[NOTE: As in all editions of this blog, the Best Buys appear at the end of the article below.]
Solid analysis identifies great opportunities, and wading into the troubled waters surrounding “distressed” properties certainly provides no exception to this maxim. In fact, the need for careful market research and realistic planning and preparation are even more compelling when a buyer considers purchasing a distressed property. Let’s begin with a couple of definitions:
What is a Short Sale? A short sale occurs when the net proceeds from the sale of a property are not sufficient to pay the total mortgage(s) secured against the property, together with costs and commissions, and the seller is unable or unwilling to pay the deficiency. This is very different from a “foreclosure” or “REO” (”Real Estate Owned” by a bank or other lender after foreclosure) because, in a short sale, the original homeowner still holds the title to the home and is still directly involved in negotiations with buyers for the sale of his or her home. After an agreement is reached between this seller/homeowner and buyer, the contract is submitted to the lender(s)/mortgage holder(s) for approval. Why do the seller’s lenders/mortgage holders need to approve the contract? The answer is that, if the sale is completed, the lenders will receive some amount LESS than what they are actually owed on their mortgage(s)– sometimes significantly less. If the lender(s) do not approve the transaction and agree to release their mortgage(s) against the property, the contract cannot close because good, clear title to the property cannot be conveyed to the buyer.
What is a foreclosure? A foreclosure is the legal process that results in the lender/mortgage holder (usually a bank) taking legal title to, and possession of, a property. This occurs when a homeowner is in default of the mortgage loan. After the legal foreclosure process has been completed and title to the property has been transferred to the lender, the property becomes an “REO” or “real estate owned” by the lender/bank. (It also can be a significant liability of the lender, requiring upkeep and insurance, at a minimum.) In this case, the buyer negotiates directly with the bank for the purchase of the property because the former homeowner’s ownership interest in the property has been legally “foreclosed” or extinguished.
Why would a lender/bank entertain a short sale offer, rather than simply filing mortgage foreclosure proceedings and taking title to the property itself? The simple answer is “cost.” A short sale is a “short sale” because market conditions have affected the value of a property negatively. The property is worth less now than it was when the lender approved the loan for the purchase of the property by the original owner. No matter what the the homeowner owes on paper under the mortgage, the property is no longer worth enough to fully satisfy the mortgage. No amount of threatening or wishful thinking can change that market reality, and the lender knows this. Since the property itself is the “security” for repayment of the loan, if it is now worth less than what is necessary to satisfy the loan, the lender has to make a hard decision. Should it go to the additional time and expense of resorting to the legal process to “take” the property in foreclosure, or would it actually be less expensive for the lender to agree to release its mortgage(s) for less than the full amount it owed? Very frequently, the lender decides a short sale is “the lesser of two evils,” by comparison to foreclosure. Either way, the home seller and the lender lose money, but in a short sale, the lender may lose less, and the homeowner’s credit will be damaged less, than in a foreclosure.
Having said that, it is very important to note that NOT ALL SHORT SALES REPRESENT GOOD OPPORTUNITIES TO BUYERS. The same market conditions that caused the property value to decline may not have subsided– the property may still be declining in value. Further, short sales can be time consuming and frustrating for the buyer. It is not uncommon for a short sale to take anywhere from one to seven months and more to be accepted by the lender/mortgage holder. And during that time, the buyer may be missing even better opportunities.
In the next edition of this blog, I will go into more detail and provide additional observations to help buyers navigate the turbulent waters surrounding distressed properties. Now let’s take a look at a few Charlotte area real estate Best Buys:
(1)Nearly New (built in 2005) 3/2.5 in Great Community assigned to Union County Top-Performing Schools:
Listing Price: Reduced to $199,900.00 This home has a lot going for it: beautifully maintained community featuring club house, pool, recreation area and playground, fireplace, upgraded cabinets and hardwood floors, 2-car garage, 3 large bedrooms PLUS a loft bonus, large lot with fenced rear yard, and assignment to the top-performing Weddington Middle and High Schools. It has been reduced since coming onto the market in mid-August, and the sellers are probably ready to deal. Tax assessed value is $212,030.
_______________________________________________________________________________________________________
(2)Stabile South Charlotte Community assigned to Sought-After Providence High School for Less than $135,000:
Listing Price: $134,900.00 Those of you who know Mecklenburg County know that it is quite unusual to find a home assigned to Providence High School that is priced below $200,000. Most homes in this area are priced well about $200,000. This one is a 3/2.5 with a fenced yard and patio that has been available since July. It is close to parks, recreation and shopping. Tax assessed value is $151,000. This is not an REO or a short sale; just a motivated seller.
______________________________________________________________________________________________________
(3)Nearly-new (built in 2006) Short Sale in Mint Hill:
Listing Price: $184,950.00 This one is a short sale, but the listing agent advertises that the price has been "approved," which I take to mean the seller's lender has pre-approved the sale at this price. It is a large 3 bedroom 3 full bath home built in 2006 and features 42" cabinets, recessed lighting in coffered ceilings, granite countertops, hardwood floors, stainless steel appliances, back deck and front porch. Master bedroom is huge and has its own bath, of course. Tax assessed value is $209,400.
_______________________________________________________________________________________________________
As with the last several editions of my blog, I have decided to try to keep the “best buys” listed down to three per edition. Of course, this continues to be a ”buyer’s market,” and there are many other great opportunities on the market at this time. Naturally, one of the main reasons I take the time to publish this blog is to offer to go to work finding you a great deal on your next home or investment. It’s what I do best, and I love what I do. As I have said in every edition of my blog, “solid analysis identifies great opportunities.” I would be more than happy to answer any questions or read any comments you might have. Take advantage of all the tools and resources available on my website, including the ability to SEARCH THOUSANDS OF HOMES FREE: http://edorer.wilkinsonandassociates.com . Or please feel free to contact me.
ERIC J. DORER, B.S., J.D.
NC/SC Broker/Realtor, Wilkinson and Associates Real Estate
NAR Certified Short Sales and Foreclosures Resource (SFR)
(980)875-0950
email: ejdorer@gmail.com
Comments (0)Subscribe to CommentsComment