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I'm certifed in dealing with distressed property but I'm just curious as to why you would choose that route when there are so many foreclosures. Do you have a specific property picked out?
Here's some info that you might need to know when searching for a Realtor:
Has the Realtor turned in the complete short sale package? If one piece is left out it will go back to the bottom of stack and they'll deal with another case that has a complete package.
How experienced is the other Realtor in dealing with short sales? How many have they closed? We are certified to deal with short sales and have closed many.
Is there a second mortgage? Properties with 2nd mortgages almost never work out because the first usually offers the second $1K or less and the second almost always refuses and just wants to foreclose.
Have your Realtor do a BPO/CMA on the property. Is this figure pretty close to your offer? If not, it will most likely be rejected. This is how the bank determines the price of the property: 20% on either side of living square footage, 5 years on either side of age, if it's an urban area you can go out a mile for the subject property, suburban is 5 miles and rural (North Port for example) 10 miles. The closer the comps the better. You can go back 6 months in sales but banks prefer them to be 3 months or less since the market is changing so rapidly. Then the Realtor should use the most similar comps that come up. If nothing comes up then you adjust year built, miles, etc slightly until you come up with something. Have your Realtor run the comps like the above and see what she/he comes up with. This will give you a pretty good idea of what figure the bank will come back with. Now, in short sales I have seen some banks that are just completely out of line with their figures.
And lastly, 95% of all short sales fail and end up in foreclosure due to lack of knowledge of the Realtors, unwillingness of the banks to cooperate, etc. You may get a better/quicker deal once the home has gone into foreclosure.
Here's some background on short sales vs. foreclosures: What is a short sale? How does a short sale work?
A short sale is when the homeowner falls behind on their mortgage payments and needs to sell the home but can't because they are upside down on their mortgage, meaning that they owe more on the home than it is worth. At this point, the bank tells the homeowner that they need to list their home with a Realtor to begin the short sale process. The Realtor then determines the market value of the home and lists it at or around that price. Until the Realtor can bring a sales contract for that property to the bank, they really don't want to be contacted. Once a sales contract is written and submitted to the bank, the bank often takes 90 days or more to respond and in some cases it can take over six months to hear a response from the bank. Often, when the bank does respond, they will respond with a counter offer that is WAY above the listing price, and therefore is too high for the present market. The bank is crunching numbers on how much is owed and how much it WAS worth, but in the current real estate market the home values are declining and the banks don't always have a handle on what the real estate market is doing in our particular area. Some short sales have a payoff negotiated, but in many cases the bank's loss mitigation department doesn't even being evaluation until they get the first offer. The process is always long and drawn out and you don't necessarily get a good deal. Sometimes, waiting out a short sale is beneficial but usually it's such a headache that it's better to wait until the home is in full foreclosure. Because of this bad reputation that short sales have, sometimes a property listing can be tricky - it might say that the home is in "pre-foreclosure" or that the listing is "contingent on lender approval".
Don't be totally close-minded to the idea of a short sale; just be mindful, do research and ask lots of questions before submitting an offer. The easiest question to ask is, "has the bank negotiated a payout?" If the answer to that question is "yes", then the process should be easier and quicker than a typical short sale. Another thing to check out is how many mortgages there are on the property, which is public record. Keep in mind that for your offer to be accepted, ALL of the involved mortgage companies must approve. That can mean more time and more hassle.
A final note about short sales is that if you are using a Realtor who has never successfully negotiated a short sale before, it may be even more difficult to get the property closed. Dealing with banks and mortgage companies is a lot different than dealing with the average homeowner. There are different forms to fill out, special hoops to jump through and extra communication that needs to happen. Consider choosing a Realtor who has extensive experience in these areas.
What is a foreclosure? How does a foreclosure work?
If you are thinking of buying a foreclosure property, that's an entirely different situation. A home that is in foreclosure is a home that the bank has taken over completely. The homeowner is not the homeowner anymore and therefore does not have an interest in the property at all. The price that the home is listed at is approved by the bank and therefore will sell at or near that price. In some cases, the bank MIGHT accept slightly less than the list price but more frequently, the property will actually sell for a slightly higher price due to multiple offers being submitted. The banks will always take the highest and best offer that is submitted rather than the first offer that is submitted. Foreclosures, or bank owned properties often are on a price reduction schedule that will reduce the price little by little until a strong offer comes in on it. The amount of time that you will wait is negligible; usually about the same amount of time that it would take if you were submitting an offer on an owner occupied home. In most cases, banks will want to close within 30 days so they can turn their inventory as quickly as possible.
