What is a buyer to think? Everywhere you look, Foreclosures, Pre-Foreclosures, Bank Owned, Auctions, etc. I would like to share some personal experiences in this field to clear some clouds of doubt for buyers who may be interested in a Pre-Foreclosure. I would like to write this article to educate buyers on some of the benefits and pitfalls of a pre-foreclosure. There are many aspects to a pre-foreclosure sale that an average person may not know. I heard an expert in this field talk recently about the subject of Short Sale Pre-Forclosures.
A short sale is one where the lender has agreed to accept less than what’s owed on the mortgage in order to avoild a foreclosure. Certainly there must be a bunch of buzz out there about short sale pre-foreclosures because everyone is talking about it. He said that roughly 50% of pre-foreclosure, short sales are not qualified to sell with a reduction of the mortgage balance. The seller must be able to show and document that they are in financial duress and are unable to pay the mortgage payments. They must also, with the help of their Realtor, show that the property is not worth what is owed or that there is no way to sell it for what is owed.
I am seeing an over abundance of short sales in the MLS. Untrained agents are submitting listings in the MLS in rapid form to grab some of this action. It would seem that many are untrained in dealing with this complicated and time consuming process. What’s in it for the seller? They can avoid as many as 10 years of derogatory credit if they foreclose. With a short sale, their credit is effected, however they may be effected for as little as 12 to 18 months.
Is this short sale process being abused? I’m sure it is, but most are abusing it without even realizing it. Sadly, it is effecting the normal seller. Many short sale listings in the MLS are priced way lower than all the others which grabs the buyers attention. Most buyers right now are only looking at the largely discounted prices. Most are not aware, however, that a good portion of the short sales are not priced at a price in which the bank will accept.
The bank’s pre-foreclosure process is intense and buyers are forced to wait as long as 2 months to get a response to their offer from the bank. The bank will not counter an offer if it unacceptable. Usually the bank will generate a few other offers and they will choose the best one. So a buyer may wait that long only to find out that they did not get the house.
” Buyers are forced to wait as long as 2 months for response from banks for thier offer”
Bank owned foreclosures are certainly easier and less time consuming however there are always certain risks involved with buying a bank owned foreclosure. The bank doesn’t give you a regular deed and there may be unpaid liens on the house which the buyer may have to pay in order to buy the house.
In the past, bank underwriters would allow between 10 to 15% less than what the property would appraise for. We are seeing that number increase however over the course of the last few months to as much as 20%. Many buyers are dead set against paying more than 20% below appraised value for anything right now, however in a short sale, they may not get that.
Sellers who are needing to sell in this market must compete with the short sales and bank owned properties in order to get a shot at receiving an offer. Currently, less than 3% of homes in our local MLS are selling each month. Many listings are expiring and many sellers are blaming their agents inability instead of looking at the market and how bad it actually is for a seller. Great market for a buyer, however. So many homes to choose from and certainly more than a bunch of motivated sellers out there.
If you would like to know more about short sale pre-foreclosures, please contact me on the contact form provided in this blog or call me at (407)925-2526