Educate me a little on a Short Sale

BGCarrera32 · 08-07-2010, 09:17 PM

Neighbor next to me is moving out, he's retiring in a month and moving to a senior home. The house is 62 years old and he's been there for the majority that.

I found the house online today and he's in short sale. I checked the county property records on the place and he owes back property taxes to 2008, around $4,500.

Is it possible the house is in short sale in part due to the back taxes being owed, or is it strictly a function of more is owed on the house than its worth? He's been there like 40 years, tough to believe its not payed off.

A bit worried as the list price is really low, $150k, probably gonna become a rental or go ghetto on me.

kaisen · 08-07-2010, 09:57 PM

It can only be a short sale if he's selling it 'short' of what he owes. He likely refinanced it at one point. Back taxes suck, but don't make it a short sale.

grendiers · 08-09-2010, 06:22 AM

Well, you've probably read something like this by now:

short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.[2]

We bought a property in new mexico under a similar condition. A short sale in pre-foreclosure. Made an offer on the property, got it, and had to pay cash. Some of these sales are cash only and not open to mortgage financing. The more 'problems' with the property or in this case, with back taxes, there's probably an increase in due-diligence on the part of the buyer. The seller is off the hook so to speak, doesn't lose much of his/her credit and I can't believe they allow this! Our seller was a hoarder, and overall pig! He received part of the commission in selling the house! We're happy though, have a house and 4 acres on a mountain in southern new mexico!

jhynesrockmtn · 08-09-2010, 08:53 AM

I've heard getting a short sale through the bank is a pain in the arse. My ex is a real estate agent and tried buying a condo for herself to live in and couldn't put the deal together. The bank never responded to anything. She finally walked and bought something else.

McLovin · 08-09-2010, 09:11 AM

Quote:

Originally Posted by BGCarrera32

I found the house online today and he's in short sale.

I don't understand that sentence, I'm not sure how you could determine if a house is being sold short from an online search.

When a loan is defaulted on, the first step for a lender is to begin the foreclosure process. This begins by filing a Notice of Default. That starts the foreclosure process, which takes several months (at least).

A "short sale" is not a formal process. All a short sale means is the bank is willing to let the owner sell the house for less than is owed, and the bank agrees to accept that amount as satisfaction of the mortgage in full. It's just an agreement between the owner and the bank.

Banks have thus far been somewhat hesitant to do short sales, and instead have been relying on the traditional process of foreclosing on the house, taking the house back, hiring a broker and selling it. I think one of the reasons for banks preferring that method is it leaves less room for "second guessing."

If the bank voluntarily accepts a short sale amount, someone could always say the number was too low and the bank should have foreclosed to minimize its loss. Because there wasn't any real marketing of the house by the bank to determine a market value. Etc. That's one of the reasons it takes so long, there are appraisals, decisions no one at the bank really wants to make, etc.

From what I've read, many believe that short sales will become more streamlined and common at the banks, as the defaults continue to pile up and REO inventory continues to build. It is a quicker way for banks to deal with defaulted home loans.

A930Rocket · 08-09-2010, 09:46 AM

The house two over from us has been "for sale" and in forclosure, with the bank ready to close in 30-45 days! Well, after two years, I think it has finally sold, but somebody was in no hurry to close.

BGCarrera32 · 08-09-2010, 10:19 AM

Quote:

Originally Posted by McLovin

I don't understand that sentence, I'm not sure how you could determine if a house is being sold short from an online search.

The MLS will flag it.

BGCarrera32 · 08-09-2010, 10:22 AM

I think this guy and his wife have had some health problems, so my guess is maybe they refie'd with cash out at some point. Pretty sad to live there that long and lose your shorts on it. A couple years ago his pickup truck went away and he said he didn't need it anymore and got rid of it.

I saw the repo man grab it on a flatbad at 12:30 in the morning.

McLovin · 10:55 AM

yeah, on the MLS I can see why they'd put that there. I thought for some reason you were looking through public foreclosure records, and it was flagged there, which would have been odd.

On the MLS, it's good to let potential buyers know up front that it is a short sale situation, because of the delays and hassles involved.

I know someone who just closed on a short sale. It took around 7 months start to finish. They paid cash for the house, though, which made it a lot easier and appealing for the bank. No buyer's loan approvals, etc. to potentially kill the deal.

I agree with your assessment of what's happening. The old guy did like millions of others, use the "House as ATM" trick. Although I'm not sure I'd feel too sorry for him. Because in the end, what he did was essentially sell his house to the bank, AND did so at "peak" value. The bank took out whatever loan he had previously on the house, AND gave him a bunch of cash. So, the old guy actually didn't "lose" anything in the deal.

Given that he lived there so long, he probably had the house paid well down, and got a sizeable chunk of cash from the bank. And, he'll probably end up living in the house rent free for at least a year, maybe more. So in the end, he never lost a penny on the house, cashed out of it at peak (or above) value, and gets a year+ free rent. Hard to feel too sorry for that.

BGCarrera32 · 08-09-2010, 12:43 PM

Interesting take on that McLovin, thanks for the input. You're probably right. He hasn't paid two years of taxes either so if you think about it all the rest of the residents will get to cough up the difference. Nice eh?

Rick Lee · Rick Lee's Garage

I bought a short sale in April. It took about five mos. from initial offer to closing. It appraised low and the seller's bank immediately dropped the price to meet the appraisal. Just takes a lot of patience. Some banks are better than others with short sales, but you have just about no control over anything once you make the offer. Be prepared to be very patient.