Foreclosures and short sales are BIG topics of discussion.  We all have some sort of idea of how they work but most people don't really know the details.  Having been on all sides of this transaction, I can tell you a few things.  First: For the homeowner.  If you know you are going to have trouble with your mortgage payment the first thing you do is call your lender BEFORE you run behind and see what programs your lender has.  Many have programs for those who have both short and long term repayment issues.  The key is to get to your bank before you are late! Ok, so say the only option is you have to sell the house but you owe more thant the house is worth.  Now you are talking shortsale.  Shortsales are better for your credit than foreclosure and bankruptcy.  Many attorneys will just suggest you file bankruptcy and most do not know about how to correctly handle a shortsale.  There are specialists out there: short sale attorneys and workout specialists who DO know how to handle the situation.  Start early, get your specialist involved and get the necessary paperwork started before the lender begins foreclosure proceedings (usually 3 months missed payments).  You will need financial documents: pay stubs, past tax filings, bank statements; next is a hardship letter detailing what it is that is going on with your life that has changed so you can no longer stay on top of payments.  You will need to request a payoff statement from your lender and packet (which will be that banks specific financial documents).  As you begin gathering this documentation, contact a realtor who has done shortsales and your workout specialist (your realtor will know who does shortsales). The next step is to get the bottom line sale price for your house, get it substantiated, get your forms together and get the house listed as a possible short sale. The bank will not give the ok to sell short until an offer comes in so do not panick.  However, your shortsale specialists will know whether you will qualify or not for a shortsale.  Once an offer comes in, the workout specialist sends it to the bank along with the real estate agents Broker Price Opinion and substantiated documentation.  The bank will mull it over for 6-8 weeks and there will be dead silence from the bank.  Once the bank decides to negotiate the offer, things go quickly as they do want a reasonably quick closing. The home will be inspected and appraised.  Hopefully, all this has happened before the foreclosure has gone to completion.  YOU WILL BE SERVED on the foreclosure as the bank will not stop their process of foreclosure even though you are working on a sale.  Next issue is whether the bank will want you to sign a note for a deficiency -don't worry if you have no assets you are fine and the judgement ranges from 0-the highest our attorney has seen is 5-10,000.  You must liquidate your assets to pay your mortgage. If you get this all done before the bank forecloses (that takes about 9 months, plus the 3 months you didn't pay before the foreclosure was filed - you should be able to sell if you start early), then your credit will show that the mortgage was paid less than owed but not foreclosed on.  You will have to speak to your attorney about tax ramifications but much has been done to reverse that.

FOR THE BUYER

Know that you can get a deal but you can't get a steal and it won't happen overnight.  You need to present your offer with the knowledge that banks will usually expect to sell the house within 92% of the appraised value of the home.  You need to submit your offer on a contract form and it must state "as is, where is".  You CAN have inspection but you won't have any negotiating room based on the inspection.  The stronger your downpayment and mortgage is, the better your chances.  You should have at least a true preapproval, better a commitment pending appraisal.  Banks don't want to waste their time losing sellers.  Know that it will take at least 6-8 weeks for the bank to make a decision and know that YOU WLL HEAR NOTHING the whole time you wait.  No one hears anything.  A good shortsale specialist will know how likely the deal is to go through.  Usually the answer "NO" comes back pretty quickly.  Once the bank reviews your offer, you can inspect, there will be an appraisal and the bank will close it - usually within a month.  The bank may come back to you with a price and say  for $xxx it's yours and you decide whether you want to pay the higher price.  If not, the next offer gets reviewed but this time the process is much slower since the bank already knows what it can get for the house and what it will take. The bank doesn't care if you put a deadline on the offer (many will state, answer required in 5 days or less), the bank will not consider credits back for closing or anything else, and if you are paying cash the process is exactly the same so don't expect the bank to bend over backwards because its cash.

Ok, so buyer and seller have an agreement and the bank is on board.  Chances are the seller has saved themselves plenty of hassle and stress by using a shortsale team and avoiding foreclosure and the buyer has a house for less than they would pay elsewhere.

FORECLOSURE PROPERTIES

Ok investors.  So you think there are foreclosed properties out there that the banks are just letting sit and the bank is just waiting for you to come by and put in a lowball offer.  WRONG.  Once properties are foreclosed on, the bank sends in their REO specialists to take over the property. REO agents are real estate agents who take the house over and list it for sale.  Expect there to be an "as is, where is" clause in the sale. You can have inspection but don't come back to the bank to negotiate.  Your best bet is to purchase the home pre-foreclosure as a shortsale, which will be listed on the MLS also.  Terms to look for to determine if the home is a foreclosure/shortsale are : bank owned, third party, lender approval.

There are foreclosure sales and for those you have to follow the public notices.  You will have to deposit a check for a minimum amount prior to the auction.  Realtors are now beginning to use auction companies as well.  There may be a minimum set and if that isn't met the house doesn't sell or the house may sell to the highest bidder (sometimes the only bidder).  Expect to be responsible for liens on the property like tax liens and sewer liens.  BEFORE thinking about participating in an auction, go to the Town Hall and check the liens on the property and call the tax office to see the payment status.

Ok, that's the primer on this subject.  Email me if you have specific questions.  www.lflick.com