People often ask me how the banks arrive at the price that they list it at. I get questions like, "how does the bank even know what the property is worth if they're out in California? They don't know our market." "Do they even know that there are holes in the walls or the carpet is stained?" The answer is yes, yes and yes. The bank gets a full report on each property and pictures. We do what is called a BPO or Broker's Price Opinion.
Here's the formula that they follow: If the home is in an urban area you can search for comparable homes within a one mile radius of the subject property, if the area is suburban you can go out 5 miles and rural you can go out 10 miles. The closer the comp the better. Next they will let me go back in time 6 months in sales from today's date. Some banks are only allowing me to go back 3 months or less because the market is changing so rapidly. For comps in the final report, the banks will only look at three active property comparisons and three sold comparisons. They do not look at any pending properties. Then we look at square footage of the home. We take the living square footage under A/C and multiply by 20%. We take 20% off the square footage and add 20% to the square footage to get a bracketed size. For instance if the living square footage of a home is 1500 sq ft. I would add 300 sq ft and subtract 300 sq ft. So, the home that I would look for would be between 1200-1800 sq ft. Then next thing is age. They like the homes within five years +/- on the age. So, if the home was built in 1995, I would search for homes built from 1990-2000. In some cases they will let us go 10 years on either side. They also prefer us to stay with the same number of bedrooms and bathrooms. If the home has a pool, they would want us to use other homes with pools for comparison or put in adjustment for a pool.
I also want to point out that they will get a BPO from the list agent and then the banks also pay for at least one Realtor that is independent of the sale to do a BPO. Then they compare the two. If the prices that were arrived at are wildly different then they would question both Realtor's about their BPO's. Both Realtors are required to submit photos of the home so the bank can view them. They typically want photos of any damage, all mechanicals and appliances, the water heater, electrical panel, four photos of every room, the pool area (if there is one), and a street view of both directions. We also fill out a page of positive and negative features of the property. And at the end of the report we will give our opinion on a list price for the home to get it sold in 30 days. So, there you have it that's how we arrive at a price for the bank.
Here are a few points to keep in mind. Usually foreclosures do close pretty quickly. If you are submitting a cash offer they will want to close in 14 days. If it's financing, usually 30 days is acceptable.
Most of the time banks will pay for title and they will select the title company. This is because they want to keep tabs on all of the property they handle and it is much easier to do this if they are all at one title company.
If there are several offers on a home the bank will often come back and ask each buyer for their highest & best offer. Sometimes they will require you to sign a form notifying you that you are in a multiple offer situation. This is not always set in stone and they don't have to do highest & best. Another question I get is," Can you disclose any of the offers?". The answer is no. The other buyers will not know what you offered and you will not know what another buyer has offered. Your Realtor can run comps for you to determine what a reasonable offer might be.
Many people don't realize that it's not just the price that banks consider. There are several things that you can do to make your offer more attractive to the banks. We list a lot of foreclosed property so we are pretty familiar with the procedure.
Here's one tip: For the closing date make it 7-10 days before the end of the month. The banks want their property closed out and off the books before the end of the month. If the offer is written 7-10 days before the end of the month it gives time for any issues that might arise to get resolved and the property to close before month's end. An offer written this way would generally be more attractive to a bank. If two offers are close in price the bank would probably choose the offer written like this. There's several other things but that's one of the big one's.
The asset managers are very busy in the last two weeks of the month closing out that months inventory. Typically the response time will be longer if you are submitting an offer at the end of the month. Many of the new foreclosures come on in the first two weeks of the month after the asset managers have closed their properties for the previous month.
All foreclosures are sold "as is". An "as is" contract reads, "as is" with right to inspect and you will fill out how many days you have to inspect the home and cancel the contract if you find any issues. The banks always sell their property "as is" because they have never lived in the property and therefore are not aware of any issues there might be with the home. You will also not receive a sellers' disclosure, which is a typical document in a owner occupied home. This again, is because the bank has not lived in the home. There may or may not be issues with the home but I always advise my buyers to hire a home inspector to check the home over, even if it's brand new.
Once you submit your contract and it it accepted, the bank will almost certainly send another contract out that overrides the first contract. Please read this contract carefully because most of the verbiage will be different than the original contract you signed and this contract and addendum's will override anything in the original contract. Some banks will not allow a cancellation of contract if you find something wrong with the home. It would state this in their contract. Often the addendum are 5-30 pages long. Many of the longer contracts are with Fannie Mae, Freddie Mac and HUD. HUD usually will not let investors bid on their homes until the home has been on the market for 10 days. This gives an owner occupant a chance to offer on the home without the competition of an investor. So, many of the HUD homes sell to owner occupants for this reason.
