Sunday, June 08, 2008

Explaining Short Sales, Foreclosures, Preforeclosures

Defining a Short-Sale:

The sale, at a loss for the lender, of a property which total of outstanding mortgage loans, outstanding liens, and tax liabilities is larger than its market value.

The mortgage lender will accept the repayment of its outstanding loan at a discount, in order to avoid foreclosure, absorbing a net loss. It is performed through co-operation between the lender, the owner and eventually a real estate broker.

This term is becoming very popular in the present market situation. Banks are abnormally loaded with bad loans; many properties have sustained huge devaluations of their market value; added to increasingly strict appraisal and lending criteria, it leads many borrowers with high adjustable-rate loans or sudden loss of income, to the impossibility of refinancing their existing loans, or the possibility of selling their home to at least repay their debt.

In this case they have the option of either waiting for the inevitable foreclosure, try to renegotiate with their lender the terms of their loan, or intent the sale of their property for as high a price as possible and pay as much debt as possible. That last option is in essence the short sale. It is one way for a homeowner who cannot pay his mortgage to walk away from the problem and the property with a lesser blemish on his credit than a foreclosure or having to declare bankruptcy.

It can be a better alternative for lenders confronted with high foreclosure and auction expenses, a very slow market that would have them take possession of a home with a dwindling value, pay all subsequent taxes and homeowners' association fees, general maintenance, payment of brokers' commissions to re-sell the property, or auction costs.

Of course, they will try to perform the short sale with the minimum possible loss. Thence the long delays in answering the buyers' offers, hesitations and doubts, and more issues that most realtors would like handle. Banks are not always bound by realtors' protocols, norms and usages. Employees and decision-makers can change frequently and sometimes the process resembles more a bidding than a regular sale. As frequently as some patient buyers could be rewarded by excellent deals, many others just walk away after months of waiting and disappointments.

The short sale procedure can be initiated by the homeowner, a prospective buyer, an attorney or a person representing the buyer.
Usually the lender would have a "short-sale package".
Usually the lender requests a "hardship" letter, explaining why the mortgage payments haven't been made. Typically they will also ask for bank statements, pay-stubs, proofs of income. They could also require a contract for sale. A next step for the bank would be to ask for a "Broker Price Opinion" (BPO). The lowest this report would assess the property, the best chances that the lender will be more open to negotiations.
Sometimes the foreclosure process has been initiated and in these cases, it would be necessary to request the lender to postpone their legal actions and auction.

I would recommend to always seek advice from an attorney and an accountant in order to initiate a short sale. Bear in mind that there are tax implications in a short sale. I understand that US congress passed and President Bush signed into law a temporary change to the tax code. For the period Jan. 1, 2007, through Dec. 31, 2009, homeowners will not have to pay tax on any debt on primary residences that is cancelled. The present information is only an outline of the process and is not substitute for legal, accounting and other expert advice.

It is common for the bank to consider higher discounts on properties in fair condition, or in need of repairs. These are the best opportunities, since they will usually yield fewer offers and are tougher to sell. Homes with high values can also be better candidates for larger percentage discounts from the lenders. Some of the best opportunities will arise when the property is burdened by 2nd and 3rd mortgages. In effect, lenders in these 2nd and 3rd positions are expected to lose the totality of their investment in the case of a foreclosure and will therefore accept the payment of only a very small portion of their loan.
As you can imagine, this could be an extenuating process, but well worth the effort.

Pre-foreclosure:

The term pre-foreclosure is being used to refer to the status of a property which mortgage payments have not been performed for more than three months, and which lender has recorded a notice of default. This is the state when a short sale becomes a strong possibility since the lender would strongly consider whatever action can be done in order to avoid another foreclosure on their books. Of course that not all banks have the same amount of exposure to bad loans and it will influence their willingness to negotiate.

We, at condo-southflorida.com will accept in specific situations to deal in South Florida Short Sales. We have included in this website a section which lists most of Aventura Short Sales, Brickell Short Sales, Bal Harbour Short Sales, Hallandale Short Sales, Hollywood Short Sales, Surfside Short Sales, Sunny Isles Short Sales, Miami Short Sales, Fort Lauderdale Short Sales, Miami Beach Short Sales, North Bay Village Short Sales.

Explaining Foreclosure.

Foreclosure is the legal proceeding in which a mortgagee, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption.
This is the exercise of the lender's right to redeem a mortgaged property. It will terminate the rights of the owner and transfer the property to the lender.
The most common reasons are economic hardships, such as medical and health issues, unemployment, divorce, death, higher payments triggered by adjustable loans.

A not so traditional situation is occurring now: Many buyers are walking away from properties where the total amount owned on their mortgages is higher than the actual value of the property. This is especially true of properties bought in the last half of the real estate "boom" of 2001-2005, some of which have seen their real value reduced in an unbelievable percentage.

The first step will occur after three months delinquency on mortgage payment. A Notice of Default (NOD) will be recorded by the lender.

Foreclosure will then involve the sale of the mortgaged property under the supervision of a court, with the proceeds going first to satisfy the mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds are left.


Henry B. Nathan is a Florida Realtor at United Realty Group Inc.
Visit my website: http://www.condo-southflorida.com/
where you can search for Aventura Condos, Florida Condos,

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