The “Short Sale” and Foreclosure
Posted on | February 18, 2008 | No Comments
I spent yesterday looking at more property in Hanahan, Goose Creek, and Summerville. It seems like once we work the size my client wants into the price range she needs, we are looking at greatly discounted houses, which turn out to either need a lot of work, or be a short sale situation, or both. Interestingly, I have noticed that a lot of homes that are foreclosed upon, or are about to go into foreclosure, have not been taken care of by the owner. I’ve been wondering if people just stop caring for their home when they know they are about to lose it. Or, possibly, if it is the same kind of person that does not, or cannot, pay their bills as the person who does not, or cannot take care of their home. Maybe it is just a whole mindset of not taking care of your business. I don’t mean to be uncharitable. I am sure that some people are good, honest, hard working people who have simply had hard times befall them. But I will tell you for sure that I have never personally walked into a foreclosure property where the home has been lovingly maintained.
The first few years I was in real estate in Charleston, I never even heard of a short sale. I think it is a strong indicator of the market that we see so many now. A short sale is where the mortgage holder (the bank) will take less money than what it is owed, as an alternative to foreclosure. In the Charleston real estate market in 2005, people paid premium prices for homes, and expected those prices to continue to go up. However, I guess prices outstripped people’s incomes. Additionally, many adjustable rate mortgages came due at a time of higher interest rates, leading to increased inventory on the market. These, and other, factors, combined with lots of negative media attention, lead to prices beginning to drop, particularly in certain areas. People began to have homes that they could not sell for even what they owed on them, let alone breaking even or making a profit. Many people, especially in some of the lower price ranges, really don’t have extra cash to bring to closing to finish paying off their mortgage, yet they are in over their heads and are in danger of losing the home anyway if they do not sell it.
Enter the short sale…
…Banks would often rather take a bit of a loss than have to foreclose on a home. When they foreclose, they have attorney fees, maintenance, taxes, real estate commissions, repairs, etc., in money that they have to spend on getting rid of the home. Plus, they are short the liquid funds that many banks need while they are waiting for the home to sell. Thus, it is often easier for them to take a bit of a loss and go ahead and get what money they can get.
Therefore, short sale properties are often greatly reduced, and the contract price must be approved by the bank. I happen to know a bit more about short sales than most agents because I have worked on the listing side of them as well as the purchasing side.
If you are considering purchasing a short sale, the main thing to keep in mind is that you are dealing with a corporation, not an individual. This means you must be prepared to wait three to five weeks to hear back from the bank in regards to your offer. Then you have to wait some more to get all of the signed paperwork back in hand. Also, banks are unlikely to be willing to accept homeselling contingencies or to make repairs. That is not to say that you can’t ask; just be prepared for them to refuse.
If you are in a situation where you think a short sale might be the best option for you to get out from under your mortgage on your home, contact your bank. First ask about loan restructuring options. That could be a way to keep your home altogether. If that will not work, find out what documentation the bank needs from you. They often need bank statements, pay stubs, etc. They are looking for a true financial hardship to see if you are a candidate for a short sale. They are unlikely to tell you what they are willing to take to release the lien on the property, so you will need a good agent to help you figure out how to price the home. This can be tricky, because you need to price it to sell quickly, but also price it to where there is a good chance the bank will agree. You also need special wording in your listing agreement and in the contract. The main thing to be aware of is that the bank is agreeing to release the lien for less than what is owed, so that title can be transferred. This does not mean they are releasing you from your obligation to pay them. They will likely come after you for the difference after the closing. They may or may not tell you that up front, so you need to be aware. The one thing I am not sure about is whether doing a short sale messes up your credit. You would need to verify that.
Comments
Leave a Reply
