Are you a borrower who might be having a hard time paying the mortgages of your loans? Then you should widen your horizon and consider short sale or a Deed-in-Lieu of foreclosure as an option. These two are very similar but in this simple guide, my purpose is to define what a short sale is so let me tell everything you need to know about it. So what exactly is a short sale? For as simple definition, a short sale of real estate happens when the debtor is having a hard time paying for his mortgage and his property is therefore destined for foreclosure. As a way out, he agrees with the lender to sell it at a lesser amount in order to pay the debt. A typical sample of a short sale would be; a house with a mortgage balance of $80,000 may be sold at $70,000. Short sale is usually resorted to in order to avoid foreclosure which has higher fees and would lead to poor credit report on the part of the debtor and this has gained countrywide popularity because of its advantages. Since the property is sold at a price lower than the credit value, the debtor will still have to pay for the deficiency unless the lender formally agrees to let it go in a debt forgiveness. The laws governing the right of the lender to forgive or pursue the borrower varies from state to state. A short sale then can provide a temporary relief to the borrower.
There are a network of companies and banks like Aurora Loan Services, SunTrust, IndyMac, GreenPoint, OneWest, Nationstar, EMC, Ocwen and many others that have a dedicated department for short sale package and loan service. All over the US, you can find properties on short sale but these places are the most prominent; Phoenix, Arizona, Naples, Utah, Orange County, Burbank, Saxon, Seattle, San Diego California and Las Vegas Nevada in the west, Orlando, Tampa, Miami and Sarasota Florida(FL), Cordova Maryland, Chicago, Jackson New Jersey(NJ) and Georgia in the south , Myrtle and Minnetonka in Minnesota and Michigan in the north.
The steps in processing short sale involves the mortgage lender, usually a bank like Wells Fargo and Citi with CitiMortgage, agreeing with the borrower to discount the loan deficiency and sell the mortgage property at a lower price. After the property is sold, the borrower then gives the proceeds to the lender with the agreement that if there is an outstanding balance, it would still be paid by him. A short sale is usually done due to the fact the the borrower is having a hard time paying for the loan and will eventually face a foreclosure which is not a viable option.
Since a short sale is not a “mutual favor”, but rather an escape route from foreclosure, the lender usually have to evaluate the potential of the transaction. They usually have a pre-determined criteria but are willing to accept offers. One of the factors that will be considered is the amount of equity by determining the Broker Price Opinion(BPO) also known as Broker Opinion of the Value(BOV) and the probable selling price based on an appraisal.
Due to the number of losses experienced by lenders because of mortgage failure, they are mostly quick to accept short sale offers or request even if a Notice of Default message is not yet issued. On the part of the borrower whose mortgage exceeds that of the worth of the property, this is an opportunity to avoid foreclosure which affects badly his credit score. If you need some specific information like lenders guidelines, read the Fannie Mae short sale guidelines which has a pdf version that you can print. You also need to create a checklist or worksheet template of the things that you need to have so that no unnecessary delays will occur.
If you are a first time real estate buyer, there are a few things that you need to know about short sale in order to make the proper judgment of its benefits. For one thing, this type of deal increases your chances of gaining a profit because of their relatively low price. So, if you are looking for a good way of profit generation, do not overlook a short sale. Here are some questions that are frequently asked regarding short sale and their implications:
1. How does a short sale happen?
When the borrower can no longer pay for the mortgage of the property, he would typically ask the lender for a short sale or risk a foreclosure. This is usually due to a job loss, poor financial choices or probably a pay reduction, all of which can affect his income in a negative way unless things will improve or if they can find new jobs. The lender then would review the borrower’s assets, other source of income and the letter expressing the reason for the request for a short sale. After this the lender would usually opt for a short sale unless he believes that he can gain better in a foreclosure.
2. What sort of properties are sold through a short sale?
In most cases, properties sold on short sale are single-family houses located in countryside hills and lake beach and all sorts of places. The reason behind this is that these are the individuals that are most likely to lag behind on their mortgages. Those who own condo units, luxury homes, commercial buildings and multi-family homes have income coming from rentals from their tenants so they are less likely to lag behind in their mortgages. Although it is not impossible to find multi-family homes and commercial buildings in short sale, they are just not that common.
3. Am I getting a good deal if I buy a short sale property?
In most cases, yes. This is so because these properties are usually sold at prices lower than their appraised value. Most lenders in a short sale have already accepted the fact that they will not get all their money back and so they are more likely to offer affordable prices. One of the things that you need to be careful with a short sale is with underwater homes. These are properties whose owners owe more than what their property is worth. You also need to make sure that the deal you are getting is free from fraud and scam as these are becoming rampant as the popularity of short sale goes higher.
