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Mc, Other/Just Looking in Houston, TX

What is a SHORT SALE?

Asked by Mc, Houston, TX Thu Jun 19, 2008

What is the process? How is it different from foreclosure? Is there any risk associated with this? How to track down listing with Short Sale?

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A short sale is entirely different from a foreclosure.

In a short sale, a buyer agrees to buy (and the seller agrees to sell) a property for less than the seller owes the bank. A contingency of the sale is that the bank must approve the sale, since the bank's the one that'll lose money on the transaction. Generally, a short sale seller must demonstrate to the lender financial hardship--an inability to continue making payments. But the point is: It's a transaction between a buyer and a seller, with the bank approving or disapproving the transaction.

In a foreclosure, the bank owns the property. Generally, the homeowner has defaulted on payments. The bank's gone through whatever procedures are necessary and now has become the owner of the property. It's bank-owned. The previous owner is totally out of the picture. When purchasing a foreclosed property, you are buying it from the bank. It's also called an REO property--for "real estate owned."

From the buyer's perspective, short sales are "riskier" than buying from a bank. It can take much longer to get the bank's approval, and there's obviously no assurance that the bank will approve. Often, it doesn't.

From the seller's perspective, both damage a credit report, although the foreclosure is more damaging than a short sale.

You can find short sales or REOs by checking with any Realtor. Both will be listed on the MLS. (Technically, it's possible to do a short sale without a Realtor being involved, and investors do it frequently. However, the process is complicated and tedious. Unless you have the time and patience, it's better to let someone else--either a Realtor or an investor--do the "dirty work.")

Hope that helps.
3 votes Thank Flag Link Thu Jun 19, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
A short sale is a purchase transaction in wehich the seller's bank agrees to accpeting less than the amount owed against the home to allow the seller to sell.

There are three approval components. First, the seller's bank must agree to a reduction in the payoff to clear the title. Second, you must qualify with cash or financing for the purchase price. Third, the seller must agree to the price as well.

One drawback on a short sale is that the seller, unless he/she is inforeclosure or bankruptcy, must pay income tax on the amount of debt forgievn by his/her mortgage lender.
2 votes Thank Flag Link Thu Jun 19, 2008
The Short Sale

Did you know that there are actually options available to you should you find yourself in the situation of being unable to continue to pay your mortgage loan but you need to sell you home, and your home is worth less on the market than you owe?

One of these options is a Short Sale, which occurs when a lender agrees to accept less than the actual balance of the loan as payment in full, allowing you, the homeowner to get out of the property and start over.

Why are banks willing to do this? Because the alternative is foreclosure, and the foreclosure process is usually far more expensive than the discount that lenders take on a Short Sale.

How the Short Sale Affects Your Credit

What happens to your credit as a result of this, you may ask? In almost every case we have ever worked, the homeowner walks away from the situation free and clear with no further damage to their credit beyond the effect of the late or missed payments that led up to the situation.

The bottom-line: a Short Sale proves to be a "win-win" solution for everyone involved.

How Do We Get Paid?

In the Short Sale transaction, we primarily act as the real estate agent, which enables us to be the liaison between you, the homeowner and your bank, as well as all other parties in the transaction. For this service, the bank pays us a commission on behalf of the homeowner. The homeowner doesn't pay us anything!

Are we Investors?

So you might wonder, since we are also Investors, why don't we actually purchase these properties as investments, since we could buy them at a discount. Well, as any smart investor knows, to make an investment worthwhile, the property must be purchased at no more than 65-70% of its after-repair-value. Generally, in a Short Sale, unless the property is in horrific condition, the bank will not discount the loan below 75-85% of its appraised value.

Since 95% of the calls we get come from first-time homebuyers who have bought brand new homes in the last 2-5 years, the banks simply cannot discount the property enough for it to qualify as an investment opportunity for us.

When we first started our Short Sale business, our primary objective was to purchase investment properties through this process. We quickly learned, however, that it was like looking for a needle in a haystack to find a good investment candidate.

We Knew We Could Help

We began to realize, however, that we could develop a business helping homeowners get through this process and walk away from a potentially devastating situation with hope, our focus quickly shifted to simply offering our services as real estate agents. Furthermore, because so few real estate professionals have the information and experience to help their clients navigate this process, we have dedicated ourselves to providing a professional service to distressed homeowners in the Houston community.
1 vote Thank Flag Link Fri Jan 9, 2009
The sale price of the property is less that what is owed to the bank ( the mortgage or mortgages on the property)
1 vote Thank Flag Link Tue Jan 6, 2009
What is a "Short Sale"?

A sale in which the proceeds to the seller are short of liens on the property. Usually, the shortage falls onto the second mortgagee and then the first mortgagee in that order. Other lienholders, if any, may be paid off or may be shorted also. Since taxes always supersede other liens, they are normally cleared off in the transaction and brought to date. An example would be a sale of a property originally bought for $120k that contracts to sell for $100k. Assume it has a $96k first mortagage, $12k second mortgage and a $5k property tax lien. Assume the closing costs are $11k for title insurance, real estate commissions, and miscellaneous charges. The $100k sales price is $24k short of what is needed to pay off all parties.

What is the process?

