What is a Foreclosure Property?
A foreclosure property is a home in foreclosure — when a notice of default has been filed in the public records. It means the owner has stopped making mortgage payments and the lender has given notice that unless the payments are brought up to date, the bank will sell the property to the highest bidder. A foreclosure property may also be referred to as an REO – Real Estate Owned.
Who is in Charge? When a foreclosure property is up for sale on the open market – usually the bank already owns the property free and clear and this bank is now the seller. There is an appointed bank employee that manages these certain files and makes the decisions. Foreclosures are usually easier to deal with than short sales, because there is one decision maker (the bank) and response times are more prompt than with short sales.
Is this Deal too Good to be True? Foreclosures may be a good deal and priced lower than others, but in many cases, the home has been neglected and is in poor condition. What this means to the buyer are potentially many unforeseen costs to make repairs to the property. These repairs could be minor and cosmetic, or they could be years of neglect that will put a heavy price tag on repairs. When you buy a foreclosed home, the owner is the bank and has never occupied the property before. Therefore, the disclosures they can provide you with are also limited.
The Benefit: The price is usually more competitive and allows room for these repairs. The banks typically do not credit for repairs or complete any of the repairs themselves, so the buyer should have means to do so after close of escrow. Most of the time, the bank has already procured a BPO (Broker Price Opinion) and/or an appraisal, so there is NOT a lot of room off their advertised price as they have already discounted the property and taken the condition into consideration and know what the homes in the area are worth.
When looking at a bank owned home, Nadia will suggest that you take a few things into consideration before making an offer on the property, such as:
- Do you have a realistic idea of what the repairs will cost?
- Are you able to afford the cost of repairs and maintenance the home will need, in addition to paying your monthly mortgage?
- If needed: does your schedule allow for the time to take on a large project?
- Will these specific repairs hinder your appraisal and will they need to be completed before close of escrow?
- Will the current condition meet lender guidelines and/or will you be able to receive the loan you would like?
Nadia Colucci believes it is important for her to work hand-in-hand with the buyer’s lender to ensure they are protected through the whole process and that their money is not put at risk. Most foreclosures offer a great opportunity for investments and for buyer’s to get into the Real Estate market. Nadia will effectively negotiate your offer and guide you to understand what the banks are looking for. While REO’s make for a great investment opportunity – a lot of times you can find a home in better condition and similar in all other features as a traditional, resale home.
What is A Short Sale Property?
A short sale occurs when a home owner is in foreclosure, but before the property goes to public auction (and before the home is “taken back by the bank”). Under a short sale, a lender must agree to accept less than the amount that is owed on the property. This is the lender/bank who originally lent the money to the seller to purchase this property a few years back. A lot of buyers today think they can get a great deal on short sales in the hopes their agent can strike a deal with the existing lender on the home to take less than what they are owed, and so that lender can avoid dealing with a foreclosure.
Who is in Charge? It really depends on how many lenders are attached to the property. In most cases there is a 1st and a 2nd Mortgage on the property. They can be from the same bank or they can be held with 2 different banks (let’s say US Bank has the 1st and Wells Fargo has the 2nd). Two different banking institutions will require approval from both for the short sale to be fully approved and close. This is one of the reasons it can take a while. There is a seller involved as well. They must still sign all the paperwork to accept an offer and provide disclosures, and they will also have to be approved for the short sale process. US Bank and Wells Fargo will want to ensure that this seller is really in a hardship, that values have decreased in that area, and review the seller’s financials to grant them the approval to sell it as a short sale. Another reason why it can take a while. In some cases, the banks won’t even look at a seller’s short sale package unless there is also an offer on the property. But before we confuse you too much, just know it is a complicated process and, with a lot of patience.
Is this Deal too Good to be True? When you see a price listed for a home that you think is too low for the neighborhood, find out if the home is a short sale. You might want to think twice about making an offer on a pre-foreclosure, short sale home. It’s not as simple as you may believe. A “short sale” should really be called a “long sale” since there is nothing short about it. It can be a lengthy and frustrating process, and most of the time a buyer will have to make several offers on short sale homes before they end up purchasing one. Many home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
In some real estate markets, fewer than one in 10 short sales close. Just because that home is listed as a short sale doesn’t mean it’s really for sale (because it’s subject to lender approval), nor does it mean it will sell at the advertised price.
Most often, the short sales are not as good of a deal as you think. In many cases, the short sales will receive multiple offers, therefore, making the home sell for a higher price than originally listed.
Here’s how it generally works:
- When a short sale home first comes on the market, the first offer will most likely be below list price (assuming it is priced correctly).
- The second, at or very close to list price.
- The third offer will be slightly higher, maybe by a $3,000 to $5,000.
- The fourth offer will be significantly more.
The Benefit: When you buy a foreclosed home, the owner is the bank, and has never occupied the property. Therefore, the disclosures they provide you with are limited. In a short sale however, the owner (the individual who is on record) is still involved and can fill out the specific disclosures that answer questions about the home, any malfunctions, remodels, additions, etc. Basically, you want to know as much about the home before you commit to the purchase. And while hiring a licensed home inspector will help, the seller will be able to give you insight on the home’s history.
When working with Nadia Colucci, she will prepare you for all the issues that could arise during the short sale process and make sure you have a good understanding of what you are purchasing. Here are a few things to keep in mind when deciding to make an offer on a short sale:
- Lenders ask buyers to purchase the home in its present condition-Homes Sell “As Is”
- Higher costs to the buyer-Lenders typically will refuse to pay for:
- Suggested repairs disclosed on a home inspection report.
- Pest inspections or work necessary to issue a clear pest report.
- Roof certifications or roof repairs.
- Home protection plans for the buyer.
- Deferred maintenance.
- Lenders can change conditions:
- Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender’s desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinarily buyers do not.
When making the decision to purchase or sell your home as a short sale, it is important to have someone that understands the ins and outs of this process. Nadia is an expert in short sales and foreclosures. She will look at each property and ask the right questions to know if that specific property is worth making on offer on, or if selling as a short sale is the right choice for you and your situation. When dealing with buyers, she recommends that if you are going to make one offer on one short sale, you might as well make an offer on 10 because those are usually the odds. If you are a seller, she will guide you in dealing with your lender, tax accountant, and the best way ensure a smooth transaction.
