Jeff Cook Real Estate BlogRecently posted or modified blog posts by tag - Foreclosure https://www.jeffcookrealestate.com/blog/Copyright JeffCookRealEstate.com2021-08-30T12:23:40-07:00tag:jeffcookrealestate.com,2012-09-20:8425Buying a Home After a Short Sale or Foreclosure: Is Recovery Possible?<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/buying-a-home-after-short-sale-foreclosure.jpg" alt="What You Need to Know About Home Buying After Foreclosure" width="475" />A short sale or foreclosure can have a negative effect on your credit history. If you've sold your home as a short sale or have experienced a foreclosure in the past, you may have questions about whether you'll be able to buy a home again. Lender requirements vary, so whether you're able to get a mortgage again will depend on how long it's been since your <a href="https://www.jeffcookrealestate.com/blog/buy-home-after-short-sale-foreclosure/">short sale or foreclosure</a> and what kind of loan you're applying for. Your decisions and behaviors after the short sale or foreclosure will also impact whether (and when) you're able to buy a house again. If you would like to buy a home, it's important for you to restore your credit history. Here's what you need to know.
Home Loans After a Short Sale
It's never good for a potential home buyer to have a short sale on their record, but there are things that can be done to lessen the impact when applying for a new mortgage. The circumstances of the sale and what kind of loan the buyer is applying for can have an impact on whether the lender will approve the loan.
A short sale appears as "settled for less than the full balance" on the homeowner's credit history and can cause a 50-point drop in a homeowner's credit score. The drop may be even more (as much as 200 points) if the homeowner fails to make a mortgage payment before the short sale closes. This massive credit score dip can have an impact on the buyer's ability to qualify for a home loan, so it's very important for homeowners who anticipate selling their home as a short sale to continue making mortgage payments.
A home buyer trying to get a conventional loan may be able to do so if they meet the qualifications to get the type of loan that they want. Fannie Mae loans, for example, require the homeowner to wait four years after the short sale before the loan can be approved. Freddie Mac loans may be approved if the loan is for a primary residence with a maximum loan-to-value of 90%. A home buyer trying to get an FHA loan may be able to do so after a three-year wait period.
What to Do After a Short Sale
After a short sale, anyone who would like to eventually buy a home again must take steps to rebuild their credit. Whether the dip in credit they experienced was 50 points or 200 points, the higher their credit is when they apply for a mortgage again, the better the deal they'll get.
Track Your Credit
Credit monitoring apps make tracking credit easy. Most apps will give regular reports about credit score, credit tugs, how many accounts are open and whether unusual activity is detected on any accounts. Tracking credit can be satisfying for people who have experienced a credit dip if their credit goes up over time.
Rebuild Your Credit
Credit rebuilding takes time. To do this, potential home buyers must pay their bills on time, avoid carrying large balances from one month to the next, and limit the number of accounts they apply for. Rebuilding credit can take years after the <a href="https://www.jeffcookrealestate.com/blog/what-is-a-short-sale/">short sale</a> goes through.
Understand Your Credit Score
People who would like to buy a home should understand their credit score, and they should understand what is a good credit score versus a poor credit score. A score over 700 is best for someone who is trying to buy a home, though people with lower scores may be able to qualify for a mortgage with a higher interest rate. Keeping records of credit history makes it easier to track progress and catch credit-related errors.
Potential Obstacles
Aside from a failure to make mortgage payments before the short sale took place, the biggest potential obstacles are errors on the credit report. A person who would like to purchase a home after a short sale should read through their credit history carefully to ensure that their short sale was not listed a foreclosure.
The potential home buyer should also compare the short sale date on their credit when the title was transferred to the buyer. The date is important, as some loans require the homeowner to wait for a certain period of time before they can qualify. If the date is inaccurate, this could negatively impact the home buyer's ability to get a mortgage when they need one.
Other potential obstacles to getting a mortgage after a short sale include:
Home buyer does not qualify for the home loan for unrelated reasons.
Home buyer's lender has qualifications that restrict anyone with a short sale on their record from obtaining a home.
It's important for home buyers to remember that lenders may impose their own restrictions on the loans they administer. Shopping around for the right lender can be helpful.
Home Loans After a Foreclosure
A foreclosure can cause a homeowner's credit score to drop by one hundred points or more. This loss of credit can impact the home buyer's ability to get a home loan. In addition, there is also a waiting period between the period of time when <a href="https://www.jeffcookrealestate.com/blog/what-is-foreclosure/">the home is foreclosed upon</a> and the time when the buyer can get another loan. The waiting period can depend on the cause of the foreclosure. The standard waiting period to qualify for a loan after a foreclosure is below:
USDA loans: 3 years
Fannie Mae and Freddie Mac: 7 years
FHA loans: 3 years
VA loans: 2 years
These standard waiting periods apply if the foreclosure occurred because of circumstances that the homeowner had some ability to control.
Extenuating Circumstances Let You Buy Sooner
Many people who would have been able to make their house payments lost their home during the recession because of circumstances that were outside their control. Because of this, there is a different waiting period for homeowners who have "extenuating circumstances." Home buyers can make their claim to their lender, and if the lender determines that extenuating circumstances did apply, the lender may relax the waiting period for the home buyer.
Below are the waiting periods for home buyers who have a foreclosure in their history and who had "<a href="https://iloanhomemortgage.com/what-are-extenuating-circumstances/" target="_blank">extenuating circumstances</a>":
USDA: 1 year
Fannie Mae and Freddie Mac: 3 years with at least 10% down
VA home loans: 1 year
FHA loans: 1 year
One thing that home buyers ask when trying to decide whether they qualify for the shorter waiting period is: what qualifies as extenuating circumstances? Loosely defined, extenuating circumstances are circumstances that homeowners could not have predicted or prepared for, and which they had no ability to control. Loss of a job may qualify as an extenuating circumstance, especially if the homeowner did nothing to make the job loss occur. Death of a wage-earning spouse or onset of a debilitating medical condition also counts.
Overwhelming debt and inability to sell the property are unlikely to qualify as extenuating circumstances. Divorce is unlikely to count as an extenuating circumstance, and injuries caused by risky behavior is also unlikely to qualify.
What to Do After a Foreclosure
After a foreclosure, people who want to own a house once again must take control of their financial situation. Poor credit can be an obstacle to getting a mortgage. Repairing credit and developing good financial habits is important.
Pay Down Debt
Many people who have their house foreclosed upon are faced with complex financial troubles. Excessive debt often comes with these troubles. Paying down that debt is one way to repair credit. Homeowners should start by focusing on high-interest debts.
Pay Bills On Time
Paying bills on time is another way to improve credit. Potential buyers who want as much credit as they can for paying their bills on time should ask utility providers to report monthly payments to the credit bureaus. This is one way to get credit for being a responsible bill payer, and can help boost a home buyer's credit score more quickly.
Avoid Taking Out New Loans
Loans can have an impact on a potential home buyer's ability to qualify for a loan. Anyone who would like to get a mortgage should avoid taking out new loans.
Monitor Your Credit Score
It's important for potential home buyers to monitor their credit score to ensure that their foreclosure is accurately recorded on their credit history and to ensure that they are not being dragged down by inaccuracies on their credit history. Anyone who would like to check their credit history for inaccuracies can request a free credit report from the credit tracking companies. These companies have set up a centralized website where consumers can check their credit report once annually.
