Foreclosures and Short Sales
We receive many calls these days regarding "foreclosures". Prospective buyers want to either
look at, focus on, or buy a "foreclosure" as the perception is that one can get a "deal" on a
foreclosed property. While it is possible, it is not likely in the current market in light of the
relatively low inventory, large number of buyers/investors out shopping, and the current low
interest rates. Below are several categories of "foreclosure" properties:
Pre-Foreclosure Properties: At this stage, the owner of the property has missed
several payments and the lender has sent them a "Notice of Default". While the property is
technically in "foreclosure", the property is not necessarily for sale. One can review public tax
records and/or any number of websites to find properties that have been issued a Notice of
Default. The owner still has time to remedy the situation by either making up the missing
payments, attempting to have their loan modified, or by "short-selling" the property (selling
the property for less than is owed, with the approval of the lenders that currently have liens
on the property).
If you are a homeowner in this situation, you should strongly consider a "short sale" (see
below). It is possible that you can get out from beneath your under-performing asset and
minimize damage to your credit, all while having the excess debt forgiven. There is generally
no cost to the seller for a short sale. Call me for details at 714.288.9369
Short-Sale Properties: These properties are generally in the foreclosure process,
although not always. Short sale properties are usually listed with an agent and are in the MLS
and appear to the public as a "normal" sale, but they are anything but normal! Once an offer
has been procured by the listing agent, it is submitted, along with other documentation, to the
current lender. From this point in time, it may take from 45 to 120 days for the bank to even
respond to the offer. The negotiator for the lender may approve the offer, approve it with
modifications (usually a price increase and/or elimination of any termite work and repairs) or
deny it altogether. The listing agent has a lot of latitude in most cases with regard to which
offer or offers are submitted to the lender, so it is not always a level-playing field when
making offers on a short sale property. That fact, combined with the length of time it takes to
have an offer actually accepted and escrow opened, is a deterrent to many would be buyers
of short sale properties.
Benefits to Sellers of a Short Sale:
Credit score reduced less than foreclosure – credit rebounds faster (2 years vs 7 years)
No direct cost to seller; lender pays commissions, back taxes, and jr. liens
Stay in your home during the often lengthy short sale process (3 to 6 months)
No seller paid home repairs – property sold “as-is”
No seller-paid termite repairs – property sold “as-is”
Collection efforts generally suspended during short sale review
Federal Tax on forgiven amount not currently taxed (program currently expires 2012). Talk
to your tax professional for details
California State Tax on forgiven amount may be forgiven – program expired Jan 1, 2009
but new legislation is in works to extend that date – talk to your tax professional for details
Bank-Owned or REO Properties: This is the purest form of a "foreclosure" property
(at least in my opinion!). The seller has not been able or willing to make up the missed
payments, and has not successfully sold the home via short sale. At that point, the home is
foreclosed upon and becomes the bank's property. It is not uncommon for a bank to let the
home sit for several months from the time that it is foreclosed upon to the time that it is put
back on the market. In some cases you can make an offer directly to the lender, however,
most are not in a position to receive and accept offers until they have listed the home with a
Realtor. Once listed with a Realtor, the sale becomes much like a "traditional" real estate sale,
with a few exceptions. The good news is that the banks are fairly responsive to offers and will
usually respond within a few days. If an offer is accepted by the bank, they will generally
require the buyer to sign an addendum, which is very favorable to the bank and not-so-
favorable to you, the buyer. A few recurring addendum themes across lenders:
- Very short inspection time period -- 7 to 10 days
- Very short contingency removal period, inclusive of buyer's new loan -- 7 to 10 days
- No repairs of any kind
- No termite repair/remediation work of any kind
- Bank can cancel agreement at any time, prior to closure, and return the buyer's deposit
- Limited disclosure -- the bank has not lived in, nor likely ever seen, the property
Bank-owned properties are not always in the best condition, either. Many have been abused
by frustrated owners so a thorough inspection is critical! Banks tend to price the homes
aggressively, with the idea of a quick sale. Given the elements noted above, while you may
get a good "price" on a foreclosure property, you not necessarily get a good "deal".
