The ‘short’ in the title of this presentation refers to the fact that the “payoff” amount agreed to in the transaction is indeed, “shorter” than the mortgage balances on the property.  This is a technique where it is a win-win of sorts for most all of the parties involved in the sale. 

 

There are three stages of a property that is a subject of Foreclosure:

 

1.   Pre-Foreclosure:    This includes a short sale, D in L deed in lieu of foreclosure, cash for keys, quitclaim deed, reinstatement of mortgage, forbearance agreement etc.

 

 2.   Foreclosure:   At the courthouse or sheriff’s auction lenders allowprivate bids, in most cases now the bids are much lower than the lenders loan.  In which case the lender acceptes no bids and records the property for $100  in the majority of foreclosures liens against the property are extinguished after this action.

 

3.   Post-Foreclosure:   Majority of the properties that are subject of a foreclosure end up in this category.  The property then becomes a liability to the Lender, FHA (HUD), or VA and all except VA hires a Real Estate Broker to list and sell the property. HUD and VA properties are on the Internet (HUD.org and Vahomes.org) bids must be placed thru a registered Broker/Realtor®.

 

Owner beware:      Do not move out of your home, often you may receive a notice that will frighten, or intimidate you in believing you must move.  Insinuating they are pursuing eviction.   Not always true, seek a licensed, knowledgeable Realtor or Legal advice from an Attorney.  In most cases this is a deceptive marketing tool by opportunists.  The bank does not want you to move out of your home!

 

       

Difference between a “Short Sale” and a “Foreclosure”

 

Short sale is a process where a negotiated settlement is made between the lender that holds the mortgage and the seller for a third party buyer usually facilitated by a professional like a Realtor or an Attorney, even before the foreclosure process in initiated by the lender.  Therefore it is considered a pre-foreclosure sale. Foreclosure may be the only option, if there are too many liens and other issues clouding the title, as a “cleansing process” to clear up the title.

 

SELLER:

 

1)  Gets to live in the property during the course of the short sale process.

2)  Net proceeds to seller must be ‘zero’ on the (settlement) HUD statement.

3)  Lender may release owners from any further liability in connection with the loan, meaning no “deficiency” judgments to be filed.

      Have plenty of time to make their moving and relocation plans.

5)  A possible third party “investor purchase and lease-back or resell” to the current sellers on creative basis until their financial challenges are resolved.

      Seller can avoid or offer an explanation of a “foreclosure” showing up on their credit in order to improve their credit ratings.

      May be able to avoid a Bankruptcy; if there are no other major non-real estate related debts.

 

 

LENDER:

 

1)  Net amount with this short sale process will be equal to or greater than proceeds from a possible sheriff’s sale without months of foreclosure procedures and the extra expense of the attorneys involved.

2)  Net proceeds from the sale are available in certified funds within 24 hours.

3)  Reduces inventory of non-performing assets in their books quickly.

4)  Lender normally performs a full-blown appraisal to justify the lower listing or selling price based on the comparable market analysis done by a Broker/Realtor® (BPO) to support the price.

      May choose issue a form 1099 for the shortage as a “forgiven debt”, on which the seller may have to pay income taxes. 

      May threaten the owners to come after them for the “Shortage.”

 

 

REAL ESTATE PROFESSIONAL:

 

1)  Realtors® can pick up a few extra listings per year in this specialty area where 95% of realtors are not exposed to or unwilling put in the effort to learn.

2)  All short sales are “AS IS” and seller/lender will not agree to any repairs.

3)  No emotional sellers to deal with, since sellers net “Zero” at the closing.

      Investors and first time buyers may quickly “grab” these properties; there is no “hard selling” involved.

5)  Current owners or their relatives are not allowed to purchase the property on a “short sale” for the owners. A “third party” not related to the owner  may  purchase the property and later could sell it back to owner if they elect to.

       Lenders may require a “Financial Hardship Package” submitted to them by the current owners or some times simply a letter describing their financial hardship may be sufficient.

      Sellers are not allowed to take any money from the proceeds except in case of FHA and VA where there are exceptions with limitations.

 

Most lenders prefer working with Realtors® who could make sure all the state and local real estate laws are complied with including proper disclosures as in a regular sales transactions.  Lenders don’t want any future liability dealing with non-licensed Investors or consumers directly.