Short Sales 101 - Could This Be the Answer To Your Problems?

According to the latest Realtors Confidence Index (RCI), one out of every 10 recent homes sales has been a short sale. What's a short sale you ask? A short sale is when the lender agrees to let the homeowner sell their home for less than what they owe that lender to avoid a foreclosure, which can be a win-win for both the seller and the lender. How can this be? Typically a foreclosure will cost the lender more than taking less than what is owed on the property due to legal fees. The win for the seller is the fact that they will be able to get another home loan within 24 months after the short sale. Those looking to get a home loan that have been foreclosed on would have to wait at least 5 years.

Something a potential buyer of a short sale property needs to remember is that yes, you can get a good deal on a short sale, most of the time better than when a property has gone into foreclosure, but the deal has to make good business sense to the lender. It must make the lender more money than what they would make if they foreclosed, paid the legal fees, and sold the property closer to market value. Thus, most lenders will not agree to a short sale for 50% of asking price!

Homeowners, remember that the short sale must be approved by your lender. If you financed your home with two liens, a first and a second, the secondary lender in theory should receive nothing if a short sale doesn't cover what the first lien holder is owed. However, the second-lien holder must release their claim in order for a short sale to proceed, which gives them some leverage. There is not much incentive for them to agree to a short sale and receive nothing, so both lenders and your real estate agent must work together to make the process come together. This is just one of the reasons why short sales are known to be a long process. Still, the benefits to a short sale are well worth patience from both a buyer and a seller.

Are you behind on your mortgage payments, facing foreclosure, and think a short sale may be the answer for you? First, find a good real estate agent (BW Home Team has excellent, highly trained agents in the short sale process!) and start gathering documentation. Your real estate agent can help you with this.

The paperwork you will need for most lenders is:

1) Authorization to release information to your real estate agent. You can't start the file without this.
2) Detailed financial information. This includes 2-3 months of bank statements, federal income tax returns for the past two years, and paycheck stubs for the last 2-3 months. These must be provided by all borrowers on your lien. You must state you are unemployed if you are.
3) Financial worksheet - Each bank may have their own you can download. This worksheet shows all assets and debts. This will establish whether you are financially going through hardship.
4) Hardship Letter - You must state the hardship you are facing. Lenders would like to see that the hardship is not temporary. Make sure the letter is clear and legible and have your real estate agent proof it for you!
5) Bankruptcy - Are you going to decide to file for bankruptcy? This can cause delay to the short sale. Make sure your short sale is done before any legal proceedings begins.
6) Listing agreement with your real estate agent - Lender would like to know that you have made an attempt to sell the property.
7) Offer - The lender will not start or take your short sale seriously until you have an offer on your property.

Contact the BW Home Team today if you are interested in finding out more about short sales, whether you are a buyer or a seller. As a buyer, you can even search our website via keywords such as short sale, lender must approve, etc.! It's as easy as typing those words in the description box.

List courtesy of Jimmy Nguyen and Short Sale Rockstars - Facebook

The Simple Truth about Short Sales and Foreclosures in N. Texas

My team and I have noticed that in today's market, everyone is interested in learning more about short sales and foreclosures. They seem like such a great bargain! Our Accounts Manager has been getting 1 - 3 calls a day on this subject alone. Now, you can find out the simple truth about Short Sales and Foreclosures in N. Texas.

Short Sales - A short sale is a home that has not been foreclosed upon yet. The seller has been delinquent on payments and has worked out an agreement with his/her lender to allow the home to be sold for less than what the seller owes on the house in order to avoid foreclosure proceedings. Even though the lender will be receiving less money than they are owed upon the sale of this home, they will be saving money in the long run by avoiding the expensive costs that go along with foreclosure proceedings including court costs, attorney fees, etc. The seller avoids being locked out of their home and possibly losing some or all of their possessions. They also will only have delinquent payments on their credit score and not a foreclosure.

