Foreclosures and Short Sales

SHORT SALES AND FORECLOSURES:
(For a description of each, please scroll down.) 

For a list of properties that are in short sale or foreclosure, (or both) please complete the following form.  In the “subject” box include whether you’d like short sale or foreclosure information, or both.  In the large box include your city or cities of interest and the maximum price you’re interested in:

Many people think they can get a very good price on a home that is a SHORT SALE or a FORECLOSURE.  While this is sometimes true, it’s important to know what you could be in for.  Below I’ve done my best to explain the two processes and provide advantages and dis-advantages to each for all parties involved.  These advantages are compiled from my years of experience, but they certainly aren’t meant to be exhaustive.  And I’m not giving legal advice!

SHORT SALE:  A “short sale” is a sale of real estate where the proceeds from the sale are short of the balance owed on the property’s loan.  These typically occur when the current homeowner is unable to make the payments any longer.  When this occurs the lender may agree to allow the sale of the home accepting less than what is owed because it’s easier and typically less costly than the foreclosure process which involves the legal system.  This agreement however, does not necessarily release the seller (former homeowner) from liability for the unpaid amount of the mortgage.  They could have a deficiency judgement requiring them to pay off the balance over time, and/or could receive a 1099 form from the lender in which case the seller could have to pay regular income tax on the amount of the unpaid balance.

FORECLOSURE:  In Florida homeowners sign a “mortgage” which allows a lender the legal process of foreclosure in the event the borrower (homeowner) ceases to make payments on the home.  A “Foreclosure” occurs when a lender seeks to foreclose (or remove) a borrower’s “equitable right of redemption”.  In other words, remove the person’s ability to get caught up and stay in the home.  The “mortgage” is often called the “no pay – no stay” document.  Once a foreclosure occurs the person who used to own the home is removed from the  home which now belongs to the bank or individual who was owed the money. 

For the Lender
The lender will reduce legal fees with a short sale vs. a foreclosure and will avoid the associated devaluing of the home that will likely come with the word “foreclosure” in the property description.  Someone living in the home will typically provide at least some measure of upkeep and maintenance, whereas with a vacant foreclosure a pipe could burst and leak for a long time before someone notices or cares.  Seller’s are typically less inclined to damage the home if they haven’t been forceably removed from the home.  Naturally, the lender doesn’t like either of these options as their preference is to continue to receive payments as originally agreed.

For the Seller:
If a Seller is genuinely in a situation where the mortgage payments can not be made, they should talk to an Attorney to see what their options are.  Certainly if they make a payment beyond 30 days late, they will see negative impact to their credit score.  A short sale will help a person in a desperate situation avoid a foreclosure.  A short sale or foreclosure will be very bad for the borrower’s credit score and future borrowing ability, but can be a needed solution to a bad situation.

For the Buyer:
In the case of a short sale, a potential buyer must have amazing patience.  It is true that a borrower may get a lower price, but data to back up that claim is very hard to find (if not impossible).  If a buyer makes an offer on a short sale, the lender(s) will take a long time to come to their decision of what the home is actually worth.  The lender will then decide whether to accept the short proceeds or counter back for a higher price.  I have seen short sale process’s take in excess of a year from the time a buyer and seller agree on a price to the time the lender agrees.   Don’t think for a minute that the term “short sale” has anything to do with the amount of time it will take to occur!  A foreclosure is much easier to deal with.  In a foreclosure the bank already owns the home and their time frame to make a decision is typically much faster.  Once a home is foreclosed on it is listed as “bank-owned” or “REO” which stands for Real Estate Owned (by the bank).  Once a home is listed in the Realtor MLS system as REO, many investors will be eager to see it and may want to make an offer.  If this is the case, the competition will typically cause a bidding war to occur.