Friday, September 5, 2008
The Short Sale Myth-Reality Realty.
Hello all, this is my initial Real Estate Blog and I want to take the opportunity to thank you for reading. For anyone who doesn't know me, I am a hyper-energetic realtor based in Eagle Rock and selling all over North L.A. and the San Gabriel Valley. I am also a mortgage lender and I spend a good chunk of my time working with a non-profit organization called Operation HOPE, where I help people get out of foreclosure and save houses. I'd love to put you on my list of satisfied buyers, just give me a call at 310-709-8283.
The first topic I'll dive into is the myth of short sales. Those are properties where the sales price won’t be enough to repay the existing loan and closing costs, so the bank has to agree to take less than they are owed to make the deal work. For example, Joe Homeowner owes $650000 on his house that is being "short-sold" for $500000 so the bank is writing off $150000. After working in foreclosure avoidance for what seems like forever, and also working the other side with buyers who are trying to get into short sale properties, I have come to the conclusion that 99% of short sales will NEVER go through. Why? The bank will almost never agree to take less! They don’t care that they may make less eventually when they have to sell it as a foreclosure. They want to make an example of irresponsible sellers and make them suffer for getting themselves into such a financial pickle. If you are such a seller and need to sell, you had better be in real financial trouble-at LEAST six months behind or your short sale will not be approved. That means you can’t have any other assets, or if you do, you have to give them to the bank. They’ll transfer what you owe to another property, or they’ll take a promissory note if you don’t own any other real estate. And you almost always have to already be in default on your loan, so your credit is trashed regardless. One property that we had an offer on, Flagstar bank was demanding that the seller sign a non-dischargable (meaning bankruptcy-proof) note for not only the deficiency in the purchase price, but also all the missed payments up to that point! That short sale, like all the others, did not go through and the seller is still occupying the property.
There are many reasons why the myth of the short sale gets bargain hunting buyers foaming at the mouth. Most of them stem from the fact that most people don’t understand how they work and they advertise their property as a short sale at a very low price with no idea whether they qualify for one. To further the myth, many Realtors take them on with the same ignorance. The blind leading the blind.
So, you the prospective buyer say, what’s the harm in looking at short sales? Here’s the problem: you are wasting your time. Not just by looking at unlikely properties, but what if you fall in love and make an offer? What if it’s actually accepted—pending lender approval, of course? Then you waste even more time waiting weeks, even months to find, 95% of the time, that the lender turned the deal down and foreclosed on the property yesterday. Not only is that really frustrating, but you have a huge loss in missed opportunities. That cute little foreclosure on the next street that sold in a day. That regular sale that sold in multiple offers last week. Oh, yes, and even though the paper says that the prices are dropping, now that you’re back in the market it seems like anything that’s any good is $20,000 higher than you thought you were going to pay with the short sale.
If you’re a savvy buyer, how can you take advantage of some of the really great deals that do appear, like legitimate REOs? First, can you pay cash? Or do you have such a large down payment that your loan can be under $417,000? You are in good shape. If you already own a home that you have to sell in order to buy another, you need to put it on the market and sell it for whatever you can and be willing to rent until you find the deal you want. It’s not that difficult, there are lots of rentals out there right now. And when you’re ready, don’t be confused by the short sales you see on the market. Just ignore them and look at the homes that you have some chance of actually purchasing. If your existing agent is showing you short sales and writing offers that seem too good to be true that never get accepted you are wasting your time. I'll take you out and show you some quality properties that are actually for sale. Perhaps I will call my company "Reality Realty".