Normal Sales, Short Sales , Forclosure Sales

Educating home buyers says, Bob Henley, Sarasota Florida real estate agent, on the differences between a conventional arms-length home purchase, a short sale, and a foreclosure sale is a complex subject but worthy of someone taking the time to try to define the differences in them.

A normal arms-length conventional home purchase is a transaction between a Seller and a Buyer where the Seller and Buyer are the only two parties involved and each has independently decided on the price at which the sale takes place. Each of them may or may not be involved with a Realtor who is providing advice and cousel.
The negotiations of this transaction are straight-forward and defined explicitly in the sales contract executed between the Buyer and the Seller.

The condition of a home purchased in this way is typically good, although the buyer typically requests as a condition of the purchase the right to have the home professionally inspected for certain spelled-out conditions (termite damage and structural problems are typical). There are typically only two or three major opt-out features of such a contract. The first is if the home does not appraise for at least the amount of the sale price (or sometimes, just the amount of the mortgage being sought by the Buyer). The second concerns the ability of the Buyer to get approved for a mortgage of a certain amount which is also usually stated in the contract. And finally, there may be stated in the sales contract the option for the Buyer or Seller or both to walk away from the deal if repairs required as a result of the inspection exceed a given amount which is stated in the contract. If one or more of these criteria are not passed, the contract is frequently re-negotiated at a revised price to resolve the issue.. Closings can take anywhere from 30 to 45 days.

A Short Sale purchase, on the other hand, is a completely different type of transaction. A short sale typically takes place when the home is being sold for a price less than the amount of the mortgage due on it (hence the term “short” sale) The difference here is that a third party is involved in the transaction, the mortgage holder. The condition of the property is may vary considerably from a conventional transaction depending on whether anyone is currently living in the property and how well it is being maintained. It is also common for there to be multiple offers accepted and submitted to the mortgage holder. From there, it’s up to the mortgage lender to review their position on the outstanding mortgage and decide whether or not to accept the offer. This process can take months and there is no no guarantee that the lender will accept any of the offers. The mortgage lender may, in fact, even make a counter-offer asking for an adjustment upward of the price offered. In some cases there may have been one or more previous purchase offers submitted and the mortgage holder has already determined the lowest (or bottom-line) price at which they will let the transaction occur. In this case, a short sale4 may close in 3 - 4 months.

An experienced Realtor may know if the “bottom line” number is current, expired, or needs to be revisited with a lower offer. This is sometimes determined by the Buyers’ urgency to occupy the property. Now, as the short sale bank reviews the offer(s) they take into consideration past HOA dues, unpaid mortgages, any attorney fees, unpaid taxes and utilities, liens against the property, commissions to be paid, etc. If the offer does not cover these expenses AND meet their “bottom line number, then the Buyer may be asked to pay some or all of them.

A complicating feature of some short sales is the existence of a “second mortgage” on the home which brings yet another party into the transaction. My own opinion is that short sales involving first and second mortgages are seldom worth the effort required to try to get everyone to agree. The negotiations even on a home with a single mortgage and relatively few extraneous problems like past due utility bills and property taxes or past dues homeowner or condo association dues can be arduous and volatile. In the end, the mortgage holder, at least in theory, is anxious to sell the home before it goes into foreclosure and their net proceeds drops to an even lower number.

Once a short sale transaction is finalized, it is the generally responsibility of the mortgage company to provide a clean title, remove the current occupants, if any, and present the home in “broom clean” condition except as noted in the sale contract. Such is seldom the case on foreclosure purchases.

Foreclosure purchases are a little more straight-forward than a short sale but still require the advice of an experienced real estate professional. Foreclosure properties are sold at auction. The mortgage holder typically set a price at which that lender will buy the property back themselves rather than see it sold at a price below that. Some foreclosed properties are in good condition; but many will require considerable work to make them ready for occupancy by the Buyer.

Foreclosure transactions usually come with a set of guidelines are set forth with various addenda from the owning bank/facility.. It is advisable to have a real estate attorney review these documents carefully with you before entering the bidding. Foreclosed homes may also receive multiple bids, so the Buyer may be subsequently asked for a “highest and best” offer. Buyers needs to be wary of this action since it is easy in the heat of the process to raise your offer to a price higher than the property is actually worth in its current condition.

Buying homes through the foreclosure property auction process is not for the uninitiated. In fact, my advice would be that no one except experienced professionals who buy such properties and refurbish them for resale as a way to make their living should get involved in a foreclosure property purchase. The mortgage holder is going to get even less from this transaction than the worst case “bottom line” number he had expected when the property was on the market as a short sale so you can expect them to be very focused on achieving their new “bottom line” number. They have little or no interest in investing any more money to protect the property at this point so the property may deteriorate considerably while you are wading through the foreclosure process.

Buyers need to check with a local real estate attorney and the county government offices to find out how and where foreclosure sales in your area are handled, but some common features are:
• No loan contingencies allowed
• Sealed bids only
• Proof of financial qualifications required with the bid
• Sizeable earnest money deposit with the bid
• Property is to be purchased "as is"
according to Sarasota Realtor, Judie Berger.

Sometimes, according to Tampa FL real estate broker, Cheryl Stimac, buyers are not even allowed to inspect the home before making an offer making it nearly impossible to calculate how much it will cost to improve the structure or bring it up to a habitable condition. Also, the owning bank may even demand the bidders come to the auction with a cashier’s check in the amount of their offer in hand.

In a foreclosure transaction, the Buyer is usually required to evict the tenant or owner from the premises after receiving title. The eviction processes can be costly and each state has different rules about how long the current occupant can stay in the home after its sale at auction, so Buyers need to understand all that is involved in an eviction process. Finally, it is fair to say that the about-to-be-evicted resident has little incentive to maintain the home; he or she may even do serious damage to the interior of the home before being evicted.
Nonetheless when a foreclosure bid is in place and accepted, the transaction will close very quickly.