Future Homeownership Is Possible
If you have gone through a short sale or a foreclosure in the past, you may be able to buy a house again. Don't give up! Your actions throughout your short sale or foreclosure—and your actions after—will have an impact on whether you can qualify, and how long it will take you to qualify. Once you know the next steps after a short sale or foreclosure, you can begin doing what you need to do in order to qualify for a home loan again.
To get started with your home-buying process, begin by speaking with a HUD-approved housing counselor or real estate agent. Your real estate professional can answer your questions and provide guidance as you look for new homes, apply for mortgages and take the next steps to own a home once again.2020-06-11T08:36:00-07:002021-08-30T12:17:48-07:00Thomas "Jeff" Cooktag:jeffcookrealestate.com,2012-09-20:8426How to Qualify for a Short Sale: Maximize Your Success With These Guidelines<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/qualify-for-a-short-sale.jpg" alt="Short Sale Application was Recently Rejected? What To Do" width="475" />Short sales are an important option for homeowners in financial distress. For homeowners who are underwater on their mortgage and who can no longer afford to make mortgage payments, the short sale process is a way to avoid foreclosure and stay in control of the home sale process.
Not all short sales are approved. A homeowner must meet certain requirements in order for the lender to agree to a short sale. If you're a homeowner who would like to sell your home as a short sale, it's important to understand what qualifies you for a short sale and what you need to do in order to be approved. By submitting the proper short sale package and describing your financial situation to your bank as thoroughly as possible, the application may be accepted. It's also important to work with a capable real estate professional. Getting professional help from someone with knowledge can help make the transaction easier overall.
Qualifying for a Short Sale
Short sales occur when the homeowner owes more money toward their mortgage than the market value of their home. Homeowners who can't afford to pay off the difference between the mortgage and the amount the house sells for must get special permission from the lender to sell the home.
<a href="https://www.jeffcookrealestate.com/blog/what-is-a-short-sale/">Short sales</a> are an alternative to foreclosure, and many banks prefer a short sale to a foreclosure. However, most banks will not approve a short sale unless they can be convinced that the short sale is a necessary step to avoid foreclosure. In order for this to happen, the homeowner must meet the bank's qualifications.
The Home's Market Value Has Dropped
Most of the time, home values go up (not down). However, there are many factors that can cause the market value of the home to drop. Some examples of factors that can affect the market value of a home are listed below.
Economy
When the economy in a community takes a dramatic downturn, this can cause home prices to drop. As people in the community become unemployed or under employed, wages begin to drop, and the measure of what is an "affordable" home begins to change. To accommodate this change, home prices get lower and lower so homes may continue to sell.
Environment
Sometimes, a natural disaster, like a wildfire, can cause the environment around the house to change, which can in turn affect the home's value. Environmental hazards, like a poisoning of local water, can have this same effect.
Maintenance
If the homeowner stops taking care of their house, the resulting structural or cosmetic damage can reduce the home's value. This often happens when the homeowner goes into financial distress.
Surrounding Foreclosures and Short Sales
<a href="https://www.jeffcookrealestate.com/blog/short-sale-vs-foreclosure/">Foreclosures and short sales</a> in the neighborhood can lead to a decline in home values because home buyers are reluctant to purchase in a neighborhood where residents have financial instability. Instability in the neighborhood leads to uncertainty, which can deter buyers.
Amenities
If many businesses in the area suddenly go out of business or leave, home prices may fall. This is because home buyers want to buy in locations that are accessible to services and jobs.
The value of the home is proved with documentation known as the comparative market analysis, wherein a real estate agent compares the value of the home to other homes in the area. The comparative market analysis is a standard report that most lenders expect to see when a home buyer is asking for short sale approval.
The Mortgage is In or Near Default Status
Homeowners must maintain their home in order to be in good standing with their mortgage company. There are many ways that a homeowner can default, including:
Failure to pay property taxes
Failure to pay homeowners insurance
Failure to pay the mortgage itself
If the homeowner fails to make payments to the mortgage, the lender is more likely to allow the home to be <a href="https://www.jeffcookrealestate.com/blog/how-to-sell-a-short-sale/">sold as a short sale</a>. However, defaulting on the mortgage can have a significant impact on the homeowner's credit. Homeowners who can be approved for a short sale without defaulting on their mortgage should do so.
When turning in a short sale application, the homeowner should submit any documentation that shows that they have defaulted on the mortgage, even if they believe the lender has this information on hand already.
Seller Has Fallen on Hard Times
Financial hardship because of an involuntary reduction of income or an unavoidable increase in expenses can be a qualifying factor that would enable a short sale to be approved by a lender. Financial hardship must be outlined in the hardship letter that is sent to the lender. Generally speaking, the most convincing financial hardship is hardship that the home buyer had no control over. For example, loss of a job due to widespread layoffs is a much more sympathetic situation than being fired for failure to show up on time.
The following tips can help the homeowner write a hardship letter:
Keep the hardship letter short and simple.
Do not include information that could make the lender believe that the homeowner's hardship is due to the homeowner's own fault.
Do not mention if the situation is likely to improve.
The Seller Has No Assets
Lack of financial assets helps prove the homeowner is unable to pull themselves out of their financial situation. The lender will expect to see proof of financial assets (or lack thereof), including savings accounts, IRAs, and other real estate. Some assets may not completely prevent a homeowner from being able to sell their home, but the type of assets they have and how much they have will be taken into consideration.
What If Your Short Sale is Denied?
Denial of an application to sell a home as a short sale does not mean that the homeowner can't apply again. Sometimes short sales are denied because the homeowner doesn't present enough information or make their case as thoroughly as possible to the mortgage lender. Working with their real estate professional, the homeowner can build a stronger case before trying again.
This is why it's important to keep a copy of all documentation submitted to the bank. Having a copy of what was submitted to the bank makes it easier to review the documents and make changes or additions as needed. Homeowners who already have a signed contract with a home buyer must ensure that the contract is canceled.
Most home purchase contracts for short sales include a requirement that the contract must also be accepted by the lender, and if it is not accepted in a certain period, the contract is canceled. Homeowners can work with the title company to ensure that the contract is indeed canceled. Below are some of the many reasons that a short sale application may be denied by the lender.
The Buyer Offer is Too Low
Although banks may prefer short sales to losing money in a foreclosure, banks do not want to accept offers that are just too low for the value of the house. The homeowner should take into consideration the market value of the home when trying to decide which offer to accept. Working with an experienced real estate professional can help.
A real estate professional who has helped homeowners with many short sales in the past will be able to help the homeowner decide which deals are most likely to be accepted by the lender.
Although it may be tempting to accept the first home purchase offer that comes through, it's better to wait for an offer that is likely to be accepted by the bank. The higher, the better. Homeowners should consider the comparative market analysis for the house when trying to make this determination.
Excessive Cash/Promissory Note Demands from the Lender
Sometimes the lender asks the homeowner to contribute cash toward the mortgage, even if the homeowner feels they have no cash to contribute. Sometimes lenders do this when they believe that the homeowner has assets that can be contributed toward the value of the loan, while other times lenders do this if the homeowner is unable to make a strong case about their financial hardship.
Usually, real estate professionals can help homeowners negotiate with their lender, either to have the cash request reduced or to have the cash request fully eliminated.
The Buyer Walks Away
Buyers must display a lot of patience throughout the <a href="https://www.jeffcookrealestate.com/blog/how-long-does-a-short-sale-take/">long short sale purchase process</a>. Banks can take weeks or even months to respond to a homebuyer's offer, and some banks do not respond at all.
