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All About a "Short Sale"
The ‘short’ in the title of this presentation refers to the fact that the “payoff” amount agreed to in the transaction is indeed, “shorter” than the mortgage balances on the property. This is a technique where it is a win-win of sorts for most all of the parties involved in the sale. This is just another “tool” in your toolbox to succeed in Real Estate Investment Business.
There are three stages of a property that is a subject of Foreclosure:
Pre-Foreclosure: This includes a short sale, deed in lieu of foreclosure,
cash for keys, quitclaim deed, reinstatement of mortgage, forbearance agreement etc.
Foreclosure: At the sheriff’s auction lenders bid against everyone else
to gain control of the property (deed). Most liens against the property are extinguished after this action.
Post-Foreclosure: Majority of the properties that are subject of a foreclosure
end up in this category. The property then becomes a liability to the Lender, FHA (HUD), or VA and all except VA hires a Real Estate Broker to list and sell the property. HUD and VA properties are on the Internet (HUD.org and Vahomes.org) bids must be placed thru a registered Broker/Realtor®.
Difference between a “Short Sale” and a “Foreclosure”
Short sale is a process where a negotiated settlement is made between the lender that holds the mortgage and the seller for a third party buyer usually facilitated by a professional like a Realtor or an Attorney, even before the foreclosure process in initiated by the lender. Therefore it is considered a pre-foreclosure sale. Foreclosure may be the only option, if there are too many liens and other issues clouding the title, as a “cleansing process” to clear up the title.
SELLER:
1) Gets to live in the property during the course of the short sale process.
2) Net proceeds to seller must be ‘zero’ on the (settlement) HUD statement.
3) Lender may release owners from any further liability in connection with the loan, meaning no “deficiency” judgments to be filed.
4) Have plenty of time to make their moving and relocation plans.
5) A possible third party “investor purchase and lease-back or resell” to the current sellers on creative basis until their financial challenges are resolved.
6) Seller can avoid or offer an explanation of a “foreclosure” showing up on their credit in order to improve their credit ratings.
7) May be able to avoid a Bankruptcy; if there are no other major non-real estate related debts.
A Win for the Seller
A Win for the Lender
- Same or MORE Net as in Sheriff Sale but in less time
- Proceeds within 24 Hours of Closing
- Reduces Non Perfoming Asset Inventory
- Full-Blown Appraissal/BPO
Lender's Financial Draw Backs to Foreclosures
Foreclosure: VS Short Sale:
Attorney Fees Attorney Fees "0"
Buy back at Clerk/Sheriff Auction Sale Buy back from Clerk/Sheriff "0"
Pays ALL Taxes & Insurance Pays All Taxes & Insurance
Time on Market Already Listed
List with Broker Pay ALL Realtor Commissions
House Sells Faster Less Overal Costs
Holding Costs No Repairs
Repairs Property is Functional
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