4. How long will it take to buy a short sale?
The time it takes for a short sale is contingent entirely on the lender. The borrower in this case has no say in the process. If the lenders which is usually a bank like GMAC which is now known as Ally Bank, has a supervisor or higher management on site, you could usually get an answer within the close of the day. In most cases though, it may take a month.
5. Are upfront payment necessary in a short sale?
Upfront payments are not necessary but it is surely beneficial. Most lenders will likely accept your offer if you are apt in payment. With an upfront, you can also bargain further.
6. Is is possible to bargain for a lower price?
It is always worth the try especially if you have an upfront payment. Most lenders would rather sell at a lower price rather than risk foreclosure.
These are the things that you need to answer when investing in a short sale property. The answers to these questions will surely shed light on your judgement whether you should buy a property on short sale or not. Although this kind of investment should not be taken lightly, you don’t need a Ph.D in economics in order for it to work in your favor.
When buying a property, you should know the pros and the cons of short sale versus foreclosure. You also need to know the risks involved in hasty sales. Here are the difference between the two:
1. In a short sale, the house owner/borrower will immediately vacate the property the moment the sale is closed. This is so because he is the one selling his property. With foreclosure on the other hand, it is not un-common for home owners to illegally occupy their homes after it has been foreclosed. Meaning that if you buy a foreclosed property, you could end up dealing with stubborn occupants who would not give you the keys to their doors and leave the property unless the long arm of the law intervenes.
2. With a short sale, you can save a lot of money because the property is mostly sold for less than the outstanding balance of the mortgage. In a foreclosure on the other hand, the price is dependent upon the bidding on the foreclosure auction. Another thing that you have to beware of is that most people whose homes had been foreclosed will leave it in a damaged condition. This means that what would appear to be a good deal may not entirely be so because you will still have to spend a considerable amount to repair the property you’ve purchased and this will offset all the benefits.
3. Due to the many rules and restrictions involved in foreclosure auctions, to bid can become tricky. In addendum, these rules can vary from state to state adding more complications to the already complicated process. A a rule of the thumb, winning bidders are required to pay for the property within two days, a requirement that is difficult to comply for most prospective buyers. Added to that, if your credit rating is less than optimal, it will be hard for you to look for a lender who will finance the purchase of the house in auction. The likelihood however, of being able to find a lender who will finance a home purchased through a short sale is greater.
Knowing the pros and cons of purchasing either a short sale or foreclosed property is very important whether you are a home buyer or an investor. This will give you the ability to decide appropriately.
If you are a buyer of real estate both for a first home and for profit, there are so many advantages in buying a property on short sale. You have to remember that both lender and borrower are trying to avoid foreclosure and this could play to your advantage. Here are a few more things that you need to know before you buy a short sale:
1. Properties on short sale are on pre-foreclosure. It is only a matter of time before these properties will be foreclosed and both lender and borrower are trying to avoid it from happening because of its devastating effects. On the part of the borrower, a foreclosure can have a devastating effect on their credit scores and some may even declare bankruptcy.
On the part of the lender, a foreclosed property may sit un-occupied for many months. Foreclosure proceedings are also costly because it takes too long to finish. This is especially true if the lender doesn’t have an in-house attorney like Jeff Watson or group of attorneys that deal with foreclosures. This can mean that they need outside help which, needless to say, is costly.
So in order to avoid too much hassle for both parties, they would rather resort to short sale rather than wait for the inevitable foreclosure.
2. There are two ways to sell a property on short sale. First, the lender may do it himself and advertise it on newspapers, fliers or their company’s website. When you are dealing with a lender, since you already know that it is short sale, you can use what you already know to bargain for a lower price.
Second, the selling of the property may go through a real estate agent or a certified Realtor. In this case, you will have a tougher time telling if what you are offered is a short sale because he could be selling many different properties.
3. In order to know whether a lender or a real estate agent is selling a short sale property is to ask right away. You will know right away if the property is on short sale if the price is lower than its appraised value.
4. The main advantage of buying a short sale is that you have the bargaining power. You know that the seller would rather sell the property at a lower price than risk foreclosure, therefore, capitalize on this leverage and bargain for a much lower price.
5. If you have the money to pay upfront, you increase your bargaining power all the more. Although it is not part of the requirements, an upfront will speed up the sale because this will entice the lender to give you the property.
These are some of the advantages of buying a property on short sale. It will not hurt to try to bargain for a lower price knowing that you have the upper hand so, do it. If you need more ideas, try to learn from Tom Butler, a short sale training speaker and investor who has been successful in this area.
