Foreclosure

Here is the scenario, you see a great home available for sale.  The price seems a little high, but it still looks like a good value.  You think buying would be an easy way to turn a profit or buy a cheap first home.  After a little bit of research, you see or hear that the home is nearing foreclosure.  What do you do?

The first thing you should do is contact the real estate agent selling the home.  If the home is being sold by the owner, schedule a meeting.  See the home and inspect it for your own eyes.  If satisfied with what you see, ask to do a professional inspection.  If you are truly getting a good deal, make an offer.  If you feel the asking prices is too high, make a lower offer.  If the home is entering into foreclosure soon, the homeowner may be willing to work with you.  After all, they are selling their home to avoid foreclosure.  But, you may run into a problem.  The homeowner may be unable to lower their selling price, due to the outstanding mortgage due.  So, what do you do?  You ask about a short sale.

Not all borrowers, even those nearing foreclosure, are familiar with short sales.  Unfortunately, many believe their only two options are to sell the home or enter into foreclosure.  Borrowers actually have many options, starting with refinancing, reconditioned loans, and short sales.  If a homeowner plainly states they cannot lower their selling price due to their mortgage, ask if they have considered a short sale.  If they are unfamiliar with the process, they may ask you for more information.

A short sale is when the borrower and mortgage lender agree to sell a property for less than the outstanding mortgage due.  Borrowers who suggest short sales want to avoid foreclosure.  They want their credit to suffer little damage.  Mortgage lenders also want to avoid foreclosure.  Proceedings are long, full of hassle, and costly.  The worst that can happen is the borrower or lender will say no.  You have nothing to lose, so why not offer the suggestion to the borrower and current seller.

For a mortgage lender to accept a short sale, the borrower needs to prove they cannot afford their payments.  They do this by submitting proof of income, assets, and a hardship letter.  This hardship letter details the reason they are in debt.  It may be due to health complications, job loss, reduction in pay, or an adjustable rate mortgage.  If a mortgage lender is open to a short sale, these documents will be sent to the borrower.

When suggesting short sales to soon-to-be foreclosed persons, it is important to not give them false home.  Lenders reserve the right to say no.  Also, depending on the lender in question, they may be required to pay back the difference.  For example, if the outstanding mortgage is $75,000 and if you buy the home for $65,000, they may have to pay back the $10,000 difference.  Some lenders do forgive this debt and others will set up affordable payment plans.  Your best takers for short sales are borrowers who don’t want to damage their credit or declare bankruptcy.

If you are prepared to buy the home if a short sale is accepted, work with the borrower.  When they submit their documents for approval, submit a purchase offer.  When all documents are submitted together, mortgage lenders are more likely to approve.  There are no guarantees that short sale properties sell.  Mortgage lenders not only take a loss, but they take a risk.  A purchase offer can sway them to a yes.

Have you heard that short sales are the alternative to foreclosure?  They are and they are increasing in popularity.  More borrowers and lenders are agreeing to them.  For borrowers, short sales lessen the credit blow.  For mortgage lenders, short sales allow the avoidance of costly and lengthy foreclosure proceedings.  So, if you are looking for a great deal on a home or another property, don’t discount short sales.

As nice as it is to hear that short sale properties often result in good deals, you may be curious as to what they are.  Short sales are when the mortgage lender accept the fact their borrowers cannot pay.  The property will soon enter into foreclosure.  Unfortunately, foreclosure proceedings are long and costly.  Plus, otherwise cooperative borrowers put up a fight when it comes time to vacate the property.  In fact, some must be removed by force.  This is more than many lenders want to handle.  Instead, they opt for a short sale.  This is when the home is sold for less than the outstanding mortgage due.

On average, short sale properties are a good buy.  For example, if a home is valued at $125,000, the borrower owes $70,000 on the mortgage, and you are able to pay only $60,000 you make out well.  Essentially, you get a steal.  Yes, you do have to put up a large amount of money upfront, but think long-term.  Whether you want to flip the property right away or live in it a few years before reselling, you automatically make a profit.  After all, you paid $65,000 less than the home was worth!  Even if you cover the cost of the mortgage, money is still made.

In most cases, short sale properties are a good buy.  You get a good value for the money.  However, there are cases in which buyers lose money.  So, how do you prevent that from happening?

Know if a property is a short sale property.  Lenders either opt to sell the homes themselves or use a third-party realtor.  In either instance, they want their money.  They may try to sell the home for more than the outstanding amount due.  In some states, it is legal to not disclose the true status of a property.  Essentially, it may be a short sale property, but you may not know.

