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Short Sales: Understanding a Lengthy Process

The phrase “short sale” is truly a misnomer for a process that can take months to complete. While short sales have become more prevalent in the market, many buyers (and sellers) don’t really understand exactly what it means. We continue to hear the surprise in client’s voices when we tell them how long short sales can take, “but we thought by the name they would be faster than normal sales?”

What is a short sale?
A short sale occurs when a homeowner attempts to sell their property for a price below their mortgage amount. The tricky part is that the lender has to accept taking less than what they are owed. The most obvious difference between a short sale and foreclosure is the ownership. In a foreclosure the bank owns the house, in a short sale a private owner owns it, but needs approval from the bank to sell it. Read more

Foreclosures: What You Need to Know

We get questions every day about buying foreclosure properties so here are some basics to help guide you. It is true that often you can save money by buying a foreclosure property, but before you do it is important to know the risks and enlist a qualified agent to assist you.

What is a Foreclosure?
A foreclosure, or REO (Real Estate Owned), is a property that has been vacated and is now owned by the bank. Generally, most properties are in some stage of disrepair and often need new carpet, paint, and appliances. Some can have much more significant issues such as leaks and structural damage. Expect that you will have to do minor to moderate renovation.

The Buying Process:
In this market the demand for foreclosure properties is on the rise. We are seeing many more multiple offer situations. Don’t expect to low ball the bank, most foreclosures are priced aggressively to receive multiple offers. Often to get a foreclosure you have to write over list. Don’t worry, you can still get a good deal. The foreclosures we deal with still sell at below comparable market prices.

What does As-Is mean?
Foreclosures are generally sold As-Is, meaning take it or leave it. Banks rarely provide property details that you would normally see when buying from a private seller. When submitting an offer, most banks will require you to sign an As-Is addendum that states you won’t be receiving standard disclosures and any issues found in the inspections are the responsibility of the buyer. Thus, it is extremely important to conduct thorough inspections on the property. These may include: property, roof, termite/pest, and sewer/water main reports. Your agent should have a list of experienced professionals they work with.

Getting a loan for an REO:
Getting preapproved for a loan is the most important step in your foreclosure search. You cannot submit an offer without one. It is critical that you talk to your mortgage broker to get detailed information on loan programs. Most loans are either FHA or conventional loans. In addition, several banks require you to get preapproved through them before you make an offer on their property. It’s important to know this because it can delay making an offer and you will have to go through the application process again.

What is the 203k loan?
This is a program offered through FHA that allows the borrower to qualify for up to $35,000 to fix up a home in need of repair. There are a select number of brokers who are qualified to offer this program and there are certain restrictions so it is important to talk to your lender about it up front. It is a great program and we’ve had several clients use this with their foreclosure purchases.

Why do I need to work with someone who has experience with REOs?
Among other reasons,
1. Banks are picky and when submitting an offer you generally get one shot to make an impression. We have identified key items banks are looking for in offers that when not included can lead to having your offer rejected.
2. Banks like Realtors they know can close a purchase, we have a reputation for closing deals and that reduces the risk for the bank.
3. Depending on the bank that owns the property, it can be difficult to negotiate money for repairs, etc. after your offer has been accepted. So you need to have someone to advise you on what to look for and the potential risks.

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Beware Foreclosure Rescue Scams

With the recent rise in foreclosures, foreclosure-related scams have exploded onto the real estate scene. These so-called “foreclosure rescue companies” claim they will help save your home, but in reality are out to make a profit — at your expense.

Red Flags for Foreclosure Rescue Scams
If you are at risk of or in foreclosure, you should be on the lookout for foreclosure scams. Here are some of the red flags to watch out for:

• Asks for money upfront before providing any service
• Instructs you not to contact your lender, lawyer, housing counselor, family, friends, or others
• Asks for mortgage payments to be made directly to his or her company or a bank account set up by that person, rather than your lender.
• Requires payment only in the form of cash, cashier’s check, or wire transfer
• Promises to stop the foreclosure process, no matter the circumstances
• Advises you to transfer your property deed or title to his or her company
• Offers to fill out paperwork for you
• Asks for something to be done immediately and without delay. This includes pressuring you into signing paperwork that you have not had the chance to read thoroughly or do not fully understand
• Encourages you to lease your house and buy it back over time
• Offers to buy your house for a fixed price that is not set by the housing market at the time of sale
• Asks for you to give a power of attorney
• Asks for signatures on a grant deed or deed of trust
• Asks for signatures on a document that has lines left blank
• Fails to provide copies of signed documents
• Refuses or fails to put an oral promise in writing
Report Fraud
If you have been a victim of a foreclosure-related scam or approached by a scam artist, you may report the incident to the following organizations and government enforcement agencies:

• California Attorney General http://ag.ca.gov
• California Department of Real Estate www.dre.ca.gov
• Department of Housing and Urban Development (HUD) www.hud.gov
• Federal Trade Commission (FTC) www.ftc.gov
• Your local Better Business Bureau www.bbb.org

Legitimate Resources
If you are at risk of foreclosure or have already received a foreclosure notice, you should contact your lender immediately. Homeowners also may seek the advice of a reputable housing, financial or credit counselor, attorney, or other qualified professional. Homeowners may visit the U.S. Department of Housing and Urban Development (HUD) Web site at http://www.hud.gov/ to view its Guide to Avoiding Foreclosure and its list of California HUD-approved housing counseling agencies. In addition, the non-profit Homeownership Preservation Foundation has a 24/7 toll-free Homeowner’s HOPE Hotline at (999) 995-HOPE.

Published by the California Association of Realtors®

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