What is the Difference Between a Potential Short Sale and Bank Owned?

We deal with a lot of customers and we get a lot of the same questions. This is one that’s asked often.

A bank-owned/REO (Real Estate Owned) property is one that has already been foreclosed on by the bank.  The price is what they determined the market value to be and then it’s decreased by whatever formula that particular banks uses to procure a quick sale because they’re not in the business of owning real estate.  The price is negotiable, but if it’s Fannie Mae or Freddie Mac (both government owned banks) they typically will not give more than a few percent off the asking price.

A short-sale is a whole different animal.  The price you see on those can be rather arbitrary unless it has been approved by the 3rd party the holds the lien on the property for the mortgage.  Basically what happens is a property has a mortgage on it that is more than what the property is worth and the owner, or seller, puts it on the market for less than the amount they owe and attempts to generate an offer.

Once an offer is received it’s passed on to the bank for approval to determine if they’re willing to take less than the loan amount to get the property off their books and avoid a potential foreclosure.  This can be a time consuming process, sometimes taking more than 6 months.  Our experience is that the best deal come from short sales, but it takes a lot of patience.  Most often the outcome is a counter proposal from the bank.  Example, seller owes $200k, property is worth $150k, buyer offers $125k.  After going through their review process the bank will either completely reject (unlikely), accept and add stipulations, or counter, probably closer to the $150k value.

On foreclosures, banks can be pretty aggressive in setting their prices. I’ve seen bidding wars on several properties with my buyers. Sometimes the bank will say present your best offer by a certain deadline and then select the best. On short sales, it’s a bit like of Wild West. Since there is no set price, only what the seller and real estate are guessing the bank will accept, many of my buyers make lower offers. Again, this is not a quick turn-around game. Short sales can take from a few days for a bank response to months. Many buyers will make multiple short sale offers on different properties.

I’ve tried to make short sales and bank owned homes a little clearer here, but it can be pretty complicated. I work with these everyday. I would be happy to talk with you about it more. Give me, David, a call at 386-566-4169 and I’ll be happy to answer any other questions you might have.

David Byrne is a Daytona Beach real estate real estate agent who specializes in condos, homes, short sales and foreclosures.

I’m Underwater on My Home – What Do I Do Now?

Many Daytona Beach Homes owners are underwater on their home, meaning that there home is worth less than they owe. The North County Time in the San Diego area published a good article recently describing your options and the effects of those options.

Your Part of a Big Group

According to the article,

“Nationwide, 32 percent of mortgage holders owe more than their houses are worth, according to estimates from data firm First American CoreLogic. About 14 percent of mortgages are behind on payments, says the Mortgage Bankers Association.”

Basically, that means that close to one in three mortgage holders in the US owe more than their houses are worth. We know that California, Florida, Nevada and Arizona have been the hardest hit because that’s where the speculation was highest before the real estate bubble burst.

Your Choices

You have basically four choices if you are underwater:

1. Hold and wait it out
2. Loan Modification
3. Short Sale
4. Foreclosure

Each of these options has implications on your credit and possible tax consequences. Eric Wolff at the North County Times does a good job describing those consequences. You can check out his article on mortgage underwater options here. Eric talks about three options. I added the first option of hold and wait it out. That’s what a lot of people are doing. They are living in their homes and waiting.

The loan modification option has the least impact on your credit score and is worth a shot is you have a convincing hardship. If the lender agrees, you’ll get a three month trial to make the new payments. If you do it, you will probably have the option of converting that new payment permanently. If you’ve has any loss of income or other hardships, this may be the best option to hold on to your home.

Short Sales and Foreclosures

Once you decide to stop making payments, you will be considered delinquent and the legal process leading to eventual foreclosure will start. Your credit will be impacted and you will eventually lose you home. Short sale is usually a better option, but be careful of any contract the bank provides. Have a lawyer check it out and make sure you are clear and free from additional payments and tax consequences.

Daytona Beach and Volusia County Homeowners

The Daytona Beach area has been hit very hard. The overwhelming majority of our sales for this year have been short sales and foreclosures. We have handled both sellers and buyers and have masters the process by closing over 22 transactions this year so far, at least as far as it can be mastered. The process is not difficult, but it’s tedious and requires a lot of patience and follow-up. We know how to work with lenders and that’s absolutely critical to short sale success. It’s a little more straight forward with foreclosures, but still requires knowledge of what the banks are looking for in an offer.

Knowledge and experience in dealing with short sales and foreclosures is a required skill for real estate agents in the current market. Make sure your agent has the skill. You can talk to me about selling your home or buying in this market. Give me a call at 386-566-7503. I always return messages.

The Foreclosure Wave is Nowhere Close to Ending

A new record high of homeowners delinquent on the mortgage or foreclosure was reached in the third quarter. Rising unemployment and balloon and teaser rate mortgages coming due through 2011 means that foreclosures and short sales are likely to continue through 2011-2012.

A survey by the Mortgage Brokers Association (MBA) reports 9.6% of borrowers who are delinquent on their mortgages, and 4.5% at some stage of the foreclosure process. So about 14% of mortgage loans are in trouble. That’s a big number. The MBA survey started in 1972, and this is the highest level recorded during its history.

What Does That Mean for Daytona Beach Real Estate?

Florida, including Daytona Beach and Volusia County have been very hard hit by foreclosures. While much of the nation was seeing lower month over month foreclosures rates, Volusia County was up 3%, or 1500 properties, in October.

For Daytona Beach home and condo buyers, this means continued short sale and foreclosure purchase opportunities. For sellers it means that while prices have stabilized somewhat, we are unlikely to see price increases in the coming years.

Most of my sales this year have been from distressed properties. Tremendous short sales and foreclosures buys are available for the patient buyer. I’ve gained a lot of experience in dealing with banks and it’s some of the hardest work that I’ve done. It takes a lot, and I mean a lot, of follow-up. But, that’s the business now and that’s what people are buying. If you want to know more, give me a call at 386-566-7503.

It’s Not Over – Sharks and Wolves Find New Ways to Game the System

The front cover of the current issue of Business Week (December 1) states “The Subprime Wolves are Back and They’re Feeding Off the Bailout.”

This article will really get your blood boiling. What’s happening is that many of the same mortgage brokers whose aggressive, sometimes illegal, and pure greed lead to the real estate run-up and crash are at it again. But this time, they are jumping on FHA loans.

Here’s an example that pretty well sums it up:

A condo developer in South Florida sets up a mortgage company to finance loans for buyers of his condo units through FHA loans. His mortgage company made 1855 FHA loans since November 2006. 923 of those loans are in default proceedings as of October 31.

More Foreclosures Ahead

The Business Week article describes other abuses and how the FHA is overwhelmed and has difficulty properly reviewing applications. BW exposes mortgage brokers who were put out of business in several states setting up shop with new companies to push FHA loans. They are using the same tactics they did in pushing subprime loans. The result – a new wave of foreclosures. With FHA loans numbering 1 in 4 of new loans issued, this will lead to more foreclosures. Not what we need at all. These loans are guaranteed by the US Government, so yes, you and me will be paying.

There is a lot of really good information in this article. You still may be able to get a copy of the magazine or check it out at your local library. A podcast version is available at the Business Week webiste.

The Daytona Beach real estate market is rocked with short sales and foreclosures. We don’t need anymore. I’m sending a note to my congressman to ask him to read the article and take action. The sharks and wolves need to be stopped.