Short Sales – Info for Sellers

You may have heard the term “short sale” floating around out there. So what does it mean to you as a seller? A short sale is a situation in which the amount that you can sell your property for will not be enough to pay off your mortgage and thus you negotiate with you lender to accept less than what they are owed as a full payoff on the mortgage. (By the way, if you live in Michigan you are in good company if you owe more than your house is worth – a full 40% of home owners are in the same spot)

This may seem like a pretty good idea if you are ready to move and are upsidedown on your house. But hold on a minute…not just anyone can do a short sale. Who is a good candidate for a short sale? Basically someone who has a hardship and will be unable to pay their mortgage if they do not sell the house…a job loss, transfer, divorce, things like that. If you are upsidedown on your house and have money in the bank, sorry, but this is not the deal for you. In addition to a hardship, your lender will want to look at your financial information. All of it… W-2s, paystubs, tax returns, bank accounts. They want to make sure you don’t have any money squirreled away or that you could actually have the means to come up with the deficit. And no transferring the money to mom and dad’s account right before the sale…they will check back for several years.

So what are the benefits to doing a short sale for you as the seller? A short sale will not be AS large of a hit on your credit as a full blown foreclosure.   It will still make your credit score go down.  This means that you may be able to buy another house in the future sooner (or lease a car, or get a credit card, or any of the other of a multitude of things your credit tends to affect these days) In the meantime (and I say this as a landlord myself) it may be easier to rent a place with a short sale on your credit versus a foreclosure.

Finally, while you will not net anything at closing, you also should not have to pay anything to do a short sale. Though are lots of companies that may try to collect a fee upfront. DON’T DO IT. Any reputable real estate company in this market will have an entire short sale department, or at least agents who have experience with short sales. Make sure to ask your agent about their experience with short sales, including their success rate and average turn time. You don’t want to be their guinea pig.

Short Sales – Info for Buyers

As a buyer in Michigan right now you have certainly been unable to avoid the multitude of foreclosure properties available for sale. But there is another type of sale that you may have seen cropping up as well. A short sale. So what is a short sale? And what does it mean to you as a buyer?

Strictly speaking a short sale is a sale in which the price the house is listed for will not be enough to pay off the mortgage. The seller will be “short” on their payoff amount. Unfortunately, that is about the only thing that is short in a short sale. This dauntingly long and frustrating process means that as a buyer, you could be waiting 3-6 months for an answer on your offer. And after the long wait there is no guarantee that it will be accepted. But why?

As a buyer in a short sale you are negotiating not only with the seller, but also with their lender. The seller will not get a dime at closing and thus their entire motivation rests in the fact that a short sale will not mess their credit as MUCH as a full blown foreclosure. The lender has to be convinced that if they do not complete a sale for less than what they are owed that they will get the property back as a foreclosure anyway. The two things that the lenders are looking at are: 1) Is the property really worth less than what the mortgage amount is 2) Can the seller truly not afford the monthly mortgage payments. It sounds simple enough, but in order to check these two facts the lender requires a mountain of paperwork including the sellers personal fiancingal information, appraisals, realtor price opinions and more. On top of all that the lenders are absolutely OVERWHELMED with the volume of short sale requests they are receiving. One employee at the bank may have 400 files they are working on. That is a LOT.

The long and short of it for you as a buyer is that you can get a great deal on a short sale, but make sure you are prepared for a long and grueling wait to get a response once you find a house you like.

Buying a Foreclosure

There is a lot of talk out there about foreclosure property. On one side of the coin people are talking about how horrible foreclosures are. And they are. No doubt. But a savvy buyer can turn this crazy market into real opportunity if they are not afraid to get a little dirty. So what follows is some tips and advice from one Realtor who is on the foreclosure front lines to potential foreclosure buyers.
1) Sweat Equity- Basically this is a nice way of saying that the house is going to need some work. Certainly there is the rare exception, but the vast majority of homes have some “deferred maintenance issues” which is Realtor-speak for nobody has been taking care of the regular home maintenance for quite some time. Remember that the foreclosure process itself is quite lengthy and by the time the bank puts it on the market, it easily could have been sitting empty for a year or more. That is a year or more of no one taking care of the lawn, running the plumbing, etc.

2) Inspection, inspection, inspection – While you should ALWAYS do a home inspection when you purchase a property, it becomes even more important when purchasing a foreclosure property.  Don’t be suprised if the bank requires that you pay $100-200 to “dewinterize” the property for the home inspection.  Basically this just means that they will hire someone to come out and get the utilities on, which includes pressurizing the plumbing system.

3) Negotiating – Best to defer to your agent on this one.  It is true that you know the bank is going to sell the house, don’t automatically assume that they are asking too much for the house.  Just as often as I see overpriced homes I see properties selling with multiple offers on the property and the price actually gets bid up.  Have your agent pull up recent sales from the neighborhood to see what homes are actually selling for.

4) Hire an expert – Buying a foreclosure can be quite a road to navigate, so it is especially advisable to hire a real estate agent who has been selling foreclosure properties.  Remember you can hire a buyer’s agent at no cost to you since the bank has already agreed to pay the commission!