So, how do you know if a for sale property is actually a short sale?  Properties that are sold directly through the lender are almost always short sale properties.  It is that or else the lender repossessed the home at a foreclosure auction.  Either way, you can and should get a good deal.  As for real estate agents, they may not outright state the status of the property, but most drop hits.  Review the listing for phrases such as “lender must approve,” or “in pre foreclosure.”

Know the property’s appraised value.  This should be public records.  If the appraised value is years old, hire your own appraiser or inspector.  A quick examination will let you know if you are getting a good value for your money.  A true short sale property should be less than the home’s fair market value.  In dire situations, where the lender wants to avoid foreclosure at all costs, they don’t even consider the fair market value.  They just want to recoup as much of their money as possible.

Know if a home is underwater.  A problem facing many homeowners today is that they owe more than their home is worth.  This is common with second mortgages or homes that were purchased during the real estate boom.  If a home is underwater, proceed with caution.  Remember, not all lenders take a home’s value into consideration.  They just want their money.  This typically works out to your advantage, but not with underwater homes.  For example, a home may be valued at $250,000, but the borrower owes $300,000.  Even if you pay the $250,000 you don’t get a good value for your money.  Yes, you are purchasing a home at fair market value, but your goal is to get a good deal.  Unless buying a first home that “you must have,” walk away.

In conclusion, most buyers get good deals with short sale properties, but there are no guarantees.  For that reason, do the research first.  Don’t spend more than required, especially if your goal is to profit from the buying and reselling of short sales.

If you are looking to profit from the poor real estate market and the large number of foreclosed homes across the country, there is one important thing you must know.  You do not need to wait until foreclosure proceedings start.  Yes, you can get amazing deals on foreclosed properties, but there are other options too.  These include foreclosure short sales and deeply discounted for sale by owner properties.

Foreclosure short sales occur when the homeowners or current home occupants cannot pay their mortgage.  There is no foreseeable solution in the near future.  They will lose their home.  It is honestly just a matter of when.  To save their credit score and to avoid costly and lengthy foreclosure proceedings for the mortgage lender, a short sale is decided on.  The mortgage lender agrees to sell for less than the outstanding mortgage debt.  The lender will take a loss, but they still get some of their money and avoid foreclosure proceedings.

For sale by owner sales are often last minute attempts to avoid foreclosure by the delinquent borrower alone.  Sometimes, the mortgage lender refused a short sale.

Unfortunately, it isn’t always easy to find soon-to-be foreclosed homes for sale.  In some cases, they are risky.  You need to target homeowners who have reached the point of no return.  There are many steps for homeowners to avoid foreclosure.  You need to familiarize yourself with these steps to save yourself time.

Loan reinstatement.  With today’s economy, many individuals are finding themselves in the unemployment line.  In some areas of the United States, it is difficult to find a job.  It can take a year or more.  In other areas, an unemployed person can find a job and be working in as little as a few weeks or months.  Don’t avoid, but proceed with caution with individuals who are only facing temporary hardships.  When dealing with for sale by owner homes, the owner can change their mind at any time before the final closing.  If the current home occupant finds employment or gets their mortgage lender to work with them during these tough, but temporary times, you may be left out in the cold.

Loan modification.  This shouldn’t be a major issue for you as a potential homebuyer.  Most homeowners approach lenders with this option right from the start.  A loan modification involves readjusting the interest rate, the monthly payments, or the overall term of the loan.  Many homeowners, unless unemployed, can save their homes from foreclosure with loan modifications.  If you want to do a good deed, offer the suggestion.  If you want to make a profit, keep this to yourself.  After all, the homeowner should already know about loan modifications.  If not, it is their loss and your gain.

Foreclosure short sales.  As previously stated, the decision to short sell is made by the mortgage lender and in agreement with the current homeowner or occupants.  This is considered a last ditch attempt to avoid foreclosure.  In most cases, short sales are a great way to profit from the real estate market.  You must proceed with caution though.  If a new homeowner just acquired a mortgage within the last year, they owe a significant amount on their mortgage.  Always compare the home’s appraised value with the short sale selling price.  Homes can depreciate.  Remember your goal is to get a good deal and possibly resell for a profit.

For sale by owner properties.  As with foreclosure short sales, proceed with caution with for sale by owner properties.  You will always find homeowners who want to turn a profit.  This means selling a home for more than it is worth.  If you know the home is near foreclosure, use this as a bargaining tool.  Those who are truly interested in avoiding foreclosure and protecting their credit will sell the home at a fair price.  Aim for the outstanding amount on their mortgage, plus a small amount for first and last months rent at a new apartment.

As you can see, there are ways that a homeowner can avoid foreclosure.  Use these steps to your advantage.  Save time and money by opting for those who have reached the point of no return.  If they don’t sell their home, foreclosure right around the corner.