The ABC’s of Foreclosures, Short Sales and REOs – Definitions and Terminology – PART III

Here we are – Short Sales!

SHORT SALES

A short sale occurs when the seller owes more on the property than it’s worth…  it’s that simple.  But ah, yes, it does get more complicated from here.  One of two scenarios generally occur.

Scenario 1:  The seller may be willing and/or able to bring money to the table in order to complete the transaction.  If this occurs, this is not considered a “short sale” but sometimes you’ll hear this seller referred to as being upside-down on a transaction. 

Scenario 2:  The seller approaches the lender (s) to work out some sort of reduced payoff.  Sometimes they need to approach both their first trust and second trust lenders and they need to work together to come up with feasible options.  In this case, the lender becomes a 3rd party to the transaction and has to “approve” any terms or contracts that the seller agrees to.  

In a way, it seems unbelievable that a lender would be willing to just forgive debt incurred by the seller – but the alternative is that they take back the property and then they become property managers OR sellers themselves — and c’mon, folks, these guys are BANKERS.  So sometimes when looking at risk management, forgiving some amount debt is the brightest of the bank’s options. 

Please be aware that a short sale can be a lengthy and stressful process – especially for a buyer.  They now essentially have a 2^nd seller involved in the decision making process and believe me, the bank doesn’t take this role quite as seriously as the owner of the property does. 

There are all sorts of pitfalls involved in purchasing (and selling) these types of properties.  And they are getting more common every single day.  This will create another type of inventory overflow because a lot of agents and buyers will not sell (or attempt to sell) a property that has a 3rd party (bank) approval addendum.  There is so much risk involved – that’s tomorrow’s topic…

So for today – at least you’re up to date on the terminology – so when  you see a property listed as “bank owned” then you know it’s an REO.  When you see “3rd party/bank approval required” you can bet it’s a short sale.  We rarely actually see the foreclosures –

In any of these cases, it is imperative that you are working with a knowledgeable, prepared and responsible real estate agent who will put your best interests WAY ahead of making a sale.  These are risky and a lot of hard work – sometimes, in the end there’s a great deal – other times, not so much.  So proceed with caution!

As always if you’d like to discuss something further or would like to chat about selling or purchasing real estate, I’d be delighted to hear from you!

Happy Thursday

Jennifer

Tags: short+sales, northern+virginia+real+estate