is a community that you really like, take the time to visit it at different times of day and on different days of the week. Feel free to talk to folks who live in the area about their community.
Finally, learn to look beyond the surface. Try not to let the colour of the walls (paint is cheap), the way a room is furnished (just 'cause it's a nursery now doesn't mean it won't make a great den) or an owner's taste in furniture distract you from the bones of a home. A cute trim does not make up for a layout that doesn't suit your needs and the lack of a fence is an easily solved problem, but poor drainage is not.
Happy searching! This is an absolutely amazing time to step onto the first rung of the property ladder.
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