Forclosures and Short Sales

What is the difference between a Short Sale and a Foreclosure?

Answer: A foreclosed home is a property that the lender has already taken back because the seller has failed to make their agreed upon mortgage payments. The bank now owns the home.

A short sale is one where the seller still owns the property, but is financially distressed and not able to make the mortgage payments any longer. The home is now in a state of “Pre-Foreclosure.” The seller is then asking the lender to accept less on the loan than what is currently owed. The seller hopes to sell the home for an amount acceptable by the lender, avoid foreclosure, and then walk way without liabilities or owing the bank anything further.

What amount will the bank take on a Short Sale or a Foreclosure?

Answer: In a short sale, that depends on the amount of money the seller owes. The banks will send out an independent appraiser/or licensed real estate broker to give a value based on current market conditions. Based on that amount, the lender will determine how much they will be willing to take to satisfy the majority of their losses.  On a  foreclosure, the price you see listed should be the amount the bank is willing to take.

How do I make an offer on a short sale or foreclosure and does it take longer to do?

Answer: Your real estate agent will write up the offer on the standard Arizona real estate resale contract, and provide recommendations on what the home should sell for based on current market conditions. If the home is a short sale, the price will also depend on how much the seller still owes the lender. In a short sale, the offer is sent to the listing agent who gives it first to the seller (owner) who reviews it and if the owner agrees, the seller’s agent will then send it onto the lender for approval.  On a foreclosure, the offer is sent to the listing agent and they communicate it to the lender. For both short sales and foreclosures, once the offer is accepted, the process remains almost the same as any other transaction to purchase property in Arizona. There may be some additional disclosures that the lender will require be signed by the parties. That is determined on a case by case basis and provided by the lender if needed. Because the lender has many other short sale offers on their desks on many other properties, the time to get a response from the lender on whether they will accept your offer can range from 1-3 months. I, as your agent, will get a feel for how long the lender will take by communicating with the listing agent. There is no pre-set time, and no guarantees on how long it will take, or whether the lender will even accept the terms, but if time permits and the price is good, I would always recommend making an offer and see what happens.  The response time for a foreclosure typically takes 3-14 days for an answer on an offer.  Besides the price being offered on a property, foreclosures give preference to the type of financing the buyer is using and concessions being asked for (e.g. closing cost).

Can I get the seller to make repairs prior to closing if I purchase a short sale or foreclosure?

Answer: In a short sale, the answer depends on whether the seller has any money to do the repairs. Usually, sellers are already financially distressed and do not have the funds to do any additional work. Most foreclosed properties are sold “as is.” As part of the sale, you may be requested to sign an “As Is Addendum.” This means you will take the house “as is” and will not get any repairs. However, keep in mind, you do not waive your right to an inspection, so we would know after your inspection whether there any issues you cannot agree to keep as part of the sale. If the inspection shows severe problems with the home, pursuant to the contract, we will withdraw your offer. The standard contract states you have a 10 day inspection period which begins to run from the day you enter into a fully executed contract with the seller/lender. All of earnest money will be returned as long as you cancel the contract within that inspection period set forth in the contract.

Can I get my closing costs paid by the seller on a short sale or foreclosure?

Answer: Sometimes. If you need closing costs, we can include that in the offer. Depending on the seller’s circumstances in a short sale and the arrangements they have made with the lender, there is a chance they may agree to the terms. However, it will also be based on what the offer price is and other terms. It never hurts to try.

Will I get equity on a short sale no matter what?

Answer: Not necessarily. The market is changing daily. The home may be perfect for you, and you may end up paying what is equal to current market pricing because it is exactly the home you desire. As your agent, I will counsel you on what the current market rate is for the home you choose. This will be determined on a case by case basis depending on the price, neighborhood and current market for that area.

Will I have to pay anything extra to purchase a short sale or foreclosure?
Answer: Other than your usual closing costs, loan fees, taxes and insurance… no other costs should be expected in the purchase. The only extra costs you have may not be monetary in value, but instead in the time it may take to get through the approval process and escrow if your offer is accepted.

If I offer the full list price, will the lender accept it?

Answer: In a short sale…not necessarily. Unlike a Foreclosure where the lender as dictated the list price, the list price on a short sale is determined by the seller’s agent and usually is not reviewed by the lender until at least one offer has been made on the property. On short sales, often the listing agents place a very low price on the home just to get an offer. There is no guarantee that an offer of full list price would be accepted by a lender. Again, it never hurts to try, but just be aware.

I hope these questions and answer help explain the Short Sale and Foreclosure process a bit for you. I am available to speak to you by phone or in person.   The process itself is a bit more time consuming, but I have done a large number of these transactions and they are something to consider depending on your situation.