Homeowners who want to keep the process moving may send along subsequent offers to the lender, even if the first offer has not been accepted or denied by the lender. Homeowners may forward subsequent offers to the lender even if the homeowner has already signed an agreement with the first home buyer. If the buyer does walk away, the lender will have other offers to consider.
One of the ways to avoid a situation wherein a buyer walks away is to submit a thorough package to the lender. The stronger the case the homebuyer makes to sell the home as a short sale, the more likely it is that the lender will accept the offer. It's also important for the homeowner to send along a strong offer, if a strong offer is available.
Multiple Lien Holders Won't Settle on Common Terms
Often, people who are trying to sell their home as a short sale are in enough financial distress that there are one or more <a href="https://www.investopedia.com/articles/credit-loans-mortgages/090816/it-bad-have-lien-your-house.asp" target="_blank">liens on their home</a>. All lien holders must agree to a settlement in order for the short sale to proceed. If the lien holders won't settle or cooperate to reach an agreement, then the short sale cannot be approved.
Working with an experienced real estate professional can help. By presenting a strong short sale application, sometimes all lien holders can be brought together in one agreement.
Hire a New Agent
Working with an experience real estate professional is so important that if the homeowner chooses the wrong professional, sometimes the only way to get past the problem is to hire a new agent and start again. When looking for a real estate professional, the homeowner should ask questions such as:
How many homeowners have you helped with short sales in the past?
What advice would you give to a homeowner who is trying to sell their home as a short sale?
What can you do to help the sale of this home go through?
By taking new pictures and re-listing the home, the homeowner can also bring in fresh buyers, which could in turn make the short sale a success in the future.
Review and Revise Your Hardship Letter
Sometimes it is the hardship letter that does not make a good case for the short sale. Reviewing and revising the hardship letter to include more examples of hardship and more supporting documentation can help. Writing a hardship letter is an art, and not all homeowners are comfortable writing their own letters of hardship.
Some homeowners are tempted to present a hopeful picture that makes it sound like their financial situation could improve. Other homeowners simply don't make their case in the clearest way. A good real estate professional can help the homeowner make their case by reviewing the hardship letter and making suggestions. This is another reason to work with an experienced real estate agent.
Resubmit
After reviewing and revising the application to make a stronger case for a short sale, and after finding a new home buyer (hopefully one who is able to make a better offer), the homeowner may resubmit their application to the lender. Again, it's important to work with an experienced real estate professional before resubmitting the application.
A good real estate professional will know what the lenders are looking for, and will be able to catch errors and problems more easily. The stronger the application is when it is submitted, the more likely it is that the lender will accept the application.
Contact an Experienced Real Estate Professional Today
Even if a short sale application isn't accepted the first time, it may always be accepted the next time around. Making a stronger case, working with a capable real estate agent, and learning from the mistakes of the past can help. If you're a homeowner who would like to sell your home as a short sale and you're not sure where to get started, or if you're a homeowner who has recently had your application for a short sale rejected, contact a reputable real estate professional today.2020-06-10T08:38:00-07:002021-08-30T12:20:05-07:00Thomas "Jeff" Cooktag:jeffcookrealestate.com,2012-09-20:8427How to Stop a Foreclosure: Get Back on Track & Keep Your Home<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/how-to-stop-foreclosure.jpg" alt="Everything You Need to Know About Stopping Foreclosure" width="475" />Foreclosure is what occurs when a homeowner defaults on their mortgage payments and the bank begins proceedings to evict them and gain control of the property. Foreclosures can be devastating for a variety of reasons; for any homeowner who experiences the foreclosure process, it can take years to recover financially and in other ways, as foreclosure can cause a homeowner's credit to drop significantly. Fortunately, foreclosures can take months or even years from start to finish, and during that time, the homeowner has the possibility to stop the foreclosure from occurring.
A homeowner who is able to catch up on their payments, refinance their mortgage or reach an agreement with their lender may be able to stop the foreclosure process; therefore, it is important for homeowners to take action immediately. If homeowners know in advance they will not be able to make an upcoming payment, then they must contact their lender. Most lenders are wiling to work with homeowners to help them with an action plan to catch up on their payments.
If an agreement is not reached with the lender, however, there are other steps homeowners can take to avoid foreclosure.
Foreclosure Do's and Don'ts
While experiencing the foreclosure process, it is important for homeowners to remain focused on the tasks at hand that can prevent foreclosure from occurring, as it is easy for homeowners who are uninformed of their options to make mistakes. Generally speaking, the best course of action is for homeowners to maintain open lines of communication with their lender and to take the advice of knowledgeable professionals.
Foreclosure will not disappear if the homeowner ignores the phone calls and inquiries from the lender. Homeowners who are proactive and explore all the possibilities are more likely to come to an agreement with their lender.
Do's
Below are some options homeowners may have to prevent a foreclosure from occurring. Homeowners must follow these suggestions from the first late payment, or even before if they believe they may be in danger of missing a payment.
Contact Lender Right Away
Lenders work with homeowners who contact them from the first moment the homeowner is in financial distress. Sometimes, lenders provide payment relief programs homeowners can take advantage of, which can help them get back on their feet before their situation gets worse.
Understand the Foreclosure Process
The foreclosure process is long and complex and involves many steps; therefore, homeowners who want to protect themselves from foreclosure should first understand <a href="https://www.jeffcookrealestate.com/blog/what-is-foreclosure/">how foreclosure works</a>. By becoming knowledgeable of the process, homeowners can anticipate the next steps and identify ways to stop foreclosure from occuring. The more the homeowner knows, the easier it will be for them to navigate the process.
Contact a HUD-Approved Housing Counselor for Assistance
A HUD-approved housing counselor can give advice to the homeowner, which can help them take early action and prevent a foreclosure. Potential topics that a HUD-approved housing counselor can discuss include loan modification and short sale options.
Avoid Foreclosure Rescue Scams
Homeowners in financial distress sometimes fall victim to foreclosure rescue scams. In general, if something sounds too good to be true, it probably is. Homeowners who believe they've found financial help from an unknown organization should investigate and research that organization before proceeding.
Document Communications with Servicer
Foreclosure can be so complicated that many homeowners can easily become lost in the process, forgetting deadlines and next steps. Therefore, they should write everything down to make it easy to remember these deadlines and document all conversations with their lender, including the name of who they spoke with and what they learned in the conversation.
Don'ts
Below are some mistakes homeowners can make in the foreclosure process.
Don't Ignore Phone Calls or Notices
Lenders remain open to communication and will work with homeowners who communicate with them about their troubles. If the lender cannot reach the homeowner, then the homeowner is likely to miss opportunities to stop or slow the foreclosure process.
Don't Wait Until the Foreclosure Is Almost Over to Take Action
Foreclosures are much easier to manage during the early stages. In the later stages, after fees and penalties have been incurred, many homeowners are unable to prevent the foreclosure from taking place. Homeowners who want to stop foreclosure often can only do so by working with their lender from the beginning.
Don't Move Out Early
Most assistance programs require the homeowner to be living in the home to qualify for help. If possible, homeowners should remain in the home until they are required to move out.
Don't Assume the Servicer is Always Correct
Loan servicers make mistakes throughout the foreclosure process, which is why working with a HUD-approved housing counselor can help. The HUD-approved housing counselor will understand the foreclosure process and can help the homeowner catch errors to ensure the homeowner is following the correct procedures during the foreclosure process.
Don't Pay Upfront Fees
Foreclosure rescue companies are often prohibited from asking for a large upfront fee without preventing the foreclosure from taking place. Homeowners should not pay a large upfront fee if it is not necessary. If the rescue company the homeowner is thinking about hiring asks for a large upfront fee, then it is wise for the homeowner to keep exploring other options.
