Borrowers do not necessarily need to be in default of the mortgage payments for a lender to agree to a short sale. However, they typically need to prove some type of financial hardship, such as the loss of a job, which is likely to result in default.
Often the residence in question is underwater , meaning it is worth less than the outstanding mortgage balance. A bank may take several months to respond to a short-sale offer, so the process can take considerably longer than a traditional purchase.
Many real estate websites, including individual firms or listing services, offer the option to search by short-sale status. A sheriff's sale auction occurs after the lender has notified the borrower of default and allowed a grace period for the borrower to catch up on mortgage payments. An auction is designed for the lender to get repaid quickly for the loan that is in default.
The property is auctioned to the highest bidder at a publicly announced place, date, and time. Properties that do not sell at auction revert back to the bank; that is, they become real estate-owned REO properties. Online sources such as RealtyTrac have extensive listings of such bank-owned properties that can be searched by city, state, or ZIP code. When these properties go into foreclosure, they are repossessed by the government and sold by brokers working for that federal agency.
A government-registered broker must be contacted to purchase a government-owned property. Buyers can research possibilities on the website for the U. Most foreclosures are sold at a sizable discount below market value , with the exact amount varying from region to region.
Buyers may also take advantage of additional savings with perks such as reduced down payments, lower interest rates, or the elimination of appraisal fees and certain closing costs. What makes these properties such a deal? If the residence is in the pre-foreclosure or short-sale stage, its owners are in a financial bind—and time is not on their side.
They have to unload the property and get what they can while they can, before they lose possession of it. Buyers can benefit even more if the property has in fact been seized.
Financial institutions typically want to rid themselves of foreclosed properties promptly for a reasonable price, of course—they have to answer to investors and auditors that they made every attempt to recoup as much of the original loan amount as possible. Again, buyers can take advantage of this situation.
The below-market price is the big plus of buying a foreclosed home. Nevertheless, these properties also carry their share of pitfalls. While it carries a compensatory discount, as-is condition can be pretty grim.
In addition, some folks who are facing or forced into foreclosure are embittered, and they take out their frustrations on their home before the bank repossesses. This often involves removing appliances and fixtures and sometimes even deliberate vandalism.
Along with unforeseen repair and renovation work, delinquencies such as back taxes and liens —which auction properties often have attached to them, either by the Internal Revenue Service IRS or state or other creditors—can add further costs to an otherwise desirable house. Whatever is owed, the government must first be paid and settled before the buying process can go forward.
This applies mainly to properties being auctioned off; a bank will always pay off any liens attached to the property before reselling it to another party. The preceding complications often mean lots of paperwork. The amount of time that it takes to get a response on your bid can vary widely; if the bank holding your property is swamped with foreclosures, it can take a long time to process your request.
Banks with substantial backlogs have been known to take up to 90 days to respond to an offer. So increased interest and competition—not just from potential occupants but from investors and professional house flippers —are inevitable when dealing with worthwhile foreclosed properties. Very often a foreclosed home can be priced attractively lower than other homes in the surrounding area.
When word gets out, numerous offers can come in rapidly, and a bidding war ensues. Most foreclosures happen when the owners lose their jobs or their mortgage adjusts to the point where they absolutely cannot pay the mortgage, no matter how hard they try.
When you buy a foreclosure, you should lowball the bank — they are desperate to get these homes off their books. Stories about in the press abound about the large numbers of foreclosed homes the banks have on their books. Various groups of investors do, and they hold the banks accountable to selling the bank-owned property at as high a price as possible, helping them cut their losses.
Before a bank will take a lowball offer, they will almost always reduce the list price first, and see if that attracts a higher offer than the lowball one they have in hand. You need to be able to pay in cash in order to buy a foreclosure. Think about it: why would the bank want to end up with the same property as a foreclosure, again?
In reality, many banks do offer incentives like lower fees or closing cost credits for buyers who use their bank for their mortgage. But the buyers must meet the same credit, income and other qualification standards as anyone else would to seal the deal.
Read more posts on Trulia's Real Estate Realist ». For you. A buyer, especially in California, must work with a real estate agent who is certified in distressed sales in order to navigate the special circumstances involved in these processes. The listing price is set according to the directives of the bank or investment organization that owns the property.
Properties must pass an inspection done by an appraiser hired by a mortgage lender, and if problems are evident and the home fails inspection no lender will use the property as collateral for a loan. In the right market conditions, it might seem as though everybody and their uncle are throwing offers at the bank. If a bank receives several high offers, why would it ultimately accept a lower one? There are a few reasons this might occur. A lot can happen during an inspection period and offer negotiations.
The terms a bank agrees to in advance can change. A tree can fall on the house or market conditions could suddenly worsen. Not to mention, interest rates could go up, putting downward pressure on prices. Sometimes the home could require extensive work, which was revealed during a home inspection. In these situations, buyers can ask the bank to lower the price to reflect a newly discovered condition.
Also, in some cases, the listing agent represents the buyer making a lower offer and purposely—although it is generally against the law in most states—pushes their own buyer's offer to the top of the pile while downplaying the other offers. Not every real estate agent is an ethical agent. Finally, some of the offers might have been too high to be substantiated by an appraisal.
In that event, generally, a bank will lower the price to match the amount of the buyer's appraisal. This is one of the most common reasons that a bank will accept a lower offer. If you're considering making an offer on a foreclosure, be sure you're working with an agent experienced in dealing with foreclosures.
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