The seller contacts a listing agent, who tells them the market value of the house. Normally, the seller needs to sell because they can no longer make payments. The Realtor lists the property perhaps at $105k with the annotation that bank approval may be required, or lists the property without a notation but informs anyone who offers that bank approval is required (if the proceeds are in fact short). The agreed contract usually includes a provision that it is subject to bank approval. The seller then forwards a copy of the contract along with a letter explaining their hardship and why they must sell. The bank will get either an appraisal on the property or a price opinion to verify that the contract price is reasonable compared to market. If acceptable, the bank will approve the transaction and the typical real estate transaction follows to close.

How is it different from foreclosure?

If the same seller were unable to find a buyer or could not get approval to sell at the contract price(s), then the bank would foreclose. The foreclosure itself is an auction where the bank bids the amount owed and anyone else can outbid them. If no one else bids, which is common, the bank then takes title with the tax lien intact (still owing). All other junior liens, including the second mortgage lien are wiped out by the foreclosure. The property is now owned by the bank and is referred to as REO (real estate owned). The bank would hire a management company to protect the property, get it ready for sale and list it. Banks usually list REO properties with Realtors, too. So, you can get a list of these properties easily from any Realtor.

Is there any risk associated with this?

Risk is normally transferred to the title insurer. When you close at a title company, the title insurance you or the seller pays for protects you, the owner, from claims that were not discovered in a title search. By buying the insurance the risk is transferred to the insurer from you.
The other potential problem is the risk that one of the lienholders will foreclose before you can close your transaction. The first mortgagee may be a large bank with separate departments handling both loss mitigation and foreclosure proceedings. Even though the loss mitigation department approved the sale, the foreclosure department might (accidentally) allow a foreclosure auction to proceed, selling the property out from under your contract. Also, other lienholders, like the second, can foreclose if the seller is in default. If that happens, then only the first mortgagee can foreclose, your transaction is dead, because the seller no longer holds title to the property. This rarely happens, but it is possible.

How to track down listings with Short Sale?

Let me advise against this. Most people want a bargain. That's understandable. Listings don't convey a complete picture of the value of a property - they're basically a teaser and should not be relied upon. Ask your Realtor to give you a list of all properties in an area where you want to be that are priced below market. This is a more complete list, since it includes all the sellers who just want to get out, or estate sales, and includes the bank REOs, unless they're overpriced. Simply because a property is marked as a foreclosure does not mean that it is a bargain.
There are companies that offers lists of properties that have received a notice of default or a notice of foreclosure sale. Do you really want to do all the work of checking the property out only to discover that the notice of default was cleared by the borrower and the property will not be sold at foreclosure? Foreclosure auctions themselves are tricky. You must pay cash if you're the high bidder. You have only a few minutes to tender a cashier's check for the full amount. There is no time to go get a loan.
Web Reference: http://www.SumnerRealty.com
1 vote Thank Flag Link Tue Jan 6, 2009
What's a Short Sale? Simply put, a short sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less than what is owed (AKA "Short Sale").
It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a Short Sale, they can often minimize their loss by as much as 10-20% over a Foreclosure.
You will need to find an experienced agent to help you with the process.
1 vote Thank Flag Link Mon Jan 5, 2009
is is when you get the lien holder (mortgage company ) to agree to a reduced payoff amount so you can close property and avoid a foreclosure..
1 vote Thank Flag Link Mon Jan 5, 2009
Short Sale

A Short Sale, which occurs when a lender agrees to accept less than the actual balance of the loan as payment in full, allowing the homeowner to get out of the property and start over.

Why are banks willing to do this? Because the alternative is foreclosure, and the foreclosure process is usually far more expensive than the discount that lenders take on a Short Sale.

How the Short Sale Affects Your Credit?

What happens to your credit as a result of this, you may ask? In almost every case we have ever worked, the homeowner walks away from the situation free and clear with no further damage to their credit beyond the effect of the late or missed payments that led up to the situation.

The bottom-line: a Short Sale proves to be a “win-win” solution for everyone involved.
1 vote Thank Flag Link Mon Jan 5, 2009
You make an offer and the lender accepts a payoff below the principal balance.

The Advantages: great way y to save a home or buy a home below the outstanding principal balance.
Disadvantages : Exposure to seller litigation later, 1099 deficiency to seller, negative credit mark.

Side bar: aka-cram down, Short, deficiency, short payoff , shortfall, problem sale, impaired asset.
0 votes Thank Flag Link Sat Jan 10, 2009
the site below will answer a lot of your questions...good luck.
0 votes Thank Flag Link Mon Jan 5, 2009
The Hagley G…, Real Estate Pro in Pleasanton, CA
MVP'08
Contact
I am a Realtor & Short Sale Specialist as well as an Investor. While several of the other answers to your questions have flaws and/or are incomplete and one is way off for the most part some decent information. Go to one of my websites at http://www.WeBuyHoustonAreaHomes.com and download our copyrighted Short Sale FAQ. This 4 page document will provide most if not all your answers.

In fact we require all of our Short Sale clients to sign the last page advising they have read the FAQ and have now become a more informed consumer and a better partner in the process.

Thanks
Steve
steved820@gmail.com
0 votes Thank Flag Link Thu Nov 20, 2008
Almost the same as a foreclosure both require bank approval. It is the process prior to a foreclosure that the bank as agreed to with certain terms and conditions. There can be drama I have been a listing agent and buyers agent always have drama prior to closing that is from the bank normal procedures. You can contact a local agent that can pull those lists.
http://www.lynn911.com
0 votes Thank Flag Link Thu Jun 19, 2008
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