Alternatives to Foreclosure
For homeowners in financial distress, foreclosure is not the only available option. Knowing what alternatives exist can help homeowners explore their options.
Deed in Lieu of Foreclosure
The deed in lieu of foreclosure, also known as a quit claim, is a document that transfers the title of the house to the lender. The document is signed by the lender and notarized. This alternative to foreclosure is generally seen as a simple process compared to foreclosure itself, as it is less expensive for the bank and results in a less direct hit to the homeowner's credit.
Under the right circumstances, many banks will be inclined to accept a deed in lieu of foreclosure. Unfortunately, the circumstances are not always right for this kind of process, including:
There is a judgement or lien against the house that will follow the deed after it is transferred to the mortgage lender.
The terms put forth by the lender are not acceptable to the borrower.
Homeowners who are thinking about pursuing a deed in lieu of foreclosure should ensure that the paperwork releases them from the obligation to pay for any loan deficiency. Sometimes, lenders try to get homeowners to pay for the difference owed between the value of the property and the value of the loan. However, many banks will negotiate this point. Homeowners who cannot afford to pay this amount can work with their lender to prevent this from happening.
Additionally, a deed in lieu of foreclosure can prevent homeowners from purchasing another home for several years after the deed goes into effect.
Partial Claim
Borrowers with FHA loans must pay an <a href="https://www.bankrate.com/mortgage/fha-mortgage-insurance-guide/" target="_blank">annual mortgage insurance premium</a> for their mortgage, equal to about one percent of the loan amount. Most of the time, borrowers must make monthly payments toward the premium, and the money is pooled in an account. Lenders affected by defaulting borrowers can file a partial claim to bring the loan current. The partial claim may be used to pay the legal fees associated with foreclosure, but cannot be used to pay late fees.
Homeowners who want to use the partial claim option must eventually pay that money back. To ensure the money is paid back, HUD files a lien on the home, which will stay until the amount is repaid or until the house sells.
To make a partial claim on a delinquent loan, the homeowner must notify their lender of their hardship. The lender must then analyze the claim to ensure the homeowner does not qualify for the HUD special forbearance program that can give the homeowner temporary mortgage relief.
In order to qualify for a partial claim, the homeowner must demonstrate ability to begin repaying the mortgage. Additionally, the homeowner must have missed no fewer than four mortgage payments and no more than 12.
Forbearance
Mortgage forebearance allows a lender to temporarily reduce or suspend a homeowner's payments on their mortgage for a specified period of time. Forebearance is designed to allow the homeowner time to get their finances situated until they can start making payments once again, and it may be an option for people who are behind on their mortgage payments or about to miss an upcoming payment. Forebearance can be a good option because it allows homeowners to stabilize their financial situation while doing less damage to their credit score.
Additionally, forebearance allows homeowners to stay in their home. Once the forebearance period has ended, the homeowner will need to repay the amount they would have paid during the forebearance period. To repay the amount owed, the homeowner will either have to make a one-time payment, pay an increased mortgage until the amount has been repayed (known as a repayment plan) or make a modification to reduce the past-due amount.
Homeowners who want to apply for a forebearance on their mortgage should gather their financial information to share with their mortgage company, including pay stubs, mortgage statements and monthly debt payments and should be prepared to explain what they are going through, including why they are having a hard time making their mortgage payment and how they will be able to repay after the forebearance ends.
Permanent Hardship
Permanent hardship is a type of repayment program for homeowners who are going through a difficult life situation. During a permanent hardship program, regular payments are made, but the lender may reduce interest to make payments less.
Permanent hardship programs are handled on a case by case basis and usually begin when the homeowner writes a letter to the lender to explain their problem. In the letter to the lender, the homeowner must explain they would like to continue to make regular payments as well as include their request, whether that is a reduction in interest rates or a reduction in payment amounts. In some cases, permanent hardship accomodations involve refinancing the loan.
Either way, permanent hardship programs are designed to help homeowners who want to continue making payments and who do not want to default. It is important for the homeowner to explain they do not want to default on their payment, and the requested accommodations are the best way to ensure the homeowner is able to avoid that.
Short Sale
A short sale is a sale performed even though the home is being sold for less money than is owed on the mortgage. Short sales are a helpful tool for homeowners who are "under water" on their mortgage, meaning they owe more money to the lender than the true value of the home.
In order for a short sale to go through successfully, the homeowner must first apply for their short sale to be approved by the bank. This can be a long process, as banks can take weeks or even months to respond to a short sale application and may take even longer to respond to an offer on the home.
<a href="https://www.jeffcookrealestate.com/blog/short-sale-vs-foreclosure/">Short sales are considered a better alternative to foreclosure</a> because they can have less of an impact on the homeowner's credit. However, for a homeowner seeking a faster solution to their financial problems, short sales may not be the best option.
South Carolina and North Carolina Foreclosure Intervention
South Carolina's foreclosure intervention process is designed to ensure that homeowners have options when they are facing a potential foreclosure. In order to take advantage of these foreclosure interventions, homeowners must submit an application to the lender, and it is up to the lender to determine whether the borrower qualifies for any of the potential foreclosure alternatives.
Homeowners who choose to participate in foreclosure intervention must be allowed to do so, and the servicer must put aside foreclosure action until the intervention process is complete. Foreclosure cannot take place until:
Notice of foreclosure intervention has been sent.
The lender has reviewed the documents from the homeowner to determine whether the borrower qualifies for foreclosure.
A determination is made that the homeowner does not qualify for foreclosure alternatives and the borrower and lender are unable to reach a settlement.
The notice showing that the homeowner does not qualify for the foreclosure alternative has been mailed and the homeowner has had a specific amount of time to respond.
Additionally, courts may require the homeowner and lender to go through mediation to prevent foreclosure. This mediation process brings the homeowner and the lender together to discuss their problem and reach a resolution that is not foreclosure. For a homeowner in financial distress, foreclosure intervention in South Carolina the best possible opportunity to avoid foreclosure.
In North Carolina, homeowners may have access to counseling and legal aid during their foreclosure proceedings. Homeowners in North Carolina who are in danger of foreclosure should work with their HUD-approved housing counselor to explore the possibilities.
Last-Minute Strategies to Stop Foreclosure
While it is always encouraged that homeowners are proactive from the beginning to stop their foreclosure, sometimes even homeowners who wait until the last minute are able to take advantage of the strategies and services available that can prevent foreclosure. The following strategies may still be able to help.
File for Bankruptcy to Stop Foreclosure
Filing for bankruptcy creates an automatic stay of all debt collection, including collection calls, letters and foreclosure. This happens the minute the homeowner submits the paperwork to file for bankruptcy.
Often, homeowners wait until the very last minute to file for bankruptcy when their home is facing foreclosure, a strategy popular because homeowners are often reluctant to take drastic measures to file for bankruptcy. Additionally, waiting until the last minute makes it possible for the homeowner to extend foreclosure and thus the amount of time they may spend in their house.
Homeowners who file for chapter 13 bankruptcy must go on a payment plan and continue paying their mortgage in order to complete the bankruptcy process.
While filing for bankruptcy to stop foreclosure may sound drastic, many homeowners use this tool to keep their house, get caught up on payments and work out other debts. Most important to remember is that the bankruptcy must be filed before the <a href="https://www.jeffcookrealestate.com/blog/how-to-buy-a-foreclosure/">foreclosure is bought</a> at auction, or the foreclosure cannot be stopped. Homeowners who choose to file chapter 13 bankruptcy will be able to keep their house as long as they can keep up with the payment plan.