If you are a home owner with mortgage problems, a short sale may be your most viable option to get out of a foreclosure but, there are a lot of mistakes that people make when short selling their property. Here are some of the classic mistakes and what you can do to avoid them:
1. The price is way too low
Just because you are facing a possible foreclosure doesn’t mean that you should sell your property too low. Although short selling a property means selling it below its market value, it doesn’t means that you should sell it a price that would be next to giving it away. If the price of your property is too low, you will definitely have problems making the mortgage lender agree to your terms. Remember that short selling is always a raise against the timeline of foreclosure and the mortgage lender will have to agree to your term before it can go through. So make sure that your offer is reasonable before you run out of time.
2. Lack of marketing effort
Just because you are short selling your property doesn’t mean that the buyers will just come as if by magic. In reality, you actually need to advertise by making postcard or postcards and let the word out otherwise you will run out of time. Avoiding the marketing campaign will surely result in not being able to sell your property on time.
3. Inflexibility with potential buyers
Not being flexible with potential buyers is the worst thing that you can do when short selling your property. If you want to sell your house before the time of foreclosure comes, you should be as accommodating and flexible to potential buyers as possible even if it would means being available on nights and weekends for somebody wants to see the property.
4. The property is not ready for the sale
In order to increase the salability of a property, make sure that it is in a decent condition when you sell it. This might mean putting in extra cash for repainting, carpet replacement and repairs. This can also mean a little manicuring of the lawn to make it look appealing. If you fail to act soon and beautify your property, chances are potential buyers will be discourage. Again, this leads to not being able to sell the property before your time is over.
If you are still living in the house that you are short selling, make sure that you keep it clean because you wouldn’t know if a prospective buyer would suddenly show up. Remember that a dirty home is not something that a potential buyer will love to see.
Beginning in 2005 and lasting into 2009 Bank of America (BOA) short sale has been blacklisted from the real estate specialists and agents’ listings. This is a well deserved reputation considering the horror stories that agents reported to the media about transactions with the Bank of America. Some of these stories involved bank documents and other forms getting lost for no reasons, files abruptly closed for no reasons and sometimes they just refuse to respond to phone calls requesting for updates. Added to that, it would usually take ages before a short sale gets approved.
When Equator(www.equator.com) – a company offering default servicing solutions – came into the picture in 2009 or 2010, much of the problems went away and Bank of America was able to turn their reputations around. Today, most agents, Realtors and other professionals are happy again to list any Bank of America short sale because of their fast approval system (30 to 60 days), one that you cannot find in the old days.
If you are a real estate specialist, bear in mind that FHA or VA loans and HAFA short sale programs are disqualified from the Bank of America short sale program. There are some documents that are required in order to qualify for Bank of America short sale like; bank statement, Bank of America short sale packages, tax returns, payroll stubs, W2s, third party authorization, and hardship letter. After you have determined that the property does not fall among those that are disqualified and you now have the necessary documents, you can then apply for a short sale.
As far as the Bank of America is concerned, the agents are very important considering that they are the experts in the short sale process and that is why they have certain duties to perform. You need to list the short sale in Multiple Listing Services(MLS) and give expert advice and tips to the seller regarding what he needs to do. You also need to help with the negotiation process between the seller and the buyer or his agent. Next, you need to obtain a pre-approval letter in order to qualify the buyer. You are also in-charge of writing the contract for the short sale. Since all short sale transactions with Bank of America are handled by Equator, you need to create an account in their website and complete all task that they require. Lastly, you need to submit documents like listing agreements and estimated HUD settlement which will be created by an escrow officer before closing the deal.
Although each investors have different guidelines, there are certain fees that are excluded in the Bank of America short sale. For example, home warranties, past due HOA, repairs and pest works are generally not paid by the Bank of America. Things like excess settlements, notarial fees, document preparations, recording and courier are also not paid. You need to check the guidelines of your investor in order to be sure.
If you are a seller, you have a different set of duties. In order to upload information, you need to use the Bank of America homeowner portal(https://shortsale.bankofamerica.com/). Here you can create an account, upload the requested documents, supply hardship letters and submit all financial info.
Since Equator came into the picture, the Bank of America short sale policy has become as straightforward as you want it to be. They will get all needed information from the seller and the listing agent. Then negotiators will be assigned by the bank who will facilitate the negotiations. He will then contact the agent so that the “broker price opinion” (BPO) will be completed. Then he will review all documents and see if there are some pieces that are missing, then he will inform the agent and send the files to the investor. Then he will issue a counter offer and accept or reject the short sale. Whatever is the outcome all agents and Realtors will then be notified.