What is a Short Sale? It is when the home owner owes more than the home is worth and is requesting their lender bank or banks to accept a "Short Payment" as complete payment on their debt. Short Sales are also called Pre-Foreclosure sale. If the lender banks do not accept the short payment usually the first lien holder will foreclose. I estimate this occurs in at least 75% of these situations. The lender will not say how much they will accept until after an offer is presented. That is why you sometimes see short sales listed at ridiculously low prices. Many times the list price is unacceptable to the banks. The owner and agent are trying to get an offer so the bank will commit to a price. The bank will have the property appraised and review the seller's financials before determining the price they will accept. Due to the work involved, the bank's back log, and the banks arrogance, the process of responding to an offer once it is presented could take from three weeks to three months and more. That is one reason you see homes on the market that long. It gets more involved and more time when there are two loans with two different lenders. For buyers this can be a very grueling but rewarding process. Patience is important. Being this process takes so long frequently the people whom made the original offer are no longer interested. So stick with it. After the bank, the owner and the buyer agree the purchase process proceeds as normal. Generally these are sold at very competitive prices. I have experience and have taken advanced classes in short sales so please contact me if you have additional questions or would like me to represent you to buy or sell.
Foreclosure occurs when the owner defaulted (did not make the required payments as scheduled) and the lender forecloses (takes back legal ownership) of the home. Most lenders will not file a 'Notice of Default" (NOD) until the buyer is behind in their payments for at least 60 days but in today's environment we see it go for 120 or 180 days. The Notice of Default is filed with the county recorder's office. The NOD gives the owner 90 additional days to bring the loan current. Then a foreclosure date is set with the courts at a minimum of 21 days after the 90 day NOD period ended. Also known as an auction or foreclosure sale this takes place on the court house steps. Generally the minimum offer is the loan amount of the first lien holder. At these sales the buyer must pay in full. No loans are available and no times for inspections are permitted. Due to the stringent purchase requirements and the minimum price required not many homes are sold during this process and the bank becomes the owner. Usually within 3 or 4 weeks of becoming owner the banks clear any other liens from the title and list the home with a Realtor. It is now a Bank Owned Property.
Bank Owned or in the industry know as REO's: REO stands for the Real Estate Owned department of the Bank. These homes are listed on the local MLS services and are sold through Realtors. When sold they are sold with clear title (no other liens). The banks will respond to offers in 3 or 4 days. The banks like to add their own purchase contract addendum releasing them of any liability. The banks goal is to have these sold within 90 days and therefore they price them very aggressively. Since they are aggressively priced we are seeing several offers on the same home with the bank selecting the highest or best offer. It is fine and recommended to offer the bank less than they are asking but be aware of other offers and the market place. After receiving an accepted offer in writing the purchase contract proceeds as normal. You can do inspections and I strongly recommend this. Banks do not want to do any repairs they insist on "AS Is" Sales. Many banks require you to use a specific escrow company and will pay the escrow fee as well as lender's title insurance. J
Buyers take advantage of the great opportunities out there. One person's loss is another person's gain. Please remember these people were not able to make the mortgage payments so most likely they did not maintain the home. When viewing these homes please try to look through the cosmetic needs. Paint and carpet are relatively inexpensive. Inspections are imperative. I have a team of inspectors and contractors I work with to help you. It is more important than ever to have an experienced professional on your side. Give me a call. J
Sellers: What does all this mean for you? In many areas this is your competition. It makes no difference whom the seller was. If a similar home was sold by a bank or short sale, that now becomes the new comparable price. Homes are selling. Correct Pricing, Great Presentation and Super Promotions are needed. That is my 3P's Marketing Plan. Contact me for free personalized detailed marketing plan. J
Auctions: There are two types of Real Estate auctions; one I spoke about in the foreclosure paragraph. The other type is a public auction performed by private for profit companies. These are advertised in the newspapers, T.V., etc. These companies are hired by banks to sell off a large segment of the properties they own. I am not sure how the banks select the homes to be sold at this public auction but I believe it is homes that did not sell in a reasonable amount of time when listed on the MLS. I'd say it presently occurs quarterly. I have attended one. The homes are open a week or two prior to the auction. Most have had some inspections completed. You must be pre-approved and have a 5% deposit with $5000 in cash or cashier's check at time of bidding. The action is fast and furious. You must be prepared. You could have a Realtor represent you at no cost to you; so call me. When I attended, most of the properties began with 3-8 people bidding. Almost all properties had a bidder. Most sold at substantially above the starting bid. A buyer's premium (commission to the auction house) of 5% is added to the final bid. Only a handful of homes in San Francisco and San Mateo Counties are available. For the 5 properties that I knew the value of, I did not think any sold below market value. Two definitely sold over the market price and the other 3 sold at about market value. In the majority of this type of sales contingencies are not permitted. Each auction company has their own procedures.