RE/MAX Hometown Properties - Foreclosures & Short Sales

Foreclosures & Short Sales

What is a Short Sale?

A short sale takes place when the seller's lender will accept a payoff for less than is owed to release the mortgage. The lender may or may not accept the offer presented regardless of what the seller accepts. The lender will sometimes set a pre-determined acceptable price.

You should also know that it is not necessary for the seller to be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender might consider a short sale if the seller is current but the value has declined. The seller may be "upside down" (owe more than the home is worth), so a discounted price might be more in line with the current market value.

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What is a Foreclosure?

A lender will have taken a security interest in the property when a home is purchased with a mortgage. When the homeowner cannot continue making payments on the home, the security interest gives the lender the right to proceed with a foreclosure. The lender will usually seek to have the deed transferred back to itself through an attorney and a judgement by the courts. The next step is to sell the property through the local board of REALTORS®. Sometimes the home is sold at auction to recover the investment.

Disadvantages in Buying a Short Sale

1) The Market Value

Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO, or even a certified appraisal. The lender may hold out for a higher price if an offer falls too far below market value. Lenders will accept short sales when the agreed price reflects the market value.

2) Homes are Sold "As Is".

Normally a mortgage company will not pay for suggested repairs found during a home inspection. Nor will they address issues relating to home warranties, pest problems, roof and maintenance. They will usually pay only the closing costs associated with a short sale.

3) Time for Acceptance of Offers

The lender's back-log of foreclosures and the paperwork that may still be needed, will determine a response time for an offer. Unfortunately, the process could take from two weeks to three months. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender.

4) The Closing

If you are trying to close at the same time as the sale of your own home, you can run into problems. The seller's lender will not always be so flexible if you encounter any issues, so "piggyback closings" are rarely smooth.

Buying a Foreclosed Home

1) Condition

The homeowner about to lose his property in a foreclosure is unlikely to repair any problems that occur. They will come to light during a home inspection and will need to be considered when making an offer. Owners of foreclosed properties rarely effect repairs, so you will be responsible.

2) Missing Appliances

A seller may sell the appliances, so be prepared to replace these. There are also occasions where the air conditioning units have been stolen or sold. And homes that have been placed in foreclosure may have been neglected for quite some time, so beware of odors that might reveal mold or water damage.

3) Price and Competition

Keep in mind that while a foreclosed home might seem like a good value, there are other sellers in the market competing for your business. You might consider all homes that meet your needs and price range, as fair market transactions offer some distinct differences for a buyer. Repairs by the seller, some flexibility surrounding closing dates, and overall condition are some possible advantages.