Short Sales: Everything you wanted to know and did not know who to ask.
Nowadays, many homeowners are recognizing that their home can not be sold for the amount of money owed against it. This is called by the media, "being upside down or under water in the mortgage". If you are such a homeowner in Lake Tahoe, please call me immediately to discuss how we can work through this situation. The strategy is called "listing the property as a ‘short sale'." The advantages to an over mortgaged homeowner are avoiding foreclosure or bankruptcy and the long term bad credit that goes along with those outcomes.
For this to work the house must be listed at a very attractive price in order to get rapid market response. Usually the asking price is the amount owed or less than the amount owed to all the mortgage holders.The advantage to the banks: they do not have a foreclosure on their books. Plus they do not have to maintain the property during the marketing phase after the foreclosure. The advantages to the buyers, they are getting a very good deal, well below former appraisal values. Moreover, the homeowner has not stripped the house of appliances and fixtures. Typically the home is in better condition and remains better maintained until close of escrow. Another advantage, during the negotiations with the mortgage holders the Buyer has time to obtain loan approval if financing is needed.At foreclosure sales on the court house steps usually only cash contract offers are considered.
Most important for us to understand in this situation, the seller may agree to a contract and price, but that contract and price must be agreed to by the lender or lenders that have liens against the real estate. Until all lenders and lien holders agree, the seller cannot perform on the contract unless someone comes up with more money to pay off the mortgages. If you are considering buying such a property, I can help you negotiate with the owner, but then the owner and the owner's attorney have to negotiate with all the lien holders and get their acceptance of our price, terms and conditions. Be aware this is frequently a time consuming, patience required, aggravating and frustrating process. Only the flexible, patient, dedicated buyers need apply.
For those of you willing to live with prolonged uncertainty, I will be your champion negotiator. In the short sale, for example, the big lake view home is listed for $1,100,000. However, the owner has a first of $750,000 and a second (home equity loan called a HELOC by the industry) of $600,000. You as a cautious investor want to offer $900,000 because you see it as a fixer upper that needs over $100,000 in cosmetic and structural corrections. Even if you and the property owner agree and sign a contract for a $1,000,000 purchase price "as is" subject to your satisfaction with inspections, we must get signed acceptance by the two mortgage holders to take less than is owned to them before we can close escrow. Typically the contract contains a clause "this contract is subject to mortgage holder approval." Then new negotiations begin. All short sales I have heard that succeed were written "the purchase is as is." The lenders do not want any repair or correction contingencies.
Possibly the property owner will owe the difference to the lender banks even after purchase proceeds are given to the lenders. That is another reason why negotiations take so long. Many times I have experienced the banks rejection of the offer that we all worked so hard to reach. During all these negotiations the clock is still running for the lender to complete the foreclosure process. Because we both need to plan on two to four months for the process to take place, patience is very important. There is no guarantee we will succeed at convincing the lenders to cooperate. During those months you will probably be spending money on inspections, appraisals, escrow fees etc. If the negotiations fail, you are out that money. There is also, in most cases, a statement that says, "Not a settlement-in-full," and the deficiency balance remains a legal encumberance against the seller. When the seller finds that statement in the paper work, they too can become less than excited about the process. However, when the "short sale" succeeds, and that is more likely if the buyer is a cash buyer with no contingencies, it can be a "win-win" transaction for all parties. The Seller is released from a stressful situation.
The Buyer purchases a desirerable property in better condition than most foreclosures for an exceptionally attractive price. If you have further questions, call or email me with your questions. Sometimes the best deals are with the long time home owners who owe very little against the property but really want to "liquidate their holding."
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