Short Sales
Can I do a Short Sale??
Most likely the answer is yes. Foreclosures and short sales are real common in todays market. Bend, Sunriver, La Pine, and Redmond are saturated with Bank ownedhomes and people trying to sell in a short sale situation. Today is a great time to buy a REO (Bank owned home) or a short sale home any where in Deschutes county. Wheather you are looking to buy Real Estate in Sunriver, Bend, La Pine, or Redmond there is an abundant amount of properties to look at. You just need expert advise and help and I can provide that for you.
Investing in SHORT SALES
In real estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold In a short sale, the bank or mortage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Most Short Sales leave a deficiency balance for which the Mortgagor / Borrower is still liable. In 99% of all cases it is not a settlement-in-full. A deficiency balance will remain while the mortgage broker, real estate agent / broker, loan officers, title and closing agents retain their profit. No regulatory agency governs this hybrid transaction.Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset, businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.
Negotiations
Lenders have a department (typically called "loss mitigation") that processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located. However, given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the current foreclosure crisis, they are now more willing to accept short sales than ever before. This is great news for borrowers who are "under-water" or in other words those who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure because of this. They are type of distressed borrower who needs a short sale the most.Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. Multiple levels of approvals and conditions are very common with short sales. Junior liens - such as second mortgages, HELOC lenders, and HOA (special assessment liens) - may need to approve the short sale. Frequent objectors to short sales include tax lien holders (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even when unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale. If the lender required mortgage insurance on the loan, the insurer will likely also be party to negotiations as they may be asked to pay out a claim to offset the lender's loss in the short sale. The wide array of parties, parameters and processes involved in a short sale makes it a relatively complex and highly specialized type of real estate transaction which is why unfortunately short sale deals have a high failure rate and often do not close on time to save homeowners from foreclosure when they are not handled by a knowledgeable and experienced professional. The best sources of knowledge and expertise in short sales are real estate lawyers who specialize in short sales, short sale negotiators and loss mitigation specialists.
Credit reporting
A short sale does adversely affect a person's credit report, though the negative impact is typically less than a foreclosure. Short sales are a type of settlement. Like all entries except for bankruptcy, short sales remain on a credit report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage 1-3 years after a short sale.
While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating mortgage balances to reflect a zero balance after a short sale. However, willfully misrepresenting information on a credit report can constitute libel in some jurisdictions, and lenders may be sued in civil court for engaging in this behavior.
When to invest in Short Sales, foreclosures, & Bank Owned Homes (REO's)
Short Sales are not for everyone, If you have the time and patience they can be your best friend. If you are in a hurry they can drag and drag and drive most clients crazy. I specialize in Bank owned properties, Short Sales, and income producing properties. Sunriver, Bend, and la Pine are abundant with all three types of homes. Real Estate in Sunriver, Bend, and Lapine and all od Deschutes county is loaded with great deals. The normal foreclosure rate has more then trippled in these areas and this makes it a great time to invest. If you have question or are thinking about selling your home through a short sale process give me a call or shoot me an email and I will be happy to talk through the short sale process to give you a fair idea of the problems you will come accross. For the first time in years Sunriver even has properties that can be purchased from Banks (REO HOMES) in short sales, and pre forclosure. This is a great time to invest!!
Top 10 Frequently Asked Short Sale Questions
1. What is a real estate short sale
A real estate short sale is a form of agreement between the seller of a home in the beginning stages of foreclosure and their lender, allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee would accept less than the loan amount in order to avoid a foreclosure proceeding. This short sale would result in a substantially discounted purchase price for the buyer of the home. The buyer would then proceed with the purchase of the home much the same as in any conventional realty transaction.
2. How late in the pre-foreclosure process can you start a short sale?
Depending on individual state law and regulations, a foreclosure can proceed as quickly as 35 days from the date the notice to the borrower is filed. For that reason, time is of the essence and you should allow a window of no more than 60 days to effectuate a lender approved short sale.
3. Will a lender allow a real estate short sale when the seller has some a good amount of equity?
If the home has some considerable amount of equity, the lender may choose to continue with a traditional foreclosure proceeding to regain title to the property and dispose of it at a market price. Given the current state of affairs with the real estate market, the home will most likely be over encumbered, hence the reason for the short sale in the first place. A glut of homes for sale in the market area of the home may make the lender think twice about taking title to the property.
4. What documents are necessary to proceed with a short sale?
The individual documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There may be additional requests for more detailed information on the financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things.
5. Will the seller’s credit rating be affected if they allow a short sale on their property to occur?
While it is up to the individual lender to decide what to report, what often happens is the loan will report as "paid" on their credit report. While that good news the bad news is that there will likely be a reference that says "settled for less than originally owed" or something similar. It is certainly more advantageous to have the short sale referenced than to have a foreclosure on their credit report.
6. Will a lender allow the seller to make a profit on a short sale?
By the nature of the transaction, the seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.
7. If a seller is in bankruptcy, will that affect the short sale of the property?
Absolutely, as most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.
8. Will the bank or lender require an appraisal on the home in a short sale?
Most lenders will require that a full appraisal be submitted in the short sale package. Some may only require a BPO or brokers price opinion. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.
9. Are there tax implications in the short of real estate?
Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness.
10.Why would a lender allow a short sale to occur?
Quite simply, it may benefit all the parties involved in the transaction. The seller is relieved of the home they cannot afford. A costly foreclosure proceeding by the lender is avoided and the buyer purchases the home at an attractive price.
