Understanding
Short Sales,
Foreclosures & REO's
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Proceed with Caution
When considering a purchase or sale of real estate that could be categorized as a short sale, foreclosure or REO (Real Estate Owned) property, consumers are urged to consult professionals. These are legal matters that can have lasting effect on credit, taxes, and many other personal matters. All are encouraged to consult their Attorney, HUD homeowner consulting center, tax professional, and other appropriate professional agencies. One of our highly skilled and trained Connect agents is also ready and waiting to assist.
Foreclosure
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Steps to a Foreclosure1. First Notice is Filed (i.e., Notice of Default or 3. Sale or Auction is Held - If minimum bid is not met, Steps after Foreclosure
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Short Sales
Borrowers who are facing foreclosure may ask their lender to accept a discounted payoff on their loan. This is called a short sale or short payoff. It allows the borrower to avoid a foreclosure action, and may offer the lender an expedited and less costly resolution for the delinquency. A short sale allows the borrower to maintain a better overall credit record than with a foreclosure. It also allows time for the homeowner to relocate on a more convenient timetable instead of facing eviction and possibly a deficiency judgment down the road.
For the consumer, negotiating a short sale with their lender may seem a daunting task, particularly at a stressful time when foreclosure looms. Most lenders have specific criteria in considering a short sale as it relates to the borrower's ability to repay the debt. Some lenders will consider a short sale only if the borrower can produce evidence of hardship. A property that is distressed or requires extensive repairs may also qualify. If the lender were to foreclose on this type of property, it would have to pay for all of the repairs necessary to sell the property. A short sale may represent a more cost-effective way to pay off the loan.
If the home owner qualifies for a short sale, with an agreed amount, then typically the foreclosure will not proceed or will be delayed if there is substantial progress in the sale of the property.
Steps to Short Sale
1. When payments can not be made to the lender, immediately seek
advice from your Connect Agent and other professionals.
2. Real Estate Listing Agent lists the home "AS IS" and a short sale disclosure is made in the listing.
3. Borrow needs to understand that a short sale means the homes value is less than the mortgage balance due on the property plus the marketing and closing costs incurred to sell the property. Borrower in a short sale, will receive no proceeds whatsoever.
The incentive for a borrow to continue with the short sale is to sell the home prior to a foreclosure, as, if a foreclosure were to happen, the borrows credit would be great impacted for many years to come and this not only would prevent them from getting a future loan of any kind, but it would also make their insurance costs, and employment opportunities at risk, as credit scores are used often as a factor for determining rate selection and hiring of employees.
4. Borrower or professional contacts the lender about delinquency - First Noticeï is Filed (i.e., Notice of Default or Notice of Sale) - - Borrow needs to sign an affidavit giving the real estate professional permission to contact the lender in their behalf, as their listing agent. Borrower must immediatelyy provide a hardship letter that convinces to the lender that because of the hardship stated, they could not continue making payments on the
6. Buyer presents offer to homeowner, then it is presented to the lender. (With a reasonable offer, the foreclosure date might be postponed) - Lender upon receipt of a the first offer, will seek a third party Broker Price Opinion (BPO) or a Professional Appraisal to determine confirm fair market value of the property.
Upon receipt and review of the BPO or appraisal, lender will determine if the offer amount is consider fair and the bank and lender holder(s) are willing to accept the offer. If there is a second mortgage and it is held by a lender different than the first mortgage, then the two have to negotiate an agreed internally between them. This can extend the respond on the offer for weeks. A typical YES/NO response to a short sale offer can take 3 weeks as an average and sometimes twice the time if a second lien holder is involved.
7. Once accepted, Bank opens escrow - And lender of the buyer will begin processing their loan, and obtain an appraisal of their on the property.
8. Closing Date is scheduled and transaction is processed, Title is reviewed, buyer inspection is held but note the property is being SOLD AS IS and the inspection finding will most likely not be remedied by the lien holder unless they are a safety issues, or drastically devalue the property value even greater than it already is.
9. Depending on the Market Conditions, buyers may encounter delays and challenges.
When all contingencies on both the buyer and seller side of the transaction has been signed, the closing documents are signed, the docs are reviewed by the buyers lender, funds are wired to escrow, and title will record the transaction docs at the county court house.
10. Funds are distributed to utilities and any other payees dictated in the escrow processes, and the new buyer takes ownership of the property on the possession date.
IMPORTANT NOTE: In the meantime, the sellers need to be packing and be prepared to move all possessions and do a reasonable house cleaning before the new owners arrive, no later then the date of possession. Sellers are expected to leave the property in a reasonable condition that is defined in the Purchase & Sales Agreement.
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REO (Real Estate Owned) Property
It is important for both the buyer and seller to understand that the current market conditions can alter normal procedures. Many of the service providers such as beneficiaries, escrow, title, and lenders that process these transactions have an inordinate amount of files to deal with that often cause delays and other related challenges. Patience is greatly appreciated!