Apply for Loan Modification
Loan modification is an alternative to foreclosure that enables the homeowner to reduce their payments and make owning their home more affordable. During the recession, many homeowners applied for loan modification, and their bank continued foreclosure proceedings even while processing their modification application. Whichever process was completed first, whether that was modification or foreclosure, was the ultimate conclusion of the matter and known as dual tracking.
Often, it was the foreclosure process that completed first. Homeowners who believed they were in the process of having their loan modified were shocked when their home was foreclosed. Today, federal law prohibits dual tracking in many cases. In North and South Carolina, homeowners have foreclosure intervention strategies to help them avoid foreclosure. Additionally, laws are structured to prevent homeowners from being foreclosed upon without having access to these intervention strategies.
File a Lawsuit to Stop the Foreclosure
In the event the foreclosing party fails to follow foreclosure laws, the homeowner may sue the lender. It is up to the homeowner to prove the foreclosing party did not follow the proper laws, and working with a lawyer can help them through this process. In states like North and South Carolina, where laws are designed to help homeowners protect themselves from foreclosure, the lawsuit may not be an option.
Homeowners Should Contact Their Lender
Homeowners in financial distress who would like to avoid foreclosure should know their rights, work with a lawyer, know the foreclosure process in their state and work with their bank from the very beginning to discuss potential options that can help them avoid foreclosure.
Not all options to avoid foreclosure are palatable to homeowners. However, by working with a financial counselor and by maintaining good communication with their lender and lawyer, they increase the possibility of saving their home.2020-06-09T08:39:00-07:002021-08-30T12:20:42-07:00Thomas "Jeff" Cooktag:jeffcookrealestate.com,2012-09-20:8428How to Buy a Foreclosure: Getting Ahead By Purchasing a Foreclosed Property<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/how-to-buy-a-foreclosure.jpg" alt="Everything to Know About Buying a Foreclosure" width="475" />Buying a <a href="https://www.jeffcookrealestate.com/blog/what-is-foreclosure/">foreclosed home</a> is different than the usual home buying process. Homeowners on a budget, concerned with monthly mortgage payments, or want a home outside their budget may find the right solution in buying a foreclosed home, as they are offered at lower prices through a bank or lender. Purchasing a foreclosed home gives buyers the opportunity to purchase a home that would otherwise be more expensive.
Although a few extra steps are involved, these tips can help home buyers decide whether buying a foreclosed home is the right option. Before they get started, homeowners should be prepared to research and put in more effort in the purchase of a foreclosed property. Additionally, they should work with a real estate professional along with other experts throughout the process to make the experience better overall.
Where Can Buyers Find Foreclosed Homes?
In addition to being more difficult to purchase than standard homes, foreclosed homes can be more difficult to find. Home buyers should work with their real estate professional to locate foreclosed homes in the area where they would like to purchase, as real estate professionals have access to listings and directories of foreclosures that may not be accessible to the public. There are other ways to find foreclosed homes as well, including:
Public records. Check the public records in your local county or municipal offices; look for homes that are listed under notice of default and notice of sale.
Standard listings. Many foreclosed homes are eventually listed on the standard listings websites; home buyers can check on real estate listings just like they can look for standard homes as well.
Local newspapers. Local newspapers are a good resource for home buyers, as they have access to the same public records that everyone else can access and will publish foreclosed homes for everyone to see.
Attorneys and real estate wholesalers. These professionals have inside knowledge of foreclosures and will sometimes release this information to people who they know.
Getting Pre-Approved for a Mortgage
The first step to buying a foreclosure property is for buyers to get pre-approved for a mortgage. A mortgage pre-approval is different than a mortgage pre-qualification, as mortgage pre-qualification is the first step in the mortgage approval process. To get pre-qualified, home buyers must contact a lender and answer questions about their financial status.
After completing the pre-qualification process, the lender will determine how much money the buyer will be able to borrow if the answers the home buyer gave to the lender are accurate. Since pre-qualification is based on the answers the buyer gives and not the facts, a pre-qualified buyer is not necessarily a sure thing.
The pre-approval process requires the home buyer to submit documentation that supports the answers to the questions in the pre-qualification process. Pre-approved buyers are more likely to be approved for their mortgage, so pre-approval is the proper first step to buying a foreclosure.
To become pre-approved, the home buyer must contact a lender and start the mortgage approval process well before the date they hope to buy a foreclosed home.
How to Buy Different Types of Foreclosed Homes
Foreclosure occurs in stages; foreclosed homes can be bought during these different stages, with the purchase process depending on the stage of foreclosure the home is in. Therefore, undestanding the different stages can help home buyers determine what they will have to do in order to purchase a foreclosed home. Additionally, understanding the different processes can help home buyers decide what type of pre-foreclosed homes they would like to purchase.
Pre-Foreclosure
Pre-foreclosed homes can be sold in a process known as a short sale. <a href="https://www.jeffcookrealestate.com/blog/short-sale-vs-foreclosure/">Short sales are not technically foreclosed homes</a> because the foreclosure process has not been completed. Pre-foreclosed homes are sold by homeowners with the permission of their lender. Often, homeowners who sell their home as a short sale are in financial distress, and they are seeking to sell their home to <a href="https://www.jeffcookrealestate.com/blog/how-to-stop-foreclosure/">stop the foreclosure process</a>.
Pre-foreclosed homes take longer to sell than standard homes, as they are often sold for below market value. Home buyers who wish to purchase a pre-foreclosed home must display patience, as sometimes purchasing pre-foreclosed homes can take months. Benefits of pre-foreclosed homes include:
Pre-foreclosed homes are a good deal.
Homes sold in pre-foreclosure are sometimes in better condition than fully foreclosed homes.
However, there are many disadvantages of purchasing a pre-foreclosed home.
Even after the home purchase offer is accepted by the homeowner, the lender may reject the contract.
Pre-foreclosed homes can take many months to purchase.
Sometimes, lenders simply ignore purchase offers from home buyers.
In order to purchase a pre-foreclosed home, it is important for home buyers to work with an experienced real estate professional.
The short sale process proceeds like this:
The homeowner turns in an application to the lender requesting for the home to be sold as a short sale.
The buyer makes an offer and the homeowner accepts it.
The homeowner submits the accepted offer to the bank.
The bank accepts, ignores, rejects or counters the offer.
When there is an offer accepted, the sale of the home proceeds much like any other home sale.
Short sales generally occur because the home is worth less than the value of the mortgage, a condition known as being "under water." The reason the homeowner must get permission to sell the home as a short sale is because the homeowner can sell the home in a standard sale if the home was worth more than the mortgage. As long as the home is worth less than the mortgage, the lender must take a loss.
Auction
Homes that are foreclosed upon are typically sold at auction, which are public and sometimes very large events. Foreclosed homes are often sold at a heavy discount. The process for <a href="https://www.auction.com/blog/buying-foreclosures-at-auction-the-basics/" target="_blank">purchasing a home at auction</a> is below.
Find Auctions
Auctions are listed in local papers and are also posted on websites dedicated to foreclosure home purchases. The home buyer can find auctions for homes they're interested in purchasing.
Do Research
Before making a purchase, the home buyer must do research to find out the condition of the home, whether there are any liens on the home, and how much the current homeowner owes on their mortgage. Having this information is important—especially information regarding any liens—because the new home buyer may have to pay the liens themselves.
