A Short Sale, or pre-foreclosure sale, is another type of listing. Short Sale List Agreement
Noted over the MLS as subject to bank approval, or subject to 3rd party approval.
Back to Home Page *List Agreement notes that lender has final say in determining brokerage commissions.
A Short Sale, or pre-foreclosure sale, is another type of listing. This type of listing is noted over the MLS as subject to bank approval, or subject to 3rd party approval.
Short Sale vs. Foreclosure
After a strong increase in housing prices, the market peaked in early 2006, then started to decline in the summer of 2006, and may not yet have hit bottom as of 2011. On December 30, 2008 the Case-Shiller home price index reported its largest price drop in its history.
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan/s. This situation is now prevalent in the current market, due to inflated Real Estate valuations and the open credit markets during the recent periods. If you purchased your home between 2004 and 2008 or took out a 2nd mortgage or home equity line of credit, you may fall into this dilemma.
Job loss, illness or even a death may be the culprit.
If a Seller is finding they cannot pay the mortgage loan on their property, the lender may decide that selling the property at a moderate loss is better than pressing the Seller for mortgage payments.
Positive options: No mortgage payment is due during process, generally 60 to 180+ days or longer depending on Lender. The Lender should stop calling owner for payments during the process.
Negative options: Liability for money lost by lender, a Deficiency Judgment or a 1099 at year end. These items may be negotiated in the Short Sale transaction.
Here are some of a Sellers Options during the foreclosure process.
· Do Nothing. Most likely you will lose your property along with damaging your credit further.
· Refinance. Payoff the entire loan amount. This would be new debt with possible higher rates and a prepayment penalty. You will need equity in the property.
· Reinstatement. Paying entire default amount, including legal, interest, taxes and penalty fees.
· Forbearance. Lender may modify repayment plan or temporary payment plan or suspension of current payments based on you financial situation.
· Deed in Lieu. Turn property over to the lender. Payments and Taxes should be current
· Partial Claim. Loan from lender, an additional mortgage added to property to cover back payments.
· Bankruptcy. A Qualified Attorney is recommended for a Chapter 7 Bankruptcy. This process completely settles personal debt. Chapter 13 Repayment plan to pay off debts over 3 to 5 years. Chapter 11 Business
Based on the large inventory of mortgages; Banks are ramping up their short sale departments. This is thanks to government incentives and the realization that short sales result in lower losses than foreclosures. On average, banks lose 50 percent on a foreclosure, but only 30 percent on a short sale. A Short Sale will generally affect a Seller for 3-4 years while a foreclosure can follow a Seller for 7-10 years.
If the Seller can show they are willing to make an effort to short sale the property and save the bank the trouble of a lengthy foreclosure. Banks are willing to report the sale differently with a milder impact on the Sellers credit.
The bottom line is that a Short Sale is better for a Seller's overall credit than a Foreclosure.
Both the Seller and the Lender must consent to the short sale process, it allows both parties to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for Seller.
Banks are backlogged with a larger number of short sale requests; to be taken seriously the Items below will make for a more efficient Short Sale. Communication is the key to getting the deals closed.
· Has the Seller requested and received the short sale package from the bank, including the hardship letter?
· Has the Seller sent the package AND received confirmed receipt?
· What communications, if any, has Seller had with the bank?
· Has the bank approved the list price?
· Has Seller received any other offers that they are waiting to hear back from the bank on?
· Does the loan have PMI on it? (Private mortgage insurance)
· Is there one or two trusts? Are there any other liens?
· What are the names of the banks? Are these FHA or VA loans?
· How long is estimated that the lender will take to provide an answer to an offer?
· Has the seller completely stopped making payments on their loan?
If you are looking to purchase this type of listing; I am here to assist you. The process generally takes longer than a conventional purchase.
Foreclosed Properties: Once a property has been foreclosed on by the bank. The process is much quicker. The Listing is then classified as an "REO" or Bank Owned. Generally these properties are a good value. All potential profit or positive equity has been removed from the price.
Contact me and I can give you additional information related to marketing your property or purchasing a Short Sale or Foreclosed listing.