Hope this helps clarify some of the questions and mystery behind the short sale and foreclosure process
I am not sure about the 95% failure rate of short sales; this seems like an old stat. Anyhow, the government is finally stepping-in and promoting short sales. There is really no good option when you are 25% or more underwater. We are looking at an entire generation of lost value for those who bought between 2003 and 2008. On the flip side, the market is heading to 1998 values and this is a really good thing for our economy. Nobody wants to be a slave to their mortgage. So, good luck with your search. Check out: Short-Sale Program Will Pay Homeowners to Sell at a Loss - NYTimes.com
I am beginning to look into buying foreclosure properties. I understand it is best to make offers straight to the bank holding the lein. How do I find out who holds the title and if its a Fannie Mae or Freddie Mac home how do I contact them to make an offer? Any suggestions or insight on this would be appreciated.
Thanks
I have sold and listed a lot of short sales. Every single one of them have been totally different. When I list a short sale I work directly with a short sale company. GSS Short Sale Solutions. Their web site is: http://gss-title.com/ They do all of the leg work, day in and day out. They are experienced and work hard to get the deal to go through. They send me updates on a regular basis as to where the process is. I have not had one yet that has not closed. I work very closely with the company through phone and email coversations.
Here is some information I give to my customers who are thinking about listing their home as a short sale.
WHY IS A SHORT SALE BETTER THAN A FORECLOSURE?
Short sales are just about everywhere...it seems like you can't get away from them. Many sellers, loan officers and Realtors say they know a lot about short sales, but don't know how the short sale process works or even why a short sale is a better alternative to a foreclosure.
A short sale will enable the seller to purchase a home about 2 years after a short sale completion while a foreclosure will make you wait 5 years. In addition, short sales are better for the lender and it will keep the house occupied, with water and electricity still on and also keep the lawn mowed. Plus the bank will lose less money through a short sale.
PROS No Foreclosure - foreclosures can be a hard and stressful process for a family.
Being Proactive - facing a foreclosure head on will help give you some control over the process.
Start Newer, Faster - minimizing damage to your credit can help you and your family get back on your feet faster.
May not owe anything after the short sale - you can try asking the bank to cancel your debt altogether. It does happen, but not all the time. Primary residences are usually treated more favorably by the lenders.
CONS There is still damage to your credit - when a short sale is done, it is still documented on your credit but won't have the same impact as a foreclosure for most creditors.
Tax Consequences - there may be tax consequences if the bank forgives the debit and will issue a 1099 to the IRS for the amount of debt forgiven.
Bank could demand payment for their loss - the bank doesn't have to forgive the debt. They are able to ask you to pay them back for the difference on the sale and what is owed, but you will need to agree to this.
There are no guarantees in a short sale - whether the bank will approve the sale or forgive your debt, but short sales offer a better alternative to minimize the downside of facing a foreclosure.
Disclaimer -There can be legal and tax consequences. You may want to consult with an attorney or tax specialist before attempting a short sale. A real estate agent cannot give you legal or tax advice.
DO YOU QUALIFY? - Can you answer Yes to all 4 Questions?
1. The Homes' Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance.
2. The mortgage is in or near default status.
3. The seller has fallen on hard times. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the payments.
4. The seller has no assets. The lender will want to see a financial statement and recent tax returns.
WHAT TO EXPECT?
1. The lender will want to see your entire financial picture.
2. The bank may want you to sign a promissory note for the deficiency between the amount owed and the amount your home is sold for.
3. As the seller, you cannot receive any proceeds from the sale. None. Period. Your Realtor and title company may have to work for reduced fees.
4. The banks are overwhelmed with short sales and many times a decision can take up to 60 days or longer.
5. The property may be foreclosed on during the short sale process. Be sure to use an experienced short sale company who should be able to get the foreclosure postponed.
6. Do not expect to receive information on a regular basis, as there may be weeks that go by without news from your lender.
7. The bank will want to get a BPO (Broker Price Opinion) and/or an appraisal of your house.
8. Be patient. This is the best policy. Try to avoid being stressed out over something that you are not able to control.
I am beginning to look into buying foreclosure properties. I understand it is best to make offers straight to the bank holding the lein. How do I find out who holds the title and if its a Fannie Mae or Freddie Mac home how do I contact them to make an offer? Any suggestions or insight on this would be appreciated.
Thanks
My partner and I list a lot of the foreclosed properties in the area. They go from the owner being foreclosed on to the bank and once the bank acquires the property they are listed on the MLS.
I've had a few clients who have contacted the banks directly and they all have said to wait until the property is listed and contact the listing broker.
Here is a list of some of the local banks who list property in the area. You can try to contact them directly and see how it goes:
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