Often, it is difficult or impossible to find out much about the condition of the home. Buyers interested in purchasing a foreclosed home can find out a little information by driving by the home. However, these homes are often still occupied by their owner, and there is no way for the interested buyer to go inside.
Prepare Financing
Home buyers must know how they plan to purchase the home. This can be done by cash or with a mortgage unless otherwise noted as cash only. Many states require the winner of the auction to produce the money for the house as soon as the purchase is made; therefore, all financing must be ready before the home is purchased.
Attend the Auction
Foreclosed home auctions are often cancelled or postponed, as events take place behind the scenes relating to the foreclosure. Home buyers who would like to purchase a foreclosed home should confirm on the day of the auction to ensure it is still taking place.
At the auction, the home buyer who wins will get a certficate of sale and eventually, a certificate of title. During that time, the original homeowner may take some action to get their home back, which is why it is important for the home buyer to avoid making any changes to the home until they have the title.
REO
If a foreclosed home does not sell at auction, then it becomes real estate owned, or REO, meaning the property is owned by the bank. Real estate owned properties are often listed on the MLS website and are sometimes listed on the bank's website as well. Banks often have an entire section dedicated to the sale of REO properties.
REO properties are not often sold at a major discount; sometimes, REO properties have been standing vacant for a long time. Even if they look fine on the outside and did not have major damage when the house went vacant, time without maintenance and occupancy can have a detrimental effect on a home. Home buyers who are considering an REO property should get an appraisal and a home inspection before making an offer.
Most REO properties are sold "as-is," meaning they come with no warranty and banks will not make any repairs. Therefore, home buyers interested in REO properties must be prepared to make major repairs, upgrades or renovations when they move into the house. Sometimes, this makes an REO property ideal for a home flipper or someone who has strong DIY skills.
Banks that will not negotiate on price may negotiate on the terms of the loan, if the home buyer applies for a loan through the same bank that owns the property. Additionally, some banks may allow the buyer to finance the entire price of the home or more, if extensive repairs are necessary.
Home buyers should run a title search before making an offer. Most of the time, banks will clear the title before listing the house for sale, but it is important to check either way. Sometimes, home buyers have difficulty purchasing an REO property with loans such as VA loans and FHA loans, as these loans require the property to be "turn key." This gives more reason to apply for the loan through the lender that owns the home, as the flexibility on the loan could become important.
Additionally, it is important for buyers to work with a real estate professional who has experience with REO properties, as they can help the home buyer negotiate the terms of the home. REO properties are similar to short sales in that they can take a long time to be approved; therefore, buyers must exhibit patience when negotiating the purchase.
Government-Owned
When a homeowner defaults on a government loan, or when a homeowner fails to pay property or income taxes, the government may foreclose on the house. Buying a government-owned home is not much different from buying any other foreclosed home. Government-owned homes are available for sale on government sites where they are listed together with information about their auction day, the value of the home and pictures of the interior.
Government-owned homes are often in relatively good condition because the government will often make repairs for the home and sell the home for a competitive price. There is some misconception that government-owned homes are available at a discount. Typically, this is not the case, unless there is something wrong with the home.
Additionally, government-owned homes are sold through auction, just like standard foreclosed homes. Homeowners who bid on a government-owned home can secure financing after the auction.
An experienced real estate professional can help the home buyer determine what would be a fair price for the house. Having this kind of direction before attending the auction can help the home buyer decide what the limit is on what they are willing to spend. Purchasing a government-owned home is different from purchasing other types of homes, which is why a real estate professional can give the home buyer advice and answer their questions, walk them through the process, and make the home purchase process easier and less stressful overall.
Government-owned homes are different from standard foreclosures in some ways. For example, in the first round of auctions for government-owned homes, the only people who are allowed to bid are people who plan to use the home as their primary residence. People who wish to flip the home or rent it out will not be able to bid in the first auction. Having this information and other information like it can help make the process of buying a government-owned foreclosure easier overall.
Do Your Research, Work With the Experts
If you're a home buyer thinking about purchasing a foreclosed or pre-foreclosure home, work with the experts throughout the process. By contacting a reputable lender and working with a real estate professional who has experience these these kinds of purchases, home buyers will find that purchasing a foreclosed home can be worthwhile.
Home buyers should do their research before getting started and should know what kind of home they would like to purchase and what they will need to do. The more home buyers know in advance of making a purchase, the better.2020-06-08T08:42:00-07:002021-08-30T12:21:23-07:00Thomas "Jeff" Cooktag:jeffcookrealestate.com,2012-09-20:8429Buying a Home as a Short Sale: What To Know<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/how-to-buy-a-short-sale.jpg" alt="Buying a Home as a Short Sale: What To Know" width="475" />A <a href="https://www.jeffcookrealestate.com/blog/what-is-a-short-sale/">short sale</a> is a type of sale that occurs when a lender is willing to allow the homeowner to sell their home for a lower amount than what is owed on the existing mortgage. Short sales typically occur when a home has been devalued and the mortgage is larger than the actual market value of the home. Short sales were very common during the recession, though they can still occur today. Because short sales are not like standard sales, it's important to understand what's involved if you're thinking about buying a short sale home.
If you're a home buyer on a budget, a short sale may be a good deal. Short sales tend to be distressed properties, and buying a short sale can take a long time. If you have the patience to purchase a short sale and you understand what it means to buy a short sale property, then you may be ready to make this kind of commitment. Here's what you need to know.
What to Consider Before Buying a Short Sale
Short sales are typically sold for a price that is below market value. They're sold at a low price to compensate for the time and trouble the home buyer must go through to acquire the home. Short sales take much longer than standard sales because banks add a level of bureaucracy and lack of transparency that can slow the process by weeks or even months.
Sometimes, the discounted price is in line with the market value and not below it. The buyer must choose the price they offer carefully. If they make an offer that is too low, the bank is unlikely to agree to allow a short sale to go through.
Hire an Experienced Agent
Short sales are complicated processes. Throughout the short sale, there may be deadlines to meet and forms to fill out. In addition, each bank handles short sales slightly differently. The best real estate agent to hire when trying to buy a short sale is an agent who has experience with short sales. Working with an experienced real estate professional can help make the process simpler and less stressful. Working with an experienced real estate professional also helps ensure the process will be successful.
When seeking an experienced real estate professional, the home buyer should ask directly about the real estate agent's experience with short sales. Have they helped other buyers purchase short sales? Have they helped homeowners <a href="https://www.jeffcookrealestate.com/blog/how-to-sell-a-short-sale/">sell short sales</a>? How often? A real estate agent who has helped home buyers purchase many short sales in the past is the best person to hire for this kind of real estate transaction.
Check Public Records
Sometimes, short sales cannot go through because the bank has already filed a motion to <a href="https://www.jeffcookrealestate.com/blog/what-is-foreclosure/">foreclose on the house</a>. The best way to find out whether this has happened is to run a public records request.
A public records request will also reveal how much money is still owed on the mortgage. Knowing this amount can help the buyer gauge what the lender would expect to receive during a short sale. If there is a second mortgage on the house, this is also critical information. If there are two loans on the house, the second lender will expect to receive some money or the short sale may not go through.
This is another reason why it's very important to work with an experienced real estate professional. A good real estate professional can help the home buyer make the best offer possible. The amount offered to purchase a short sale home is a balancing act. Buyers must make an offer the lender (or lenders) will accept, while also avoiding overpaying for the property.