If you would still like to pursue foreclosure properties, or have any questions regarding
foreclosures, please give me a call at 714.288.9369 - Tony Trabucco
We receive many calls these days regarding "foreclosures". Prospective buyers want to either
look at, focus on, or buy a "foreclosure" as the perception is that one can get a "deal" on a
foreclosed property. While it is possible, it is not likely in the current market in light of the
relatively low inventory, large number of buyers/investors out shopping, and the current low
interest rates. Below are several categories of "foreclosure" properties:
Pre-Foreclosure Properties: At this stage, the owner of the property has missed
several payments and the lender has sent them a "Notice of Default". While the property is
technically in "foreclosure", the property is not necessarily for sale. One can review public tax
records and/or any number of websites to find properties that have been issued a Notice of
Default. The owner still has time to remedy the situation by either making up the missing
payments, attempting to have their loan modified, or by "short-selling" the property (selling
the property for less than is owed, with the approval of the lenders that currently have liens
on the property).
If you are a homeowner in this situation, you should strongly consider a "short sale" (see
below). It is possible that you can get out from beneath your under-performing asset and
minimize damage to your credit, all while having the excess debt forgiven. There is generally
no cost to the seller for a short sale. Call me for details at 714.288.9369
Short-Sale Properties: These properties are generally in the foreclosure process,
although not always. Short sale properties are usually listed with an agent and are in the MLS
and appear to the public as a "normal" sale, but they are anything but normal! Once an offer
has been procured by the listing agent, it is submitted, along with other documentation, to the
current lender. From this point in time, it may take from 45 to 120 days for the bank to even
respond to the offer. The negotiator for the lender may approve the offer, approve it with
modifications (usually a price increase and/or elimination of any termite work and repairs) or
deny it altogether. The listing agent has a lot of latitude in most cases with regard to which
offer or offers are submitted to the lender, so it is not always a level-playing field when
making offers on a short sale property. That fact, combined with the length of time it takes to
have an offer actually accepted and escrow opened, is a deterrent to many would be buyers
of short sale properties.
Benefits to Sellers of a Short Sale:
Credit score reduced less than foreclosure – credit rebounds faster (2 years vs 7 years)
No direct cost to seller; lender pays commissions, back taxes, and jr. liens
Stay in your home during the often lengthy short sale process (3 to 6 months)
No seller paid home repairs – property sold “as-is”
No seller-paid termite repairs – property sold “as-is”
Collection efforts generally suspended during short sale review
Federal Tax on forgiven amount not currently taxed (program currently expires 2012). Talk
to your tax professional for details
California State Tax on forgiven amount may be forgiven – program expired Jan 1, 2009
but new legislation is in works to extend that date – talk to your tax professional for details
Bank-Owned or REO Properties: This is the purest form of a "foreclosure" property
(at least in my opinion!). The seller has not been able or willing to make up the missed
payments, and has not successfully sold the home via short sale. At that point, the home is
foreclosed upon and becomes the bank's property. It is not uncommon for a bank to let the
home sit for several months from the time that it is foreclosed upon to the time that it is put
back on the market. In some cases you can make an offer directly to the lender, however,
most are not in a position to receive and accept offers until they have listed the home with a
Realtor. Once listed with a Realtor, the sale becomes much like a "traditional" real estate sale,
with a few exceptions. The good news is that the banks are fairly responsive to offers and will
usually respond within a few days. If an offer is accepted by the bank, they will generally
require the buyer to sign an addendum, which is very favorable to the bank and not-so-
favorable to you, the buyer. A few recurring addendum themes across lenders:
- Very short inspection time period -- 7 to 10 days
- Very short contingency removal period, inclusive of buyer's new loan -- 7 to 10 days
- No repairs of any kind
- No termite repair/remediation work of any kind
- Bank can cancel agreement at any time, prior to closure, and return the buyer's deposit
- Limited disclosure -- the bank has not lived in, nor likely ever seen, the property
Bank-owned properties are not always in the best condition, either. Many have been abused
by frustrated owners so a thorough inspection is critical! Banks tend to price the homes
aggressively, with the idea of a quick sale. Given the elements noted above, while you may
get a good "price" on a foreclosure property, you not necessarily get a good "deal".
If you would still like to pursue foreclosure properties, or have any questions regarding
foreclosures, please give me a call at 714.288.9369 - Tony Trabucco
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- Drought Resistant Landscaping!
- Newer Roof!
- Lots of Natural Ventilation/Cross-Breezes!
- Completely Fenced!
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