What's in it for you? The fact that the home is a short sale generally equates to the home being under market value. Since the N. Texas market is fairly stable, without drastic plunges, that could mean instant equity for you! Also, a short sale home typically has an owner/seller that wants to get the home sold, not one that is bitter that the home is being taken away from them. This means that the home is generally in better shape overall than a foreclosure.

So what are the negatives? A short sale, just like a foreclosure, is typically sold "as is", meaning you should still have a right to an inspection (which is HIGHLY advised by this REALTOR), but don't plan on the seller or lender paying for any repairs. They are already losing money. This means if the home needs new flooring or needs air conditioning work YOU will be footing the bill. One nice thing is that FHA is now offering a new loan called a 203K Streamline Rehab. This allows you to finance in the cost for a lot of repairs into your mortgage. Speak to your favorite lender about this or contact my team for a lender recommendation.

The other big negative in some cases with a short sale is the time it takes to get a response. In a majority of cases, there will be multiple offers on a short sale property because they are such good deals. However, most lenders can take weeks to get back to potential buyers and their agents with a response. If you have the time and patience, this can work to your advantage as most buyers typically lose patience and move on to other properties. Remember though, it does take patience. In some cases, the home will go into foreclosure before you even get a response! However, a good buying agent and a good selling agent can stop this MOST of the time with cooperation from the bank.

All and all, a short sale property is a good deal for you if it needs little repair or you have the funds/capability to handle the repairs needed and you have time and patience, which can be tough to come by when planning to purchase a home.

Foreclosures - One of the most common questions asked to our Accounts Manager about foreclosures is "Do I have to pay any back taxes if I buy a foreclosure?". The answer is NO. The lender that owns the property is responsible for paying all back taxes. Make sure that an owners' title policy is issued at closing. This ensures a good title. Your title company will issue this insurance policy. This is a policy that guarantees good title even if an unknown lien surfaces after closing. You will not be responsible for any past liens on the property that occurred before you purchased. The story is different if you were to go and buy a home in a courthouse steps auction, but in the case of a foreclosure listed by a real estate agent, the facts above are true.

What are the advantages to you for purchasing a foreclosed property? Foreclosures, like short sales, can be a good deal. However, the bank does want to avoid as much loss as possible. They will list a foreclosure at market value and only knock the price down after the home has set on the market for a certain amount of days. Also, they will only negotiate down substantially regarding the same situation. However, it never hurts to try to get a good deal on a foreclosed property because after all, it is all just a numbers game. In most cases you do not run the chance of offending the seller, which is the lender. Unlike dealing with an emotionally tied owner/occupant, if the numbers work for the lender they work. They will counter if the numbers don't work. However, outrageously lowball offers can be outright rejected, such as an offer for 50% of the asking price. I have seen this happen. Remember, the bank, just like any other seller, could list and sell the home for more than 50% of market value. They will not be that taken advantage of and can afford to hold on to the property until a more reasonable buyer comes along. If that means dropping the price by 10% - 15% to find that buyer it is still more advantageous to them than giving it away at 50% of market value.

What negatives should you expect? Just like with a short sale, a foreclosure is sold "as is". You are buying the property just the way you see it. Be smart and get an inspection! You do not want to get trapped in a money pit. Also, foreclosures are typically more beat up than other homes on the market. The previous owner may have taken out their angst on getting foreclosed upon on their soon to be foreclosed upon property. I have seen foreclosures with all the door knobs taken out as well as the appliances. Most need the flooring replaced and a good paint job too. Bathrooms can be a nightmare as well. You can luck out and buy a foreclosed home that is only a year or two old that needs very little work, but these are not on the market very often.

When it comes to short sales and foreclosures in general, a good real estate agent is key. Your agent can advise you on the actual market value of the property, recommend vendors for quotes on repairs, and should know how to negotiate with the banks and handle any issue that may arise. My team has a plethora of experience in both short sales and foreclosures and we are happy to consult with you and make sure you get the best deal possible with the least hassle on a home you love. Contact us today and lets get started! 1-800-720-2197