Williamsburgs Real Estate Blog and more!

Savvy buyers and investors are always looking for "the deal". They want to buy low and sell high.  Who doesn't? A short sale, pre foreclosure is one way of getting a good deal on a house, most likely below market value.

A pre-foreclosure or short sale is one where the seller of a home is trying to get out from underneath a crushing mortgage, prior to losing it in a foreclosure.  A foreclosure will have a far greater impact on your credit score than a short sale, so it is the best option for people heading for big financial trouble but not quite there yet. A short sale is one where the lien holder accepts less than what is owed to release the deed/deed of trust.

There are numerous things to consider when looking at these homes. More often than not, the process has been started long before you see the listing online. In order for a seller to seek short sale approval, the seller will need to get in touch with their lenders short sale or loss mitigation department and complete a "work around" or hardship package.  This will give the lender an idea of why the situation has developed. Included with the package is a request for a pretty in depth financial disclosure. Where does your money come from and where is it all going. You'll also need to provide them with a hardship letter. It's tough to concede you may not be a good saver and spender-especially having to document it for a stranger.

That's the first part. Then you'll need to provide them with an offer to buy the house, including a HUD1 statement detailing the closing costs for both the buyer and seller and a net amount to the lender.  This is a critical step in securing a short sale approval.  A lender will obviously want to break even, but may be willing to accept a loss. How much of a loss depends on a myriad of factors including the lenders tolerance for loss.  The lenders want to clear up any "bad debt" as quickly as they can so they can continue to receive "new" mortgage money.

For a buyer of short sale property, the two things you need are patience and patience!  Lenders are not a ready and willing seller in the traditional sense. There may be several departments and people involved in the approval process. Banks are different than Realtors.  They don't like to negotiate, they may not be the best communicators, and the information they need and want sometimes requires a little mining!  Lenders are not emotionally connected to anyone involved or the outcome.  While you may think you are doing them a favor by taking the "bad debt" off their hands, the debt individually is not a significant factor in their portfolio.  They may have millions of dollars in bad debt they're sitting on. Do you think the $10,000 or $20,000 the seller is behind really affects them? Not too much.

Buying a short sale is a great way to get a house below market value, but it's not for everyone, and not every Realtor is adept at handling and negotiating the process on your behalf. Ask for referrals before spending a few months on the process with a Realtor who does not fully understand the process.  Like anything else, experience matters.