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Foreclosures and Short Sales

Foreclosures and Short Sales

What Is Foreclosure?

It is a series of events that begins when a homeowner defaults, or stops making mortgage payments. Usually because of a life crisis which impacted their income (examples: death, disability, divorce, etc.) or because their loan payments increased beyond their ability to pay them (example: when an adjustable rate mortgage begins to adjust). The series of events ends when the mortgage holder sells the home at auction, or takes the home back from the owner.

For Sellers

Foreclosure can start when you miss your first payment (ie 30 days behind). Then, the foreclosure process is represented by a series of notices you get in the mail and even posted on your front door over a 1-6 month period of time telling you that you have two options: (1) either bring your past due mortgage current or come to some compromise with the lender, or (2) your home will be sold and you will have to move out. At the end of these notices there is usually an auction, where the lender sells your home on the steps of the county courthouse or simply takes ownership of it. Your options, rights and responsibilities change depending on what phase or stage of the foreclosure preceding your home is in at any given moment.

For Buyers

Buying a Bank Owned Home (AKA Foreclosed Home)

In some circumstances you may be competing with multiple offers. You will always want to present your highest and best offer to START as you may not get a second chance. Although the bank may agree to your offer, until the bank signs off on all the paperwork you are still at risk for someone else submitting another bid and the bank accepting it. Once the offer is accepted, the bank will present an addendum they will require your signature on as well.

Title issues – you may have to allot time to clear these up. We had a transaction where a customer was buying a bank owned property and the title did not come back clear. The buyer waited 45 days for the bank to clear the title so the buyer could purchase the property.

The good news, is if you can work through the process you can get a great deal!!

Buying a short sale

The process for short sales can take anywhere from 1 to 6 months (or longer). Short sales require a lot of patience.

The seller’s lender determines whether or not the terms of the offer are accepted. You could wait months and the offer not be accepted by the bank.

Some challenges we see: (1) The bank approves the price/terms BUT asks the seller to sign either a promissory note or to bring money to the closing table. If the seller does not agree to either, then the deal can end at that moment, (2) If Foreclosure proceedings have started and the short sale is not completed in time, the bank may foreclose on the property while you are waiting for the short sale to be completed, and (3) with market values changing constantly, the bank may counter back your offer at a higher price than you submitted.