Many homeowners in Houston are facing foreclosure. So, in a last ditch effort to save their credit they are opting to "short sale" their property. This scenario offers a really nice inventory of unbelievable deals to the average consumer.
What is a Short Sale? A short sale occurs as follows. Let's assume you have a house note with a balance of about $300,000 and you can no longer make the payments. The market value of your property has dropped and you can't sell it for more than $200,000. So you ask your bank if they will allow you to sell your property "short" of what you owe. That's the short and skinny of it but there is more to it. If you are in a situation where you think you might need to do a short sale, contact an attorney and an agent.
Why would a bank agree to a short sale? A couple of reasons. If the property goes into foreclosure, the bank will have to pay out more in legal fees and lost opportunity than if they allowed the borrowers the opportunity to short sale the property. Another concern is that the borrower t might file for bankruptcy. Apparently that can completely stall the bank's ability to seize the property and it could take a lot longer before the bank could recoup any money.
What's the difference between buying a property that is foreclosed on and one that is being offered as a short sale?
For the sake of this article, the foreclosures we are referring to are Bank Owned REO properties. This type property usually has a clear title. That means that the bank has already paid off the taxes and other liens against the property in order to facilitate a smooth sale.
When dealing with a property that is selling as a short sale, more than likely the seller has defaulted on property taxes and HOA fees as well as mortgage payments. Those liens are cleared at the closing table when the sale is closed.
The devil isn't in the liens, the devil is in the process. Banks have been foreclosing on properties since the beginning of time. It's an easy breezy process. What's new today is the volume of foreclosures. It's expensive and they can save money by agreeing to do short sales. The problem here is that banks just don't have a lot of experience in the process of a short sale. They are blindsided by the problem and don't know what they're doing. The result is a very very long process with many delays and lost documents once an offer is put on the table.
I recently spoke to a bank loss and mitigation agent that handles short sales for the Texas region and she is managing 170 files at one time. She told me that she's got a light load compared to most in her company. Others carry as many as 250. She indicated that she had files that had offers as far back as September '07 that she had not yet closed on.
This isn't true with every bank but short sales are becoming a nightmare for many agents. And what's worse is after all the hard work is done in submitting a sale and then persistently closing the deal, the lender may decide to cut back a hefty portion of the Realtor's commission.
If you are in a hurry and want a smoother process, you may want to consider buying a home that is already foreclosed on and pass on the one that is available as a short sale.
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