Foreclosure Short Sale Resource

10 steps to 'short sale' buying

There are too few active buyers in the real-estate market these days – but every one of them seems to be looking to buy a foreclosure or a short sale. Here's a primer on short sales and the steps you will need to take to purchase one.

By Bobbi Dempsey of Bankrate.com

Foreclosure is a fairly well-understood process, but as "short sale" signs sprout like weeds, you may wonder what they are all about.

When a lender agrees to accept a mortgage payoff amount that is less than what is owed in order to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.

Everyone loses — or wins
Short sales are a mixed bag for the buyer, the seller and the lender.

If you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

The buyer gets the property at a reduced price, but the property in all likelihood has its share of problems — think fixer-upper — and will need to go through considerable red tape in order to make the deal happen.

What's your home worth?

The lender takes a financial loss, but perhaps not as large a loss as it might if it forecloses on the property.

Before you even start considering getting involved in a short sale, there are two situations in which an attempt at a short sale is almost certain to fail:

• No default on loan — Lenders almost never will accept short-sale offers or requests for short sales until the borrower is far behind in payments and a notice of default has been issued.
• Bankruptcy — If the seller has filed for bankruptcy, forget it. Few, if any, lenders will consider a short sale when the seller has filed for bankruptcy because negotiating a short sale is considered a collection activity and collection activities are prohibited in bankruptcies.

Can it work for you?
Buying a home in a short sale can be a hassle, so why should you consider it? It boils down to the bottom line. You will get the property for a substantial discount. Since the lender is eager to continue to get paid the money it loaned out, it may also offer favorable financing terms.

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Myths being circulated about short sales.

1)  Short Sales are impossible and never get approved.  FALSE

TRUTH:  Short Sales are more difficult, you need to learn a new process, they are NOT impossible.  This is definitely not an impossible process.  While there are no guarantees in any transaction, more and more short sales are being approved monthly. 

 

2)  Banks are NOT accepting Short Sales; They are waiting on a bailout.  FALSE

TRUTH:  The reality is that banks have already been bailed out, and are really trying to do anything they can, within reason, to avoid foreclosing on a property.  More banks are aggressively pursuing Short Sales.  It is strictly business; it costs the bank (in most cases) far less to short sell than to foreclose. 

3)  You must be behind on your mortgage in order to negotiate a short sale.  FALSE

TRUTH:  At one time this was true, but today, this has almost all together reversed.  Today lenders are looking for verifiable hardship, monthly cash flow shortfall or pending shortfall and insolvency.  If you meet these three requirements and are in a position where you will soon not be able to afford your mortgage, now is the time. 

 

4)  Buyers are not interested in short sales and avoid them.  FALSE (mostly)

TRUTH:  Some buyers are not interested because of the time it takes. Especially with time constraints like the first time homebuyer credit or you need to move in by a certain date.  On the other hand, buyers are calling and saying "I only want to look at foreclosures and short sales."  These have become equal Good Deals. 

5)  Listing a home as a short sale is an embarrassment.  FALSE (mostly)

TRUTH:  Most sellers don't want the world to know they can't pay their bills, but according to recent estimates, 1 in 5 homeowners in the US owe more on their house than it is worth.  Even wealthy owners have to stop the bleeding somewhere. 
Most sellers are to be congratulated for admitting they need help, taking action and finding a professional who can work toward a solution. 

6)  There is not enough time to negotiate a short sale before a foreclosure.  FALSE

TRUTH:  This is a myth that hurts homeowners.  Many don't realize that the foreclosure process is lengthy.  It can take a year or more, and if an attorney gets involved, it can be stalled.  Almost all lenders will stall a foreclosure with a legitimate contract for short sale.  So if a lis pendens has been filed, that's just the beginning.  If it is slated for the courthouse steps, hurry up, if there is an offer you may be able to stall.  

Homeowners Rent Out Rooms to Stave Off Foreclosure

February 7, 2010

By Patrick May, San Jose Mercury News, Calif.

Feb. 7—Reeling from the recession’s one-two-three-punch of job woes, climbing mortgage payments, and evaporating equity, desperate Silicon Valley homeowners are dipping into a nearby income stream to avoid foreclosure:

That bedroom just down the hall.

While renting out a room has been around for years, especially in the South Bay’s Latino neighborhoods, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.

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