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Dave Sutton, Windermere Portland

Making people outrageously happy with their home sale or purchase

By Dave Sutton, Windermere, Portland | Broker in Portland, OR
  • What is a "Short Sale? What is an "REO"?

    Posted Under: Home Buying, Home Selling, Foreclosure  |  May 8, 2011 4:45 PM  |  1,888 views  |  No comments

     A Short Sale is the result of two things:  1) the seller is unable to continue making the mortgage payments, and 2) the home will sell for less than the amount due on the mortgage(s) (so the sale proceeds will be "short" of paying the mortgage).   When a home is listed for short sale, the lender has the right to approve the terms of the sale, since they will be losing the difference between the amount owed on the mortgage and the net proceeds of the sale.   

    That is only important to a buyer because lenders typically take several weeks, and several months is not unusual, to respond.  Six months is my longest personal short sale experience.   Their response is not always "What a generous offer.  We accept".  They may reject an offer outright or may make a counter offer.  If they do make a counter, it is generally non-negotiable, so the buyer can take it or leave it. So it’s possible to make an offer, sit in limbo for six months and then find out you’re back to square one. 

    A short sale differs from a bank owned sale (known as an REO - an acronym for the entry on the bank's financial statements - Real Estate Owned).  An REO means the lender has completed the foreclosure process and now owns the home outright. Those proceed mostly like any other sale, and mostly in a timely fashion. 
     
    Many people think they can buy foreclosures at substantial discounts from what a market price would dictate.  That is not true. Bank owned homes may sell for, or above "market" price.  Depending on the market they may also sell for as much as a five per cent discount, but not generally more, if that.  
     
    Stories you hear of substantial discounts usually neglect to include that the condition of the home is substantially worse than similar sized homes on the market, so they are not really "comparable" homes.  Cash buyers can usually buy at 5-10% below list price (bank-owned or private), because a seller values the fact that a buyer’s loan approval (or complications with) will not cancel the sale. 

  • "Are you out of your mind to even consider buying a foreclosed property right now?"

    Posted Under: Home Buying, Financing, Foreclosure  |  October 19, 2010 4:34 PM  |  401 views  |  No comments
    That's the first line of a NY Times column 10/16 worth reading.  It relates the story of two unfortunate men who bought a home at a private auction (not sheriff's sale) only to learn later that the home they bought had a large unpaid first mortgage.  Their $137,000 had bought out the second mortgage (same lender - Wachovia) but not the first. 

    The column also gives some examples of what happens to some homes when either A) the foreclosed owner is angry with the lender, or B) theives or squatters have had access to a long-vacant home.  In either case, the damage can be both significant and unknown, since many times homes sold at foreclosure auctions have not been available for inspection, and in every case they are sold "as is". 

    Yours truly once showed a foreclosure in which someone had removed
    1. furnace
    2. water heater
    3. toilet
    4. lavatory
    5. stove
    6. dishwasher

    So should you buy a foreclosed home? 

    First the term "foreclosed home" covers several conditions that may make the difference.

    The safest way is to buy a home on which the foreclosure process has been completed, so is now owned by a lender and listed for sale by a local Realtor.  This at least gives you the opportunity to have professional inspections that will put you wise to any issues that may need correcting.  Typically lenders will not pay for repairs, but at least you can factor the cost of repairs into your offer.

    Another way is to buy at a true "sheriff's sale".  This is the traditional (and literal) sale on the courthouse steps.  Here the risk goes up because you may not have had the opportunity to see the inside of the house or conduct any inspections.  It may very well still be occupied buy the previous owner or a tenant.  Eviction processes, sometimes mess and expensive, may take weeks or more.  Finally, to buy at this sale, you must be a cash buyer.  No "My loan is approved and the docs will be signed on Thursday".  So this version is truly for the professional investor who 1) has the cash, and 2) is willing to accept the risks just metioned.

    A third way, and which is apparently where the two unfortunates in this story bought, is at a "private" auction of foreclosed homes.  Here one or more lenders have authorized a private auction service to sell homes which have been foreclosed.  This is not common throughout the country so may not be available where you live, but in any event it deserves an extra measure of scrutiny. 

    The article is  http://www.nytimes.com/2010/10/16/your-money/mortgages/16money.html?_r=1&ref=ron_lieber
  • How do foreclosures work?

    Posted Under: Foreclosure in Contra Costa County  |  December 2, 2009 5:11 PM  |  325 views  |  No comments
    Let me try to "set the stage" for the answer to the question.

    Foreclosure is the "end" of a process that begins when a homeowner falls behind on his mortgage payments. Usually when the homeowner is three months behind, the lender issues a "Notice of Default" which formally tells the homeowner that they are in violation of the terms of the mortgage contract and unless it is brought current the lender has the right to foreclose. (Hold on, we're getting to the answer you want)

    Many times the homeowner is able to either "catch up" on payments or make satisfactory payment arrangements with the lender and that is the end of it.

    If the homeowner truly can not make the payments and there is no reasonable way they will be able to in the next few months, the best option is usually a "short sale". That occurs when 1) a homeowner can not make the payments AND 2) the amount of the mortgage is more than the home will sell for. In this situation the home is put on the market in the traditional way (seller chooses a local Realtor, etc) and it is like any other home sale EXCEPT that, because the lender will be losing money on the transaction, the lender has the right to approve (or reject) any buyer's offer that the seller agrees to. Banks are overwhelmed with short sales and and it will typically take at least 30 days, more likely 60, 90 or even longer to get an answer from the bank.

    If a short sale is not successful (or not tried) then the lender has the right to "Foreclose". That means the home goes for sale at an auction on the steps of the county courthouse. This is not like any auction you've ever been to and the biggest reason is that the buyer must have cash or cashier's checks for the entire amount of a successful bid. Many times the bids are less than the lender thinks it might sell for on the open market. In that case, the lender will usually out-bid anyone else on the courthouse steps and literally buy the home.

    Then the home has been "foreclosed on" and the lender puts it on the market with a Realtor and it sells like any other home.

    email and I'll give you statistics on your market.
  • Are you under water? Check out Fannie Mae's new Deed for Lease program

    Posted Under: Foreclosure  |  November 14, 2009 11:32 AM  |  236 views  |  No comments
    As an alternative to outright foreclosure, last week Fannie Mae announced a "Deed-for-Lease Proram (D4L).  Here's the description from their announcement press release:

    "D4L allows qualifying borrowers of properties transferred through deed-in-lieu of foreclosure (DIL) to remain in their home and community by executing a lease of up to 12 months in conjunction with a DIL. Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the D4L."

    Deed-in-lieu of foreclosure (DIL) in short means that the owner gives the title to the home to the lender without going through either a short sale or foreclosure process.  It also has a smaller impact on the borrower's credit rating than a foreclosure. 

    The press release has more details, at
    http://www.efanniemae.com./sf/guides/ssg/annltrs/pdf/2009/0933.pdf

    There is more information, including a link to an FAQ pdf at
    http://www.efanniemae.com./sf/servicing/d4l/


 
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