Qualify the Property and Seller for a Short Sale
Not all properties <a href="https://www.jeffcookrealestate.com/blog/qualify-for-short-sale/">qualify for a short sale</a>. Buyers who would like to make an offer on a short sale should start by ensuring that the property qualifies for a potential short sale situation. The following must be true in order for the seller to qualify for a short sale:
The seller must have no equity in the home.
The seller must be unable to repay the difference between the sales price and the existing loan(s).
The market value of the home must be below the amount owed on the house.
Sellers usually prove that they qualify to sell a home as a short sale by providing a hardship letter to the lender and a net sheet that lays out the homeowner's financial situation, as well as the justification for the short sale.
The home buyer can help ensure that the home qualifies for a short sale by requesting copies of documentation submitted to the bank. The buyer should also familiarize themselves with the bank's requirements to sell a home as a short sale. It's very helpful if the buyer and seller are both working with real estate professionals who are experienced with short sales. With two experienced real estate professionals working the case, it becomes much more likely the process will proceed successfully.
Submit Documentation and Purchase Offer
When the home buyer has decided that the home does qualify, it's time to submit an offer to the lender. The lender will want everything that a normal homeowner would expect to see from a potential buyer, including a sizable earnest money deposit and proof of funds. Being pre-approved is better than being pre-qualified.
Working with a bank can be difficult. Banks naturally take a long time to respond to most home purchase offers, so buyers should do everything they can to ensure their offer is strong. If they don't make a strong offer, it could be weeks before they find out they must make a better offer in order to be accepted. Buyers who are not sure what they need to do in order to make a good offer to a bank should work with their real estate professional. A real estate professional who specializes in short sales will be able to give the home buyer information they need in order to ensure they are making the best offer possible.
Be Patient
One of the most challenging things about buying a home as a short sale is the length of time it takes to <a href="https://www.thebalance.com/what-is-escrow-315826" target="_blank">reach the close of escrow</a>. Banks are notoriously slow at responding to short sale offers. A person who has decided to buy a home as a short sale should be aware that banks can take days, weeks or even months to respond to offers made.
Reserve the Right to Conduct an Inspection
Inspections are important when buying a short sale. Short sale homes are often in a state of deterioration when they go on the market, because financially distressed homeowners are often unable to keep up with maintenance. Conducting an inspection serves several purposes:
Helps the home buyer go into the purchase with open eyes
Serves as leverage when asking for a price reduction or repair concessions on the house
Helps the home buyer decide whether they're ready to buy the house at all
Some home buyers choose to do the inspection before making the purchase offer, to help them decide if they want to make the offer at all. Others wait till after. Either way, home buyers must cooperate with the current home occupant to coordinate the home inspection.
Short Sale Contract
Under normal circumstances, home buyers can be reasonably confident that the contract will not be canceled at unexpected times throughout the home buying process. This is not the case with the short sale contract. Sellers can cancel the contract for several reasons, including:
The house is foreclosed upon
They decided not to sell
The lender accepts a higher offer
The homeowner files for bankruptcy
Sellers may continue to accept offers beyond the point at which the initial buyer has made an offer. Lenders can choose the most appealing offer.
Pros and Cons of Buying a Short Sale
Short sales have their pros and cons, so anyone who is thinking about buying a home as a short sale should take this into consideration.
Pros
Homes sold as short sales are often sold for less than the market value (they're a good deal!).
Short sales often have less competition than other homes.
Cons
The process is complicated and can be canceled at various times throughout.
Short sales take a long time.
Short sale homes are usually distressed and sold "as is."
Essentially, short sales are a great way for the home buyer to save money on the purchase of a home, but it's important to work with a real estate professional. Working with an experienced professional can help alleviate the other problems that can come with buying a short sale house.
How to Buy a Short Sale in North and South Carolina
Below are some common questions that people purchasing a home in North and South Carolina often ask.
Q: <a href="https://www.jeffcookrealestate.com/blog/how-long-does-a-short-sale-take/">How long can I expect a short sale to take</a>?
A: Short sales take, on average, about four months. However, individual experiences may vary.
Q: At what point should I get the home inspection?
A: You can get the home inspection either before or after making an offer. Getting the home inspection before can help you make an informed decision before making the offer, but getting the inspection after the offer is accepted ensures that you're spending money on an inspection for a house you're likely to buy. Do not give up your right to inspection during the process.
Q: The seller has accepted my offer, but the lender has not. Is it true the seller may continue to send offers to the lender until lender has accepted one?
A: Yes, even after the seller has signed the offer from one buyer, if additional offers continue to come in, the seller may forward those offers to the lender until the lender accepts one. This is another reason why it's important to work with a real estate professional, as a good and experienced real estate agent can help make an offer that a lender is likely to accept.
Buying a short sale is a long, complex process. It can be hard to decide if buying a short sale is worth the extra time and effort because it depends on so many factors. Work with an experienced real estate professional to help make your home buying experience a success.2020-06-05T08:43:00-07:002021-08-30T12:22:19-07:00Thomas "Jeff" Cooktag:jeffcookrealestate.com,2012-09-20:8430Short Sale vs. Foreclosure: Understanding the Difference & Discovering Which One is Right for You<img style="display: block; float: right; margin-bottom: 30px; margin-left: 15px; width: 475px;" src="https://assets.site-static.com/userfiles/1451/image/short-sale-vs-foreclosure.jpg" alt="What Is a Short Sale? What Is a Foreclosure? Differences" width="475" />Short sales and foreclosures can happen under similar circumstances, but the actual processes are very different. Most important to know is that a short sale is a voluntary event, initiated by the homeowner and requiring the approval of the lender. A foreclosure is an involuntary process wherein the lender takes legal action and eventually assumes control of the house.
During a short sale, the homeowner is allowed to sell the house for an amount that is less than what is owed on the mortgage. During a foreclosure, the homeowner is required to leave the house, and the bank can sell the home at an auction.
Short sales and foreclosures were very common events during the recession. Homeowners who had lost all equity in their home and were left with toxic loans were forced to either sell their house as a short sale or be foreclosed upon. This happened all over the country and in neighborhoods of all kinds. Although short sales and foreclosures may happen less today, they do still occur. If you're a homeowner in financial distress, you may be faced with a short sale or foreclosure sometime in the future. Knowing the difference between these two processes can help you decide what is the best path for you.
Short Sale
A <a href="https://www.jeffcookrealestate.com/blog/what-is-a-short-sale/">short sale</a> is an option for many sellers when the home has lost so much value that the amount owed on the loan is far more than the market value of the home. Homeowners who owe more than they're able to sell the home for are faced with a difficult choice: either seek permission to sell the home for less than the loan, or sell the house and pay back the difference to the mortgage company. Many homeowners, faced with the impossibility of paying back large sums of money to their mortgage lender, often eventually decide to seek permission to hold a short sale.
The lender must grant the homeowner permission before the short sale begins. Before permission can be granted, the homeowner must fill out documentation that proves that the short sale is justified. This documentation includes the letter of hardship, financial statements, preliminary marketing analysis and a net sheet that shows the amount the home would sell for is less than the amount owed on the loan.
After analyzing all of this information, the bank will decide whether the home buyer will be allowed to sell the home as a short sale. If the bank grants permission, the homeowner may present the bank with one or more offers to buy the house.
Benefits
There are benefits of selling a house as a short sale. For a homeowner who is <a href="https://www.moneyunder30.com/mortgage-underwater-options" target="_blank">underwater on their property</a>, a short sale represents a way to sell the house and start anew with a new property, although many loans require homeowners to <a href="https://www.jeffcookrealestate.com/blog/how-long-does-a-short-sale-take/">wait a certain period of time after a short sale</a> before they can qualify for a mortgage again.
