If you want to take advantage of the $8k first time buyer tax credit, time is running short and short sales may not be a viable option much longer.
If you need an agent in St. Cloud, I have a couple business partners that can help.
You as a buyer should not assume that title to the REO property will be "clean" once the property has passed through foreclosure. While it is true that a foreclosure sale will wipe out subordinate liens and the bulk of any problems caused by former owners of the property, it may not extinguish liens of ad valorem taxes or problems that may have been missed when the previous owner bought the property. Banks typically transfer the properties to buyers through a special warranty deed, which limits their liability. They will give you an insurable title but not necessarily a marketable title - there is a difference. It's in your best interest to have your own real estate attorney review the title work before closing.
Condition of the property is often an issue with REOs. Lack of utilities and maintenance do eventually take a toll on homes. Some banks have asset management companies come in and "freshen" up the properties, usually with paint and floor coverings and appliances. Other's don't. When buying an REO you will usually get the opportunity to do inspections during the specified time period to determine if you want to go forward with the purchase or cancel.
There's no rule of thumb on what the bank's bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or "comps." You should look at the comps based on current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Sometimes it's priced too high, and you can make a lower offer. Your agent should be able to provide you with comparable sales before you write up an offer on a REO property.
Others have already given you the definition of a short sale. Short sales are typically being sold “as is with right to inspect.” The seller does not have the financial ability to pay for repairs to the property if repair issues are found during your inspection period. For this reason, short sales may not work for buyers that are using VA or FHA financing.
The contract will typically have a short sale addendum attached with terms particular to the short sale. The sale will be contingent on the seller's lien holder(s) approval of the deal, so the contract must be submitted to them after it's executed. How long will it take to hear back from the seller’s lender(s)? It depends on a number of factors. If there’s only one lien holder, it typically takes less than 2 months to get a response. If there are multiple lien holders, it may take up to 6 months or more for all parties to respond. If any one of those lien holders say no to the terms of your contract, the sale cannot be completed.
Short sales can have other expenses as well, such as paying a professional short sale negotiator, back due HOA or condo fees the bank will not absorb.
Find an agent that's experienced in both REO and short sale purchases to guide you thru the process.
Diane Christner, Realtor, GRI, SFR, CNE
On ANY lender owned or Short sale, you have to be extremely patient and never set your heart on any one home and being willing to walk away if a deal turns wrong. Using an experienced agent is a huge bonus in this league of buying. There a many risks involved in both types of purchases, have your agent explain in detail what these are and be sure you are clear on everything before proceeding and usually be prepared for somewhat of a roller coaster ride. If you're ready, the payoff can be well worth the ride in the end, I've recently closed 2 very successful buys (my buyers well informed, would think twice about every doing this again but extremely happy with the results!, One was 2.5 months to close the 2nd 2.75 months) and in the mix of 1 sale and 1 buy in this arena. The "buy" is progressing extremely slow but my buyer is willing/able to wait it out and looks promising to close within 1 more month, totalingr 3 months. The 2nd is a sale (short-sale) that received a full price & highest end offer 2.5 weeks after listing, the bank after extensive contact is aware and ready to look at when the foreclosure proceedings begin. It looks to be a very clean sale. I expect from here to be an additional 2 months before closing to allow for appraisals/BPO's/Title/etc to clear, totaling just under 3 months. I know of some lender owned properties stretching to 9 months or more, they are all individual to their own circumstances. On a clean sale with one lender involved be prepared for 2.75 - 4 months to be safe.
In a Short Sale the bank will either forgive the difference on sale or more than likely try to work out an unsecured promissory note with the borrower for this difference, if not will let it go to foreclosure or accept died in leui of foreclosure. Every bank is different on their procedures. The LARGE bank I've dealt with recently 3 times, generally waits until the borrower is in the foreclosure proceedings before ever entertaining the idea of a Short Sale (usually 3 months default); a lot of financial paperwork is necessary and to be sent by an experienced agent ASAP and many times over, with many, many ph calls to boot. Persistance and experience of your agent is definitely necessary on a sale also.
Lots of details on this arena, too many to list and not for the faint at heart. Get an experienced agent that knows your area and trust their judgement and listen closely to them. The deals are definitely there but you just have to be ready for the wait with a trusted agent.
If you need a more definite closing time or not able to play the bank game go with a normal straight sale. The great advantages are: usually in much better condition, they are usually not sold "AS-IS" so if there is any problems that arise, the seller can address them, the closing date set will more than likely BE the final closing date, no per-diem fees for delayed closings, you don't have to deal with a bank who isn't a knowledgable realtor, and many other reasons for paying a little more for security in equity and ease of mind as a buyer. There is something for everyone out there right now, but be sure that if you are looking at the 1st time home buyer credit to move on a purchase ASAP, you need to close by November 30, 2009 to get the free (up to) $8,000 tax credit.
Good Luck to You!
Home is â€œownedâ€ by the Real Estate Owned (REO) division of a lender. Home was taken back from an owner who defaulted on their financing.
Home is still owned by the mortgagor or the person(s) who took out the mortgage(s) to purchase the home. The mortgagor is having trouble financially and has asked the bank(s) to take a short pay-off of an amount less than they owe on the mortgage(s).
- It often takes 14 days (or more) for the bank to respond to an offer on a foreclosure or up to four months to respond to a short sale offer.
- The advertised price on a short sale property and some foreclosure properties may be far less than what the mortgage-holding bank will accept. (recommendation â€“ as with any other property, do your homework and seek professional advice from a RealtorÂ® to determine how much to offer)