A friend of mine who is a past client asked me last week what exactly does a short sale mean?
It's not hard to hear the news or media use the word short sale, or pre foreclosure. There are three steps in the foreclosure process, which are Pre foreclosure, Auction, and Foreclosed Property, which is also called REO or Real Estate Owned, or Banked Owned Property.
Pre foreclosure, that's the step before the bank is going to foreclose on the property, which the owner still owns the property, but is behind in their mortgage, so the bank starts the foreclosure process. Then you have the foreclosure auction that's when the banks auctions the property off to the highest bidder. This is not necessary the 1st mortgage that is foreclosing. That's why it is important to know who is foreclosing, so you don't get stuck with the other liens on the property. Lastly you have the foreclosed property that's when the bank owns the property.
A short sale can happen in the pre foreclosure stage. Not all pre foreclosures are short sales. If the seller is in pre foreclosure and can sell the house, which can pay off all the debt of the property such as the mortgage(s) and liens, or if the seller can come up with the funds to pay off all debt, then the seller does not need to do a short sale.
A short sale is when the seller still owns the property, however for the seller to sell the property they need the bank's approval of the sale, since the seller is upside down in the property. The house is worth less in the current market than what is owned on the property, they need the bank to forgive that shortage for the sale to go through, since the seller does not have the funds and the property is worth less than what is owed on it.
I personally do not like short sales for buyers. Typically banks before they will consider doing a short sale with an owner they will want to see that the property has been exposed to the market fully and this takes time. Also success rates for short sales for closing are not high, which means that the buyer can wait a long time and the bank does not approve the short sale. The buyers gets to start the home buying process over again. Pre-foreclosure and auctions I would stay away from unless you have a the right professionals lined up to work with and know how to purchase them correctly, especially a real estate attorney that can run the title to make sure who is foreclosing and if there are any liens on the property, as well as if the buyer has the patience for it.
If your going to buy a foreclosed property I would purchase it at the time when the bank owns the property, they will usually list it with a listing agent. You are buying the property "as is" condition with no warranties of any kind, but now the bank owns the property. I would still highly recommend having a real estate attorney do a title search to make sure you are getting a clear and marketable title as well as you want the attorney to issue you an owners title insurances policy. I would also recommend having a qualified home inspector inspect the property too.
If you have excellent credit, and will be purchasing a $300,000-$1,500,000 or more home or condo in the Providence, Rhode Island area, or surrounding RI neighborhoods or Southern Massachusetts in the next 90 days and would like to be represented by the Corbett TEAM of Certified Exclusive Buyer Agents (Trained in "Negotiation" for representing ONLY BUYERS 100% of the time!)"Call us at 401-725-5608 for a phone consultation!
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