There are other benefits as well.
Homeowner is in Control
Although the bank must give permission to the homeowner to sell the home as a short sale, the homeowner remains in control of the home sale process. The homeowner decides to initiate the short sale and can also decide to cancel the short sale if they choose.
Short Sale Homes Attract Buyers Seeking Low Prices
Short sale homes have some disadvantages, but the primary advantage for home buyers is that short sales are generally sold as a discount. Short sale homes are sold for less than their market value to make up for their disadvantages, which are listed below. For a home buyer on a budget or a home buyer who is open to making DIY home improvements, short sales are an excellent opportunity to get a home for a good deal.
Short sales are also an excellent opportunity for home buyers to purchase a home that they might otherwise not be able to afford. For home buyers who have big dreams but a small budget, short sales can be the perfect opportunity. It's important for the home buyer to work with a real estate professional who can help them achieve their home-buying goals. Without help from a real estate professional, it becomes much more difficult for home buyers to get what they need.
Less Competition
Many home buyers want their home purchase process to be as simple as possible. Home buyers shy away from home sales that are likely to be complex and drawn-out. As a result, short sales are likely to have less competition than many other home sales even in a hot real estate market. For a home buyer who is willing to put the time and effort into a short sale, the process could be very fruitful.
Disadvantages
Short sales do have their downsides. For many home buyers, the biggest disadvantage of a short sale is how much time it can take to purchase a short sale. In North and South Carolina, short sales can take an average of about four months to complete. Short sales take a long time because most banks are reluctant to approve the transaction.
Banks draw out the process because they have limited resources to dedicate to managing short sales, and because they hope to attract higher offers. The longer the short sale process takes, the more likely it is the bank will attract a higher offer from an interested buyer. Another reason short sales take so long is because banks have many levels of bureaucracy. Even if the bank were an enthusiastic seller, the short sale process would probably still take a long time. In addition to this one obvious downside (the length of time a short sale can take), there are others.
Lender Could Counter
Once the homeowner accepts an offer from a home buyer, they must send the offer to the bank. Even after the homeowner has accepted the offer, it is the bank that ultimately gets to decide whether an offer will go through. The counter from the lender could be a much higher purchase price suggested by the buyer. The bank may even reject the offer or refuse to respond. The home buyer could be waiting for a long time only to realize that the bank will not respond at all.
Property is Sold "As-Is"
There is very little negotiating with a bank. Short sale properties are bought "as is," which means that any damage from deferred or poor maintenance will be the responsibility of the home buyer once they've purchased the house. Homeowners selling their house as a short sale are in financial distress and often do not keep up with maintenance. Therefore, short sale homes are frequently in poor condition.
Properties that are sold as is often do not meet the standards of home loans that require properties to be "turn key" upon purchase. This limits the home buyer's mortgage options, and also exposes the buyer to the risk that the home they purchase will require thousands of dollars in repairs after they move in.
Seller May Not Be Approved
Sometimes, homeowners put their home up for sale believing that they qualify for a short sale, only to realize later that they do not. It's important for the seller to get an approval before putting their home up for a short sale. Buyers must be careful to ensure they work with a real estate professional who knows how to identify when a short sale is proceeding as it should.
Lender May Accept Another Offer
Even after the home seller accepts the offer, the seller may continue to send the lender other offers, and the lender may pick any of those offers they want. This means that the buyer may believe that they have gotten very close to purchasing the house only to discover this was not the case.
Foreclosure
Foreclosure is generally the bank's last resort to reclaim a property when a homeowner falls behind on their payments. Foreclosure laws can vary by state and can occur when a homeowner abandons their home; other times, foreclosures occur when the homeowner is living in the house. Foreclosure in South Carolina can take between 150 and 180 days, and in that time, the homeowner often does not care for the house. In fact, many homeowners who go into foreclosure stop caring for their home long before default occurs.
As a result, <a href="https://www.jeffcookrealestate.com/blog/what-is-foreclosure/">homes that are foreclosed upon</a> are often cosmetically and structurally damaged. These homes sometimes need months of maintenance and repair after they're purchased to be brought up to their potential. The foreclosure process generally goes like this:
Buyer defaults on payments
Lender sends a notice of default to homeowner
Lender creates a notice of trustee's sale
The house is sold at auction
The homeowner is evicted
Benefits
For homeowners and home buyers, there are advantages to foreclosure. For the homeowner, the main advantage of going into foreclosure is the length of time that the foreclosure takes. Homeowners who are in financial distress have months to work with their bank to try to get out of foreclosure. For those homeowners who don't want to save their house, foreclosure is often easier and less work than a short sale.
There are many reasons that home buyers seek to purchase foreclosed homes at auction, but the primary reason is because they're often sold for well below their market value. For a variety of reasons, banks are not motivated to sell foreclosed homes for a high price. Banks do not want to make repairs, nor do they want to fix the home up (staging and so on) to make the home selling process more profitable. Lenders who foreclose upon homes will often sell the home at auction, allowing buyers at the auction to determine how much the home will sell for.
The fact that the lender does not have to make repairs and the buyer can get a home for a good deal makes foreclosed homes relatively easy for all parties involved. Although foreclosure is a long process while the homeowner is still living in the home, once the foreclosure goes through, the purchase process (at auction) is easy.
Disadvantages
Unfortunately, foreclosures can also be a painful process for the homeowner who is being foreclosed upon. Foreclosure is involuntary. Often, foreclosures occur when a homeowner accidentally falls behind on payments, after falling into financial distress. The homeowner who goes through the foreclosure does not get to control whether, when or how the bank chooses to foreclose on the homeowner. For a homeowner who is trying to save their own house, trying to get caught up on payments can be stressful.
The foreclosure process is established by law, and the bank must follow that process. This generally involves forms and notices sent to the homeowner on a schedule. Although the process may be stalled by certain actions, most of the time, the homeowner can only stop the foreclosure process by catching up on payments. In addition, there are disadvantages for home buyers as well.
High Competition
Foreclosed homes are sold at auction, often with many buyers present. Because foreclosed homes can be very low cost, competition for foreclosed homes can be fierce. High competition means that home buyers who are trying to get a foreclosed home may need to go through the home buying process at auction several times before they're able to get a home that's right for them.
Home is Often Distressed
Foreclosed homes are sold "as is." Buyers who purchase foreclosed homes generally need to be prepared to make significant repairs to any home they would like to buy. This can require a major investment on the part of the home buyer. Since home buyers who purchase foreclosed homes are often looking for a deal, this can mean that the buyer may not benefit financially as much as they wanted.
What's the Better Option?
Deciding between buying a short sale and a foreclosure, or deciding between starting either process, can be a challenge. Home buyers and homeowners alike should consult with the experts in order to make the right choice for them. They must start by consulting with a professional.
If you're a homeowner who believes that a foreclosure or a short sale may be in your future, talk to your real estate professional. A real estate professional can help you get started with the short sale process. If you're a home buyer, talk to a real estate professional and a lawyer to get the right legal and tax advice. Working with a real estate agent and a lawyer throughout the process, regardless of which process you choose, can help you decide which one is right for you.
It's also important to communicate with your lender. If you're a homeowner in financial distress, you may be able to avoid a short sale or a foreclosure by communicating with your lender as soon as your financial troubles begin. By maintaining open lines of communication throughout the process, you can help ensure your real estate transaction will go well.2020-06-04T08:44:00-07:002021-08-30T12:23:40-07:00Thomas "Jeff" Cook