The Process of a Short Sale
Less and less short sale listings are on the market today and this is a sign of a healthy real estate market. These properties are listed at pretty low prices, however you have to take into account that in most cases this will not be the purchase price (even if you make a full price offer) as it is considered a start amount for an auction-like negotiation between seller, bank/lender and various potential buyers. Because of this low listing price many clients think that this house has to be a bargain - which is not the case as it only serves to create interest among potential buyers and to stimulate them to make an offer.
At this type of sale the current owner cannot satisfy the recurring monthly mortgage payments and is asking the bank for a debt reduction or even a forgiveness. For example the mortgage is $200,000, the home however has a market value of only $130,000. The bank will now examine if and to what extent the debt can be reduced.
The primary and crucial factor of course is the financial situation of the mortgagor and the market situation. This negotiation, which can also be done by a lawyer on behalf of the seller, can take a very long time (9-18 months are not rare). Some people associate a short sale with a quick transaction, which is not the case and usually is the exact opposite.
In some cases it can happen that no agreement comes about and the house will then go into foreclosure. The lender however usually tries to find a solution as this also means a reduction of losses on their books. The original problem goes back to the years 2004-2006 when banks massively gave away excessive mortgages and loans because of the increased property values. It can happen that after months of waiting for an answer all you get is a short and simple NO. Then you realize that you have lost a lot of time in which the market has moved on. So do not only focus on short sales - there are plenty of other great deals out there, traditional ones and foreclosures - and I am here to find them for you!
Buying a Foreclosure / REO Property in Florida
If the short sale of an owner does not work, the property in most cases will go back to the bank via the foreclosure auction as the outstanding loan amount usually makes them the highest bidder. The bank will then take ownership of the property. The bank will take care of the zeroing of tax liens, will have the house foreclosed if necessary, and prepare the issuance of property insurance for the buyer at the time of resale - then they sell the property themselves, also called REO.
The purchase of Foreclosures is usually easy and can be handled quite quickly (within four weeks). However, most of the houses are in poorer condition, as they are often left empty for a long time and without any care during the takeover by the bank. While some money must be invested into these properties you can get quite decent purchase prices.
The process of the Foreclosure purchase is in the end similar to that of a traditional one. The only difference is that after submitting your offer you will automatically receive a counter offer (should the bank consider your offer). This includes bank-specific conditions that you must accept in order to move forward. For example, if you have to postpone the transfer of ownership through your own fault or the disclosure that the bank will not make any repairs to the house or accept a reduction in the purchase price even if the home inspector identifies major problems.
In this case, you can still get out of the contract. The bottom line is that these counter offers with the documents are not dramatic, you should just monitor them carefully - and involve your Realtor!
Correctly, a "Foreclosure" actually is only a foreclosure during the process of transfer to the bank. As soon as the bank is the new owner of the property, it actually becomes a "REO (Real Estate Owned"). However usually everybody uses the term Foreclosure for any property of that type.