Short sales and foreclosures have become common due to the recession, but many people still don't understand how they work.
That's according to Amy Cherry Taylor, a Realtor and the managing broker of the Fredericksburg Regional Avery Hess Realtors office.
And she's right, if the overwhelming number of questions submitted during Tuesday's Money Talk$ Web chat is any indication.
Cherry received so many that we had to stop accepting them before the hourlong chat on fredericksburg.com was over, but she was gracious enough to continue answering some of them for another 15 minutes.
Here is an edited version of the Web chat. A complete transcript has been archived on fredericksburg.com.
Can you explain in simple terms what a short sale really is?
A short sale is when an owner cannot sell a home for what is owed on the mortgage. For example, if the
In this situation, the owner would hire an agent to list the home and market it for fair market value. The owner would then submit the offer to the bank for approval and would only then be able to go to closing. The number of trusts and other liens, such as equity lines, can also affect how long the bank will take.
The whole process typically takes between 30 to 90 days, although it can take longer in certain circumstances.
Why are short sales sold as-is? Is there any way you can change that when trying to purchase one?
Short sales are typically sold as-is since the owners are not usually in financial situations where they can afford to make repairs or fix home inspection items. There are some instances where sellers can negotiate, so it is best to ask your agent to speak with the listing agent and find out what the seller's individual situation is and whether or not they are willing to make any repairs.
With that being said, even if the home is being sold as-is, you can still have your agent write in a home inspection for informational purposes only, with a right to void if the inspection is not to your liking. This way you may not be able to negotiate if they can't afford to help with certain repairs, but you won't be locked in if the inspection reveals more problems or work than you are comfortable taking on.
How can the buyer of a short sale, once the offer has been accepted by the seller, speed along the process of approval from the bank?
The best thing you can do is make a good, strong offer that is within market value. Later in the short sale process, the bank will send out someone to do a BPO (broker price opinion), which will tell the bank whether or not it will receive market value for the property upon closing.
If the offer is too low, the bank will counter the buyer, which will make the process take a lot longer than if they can determine that fair market value has been offered.
Another thing you can do is make sure your agent is checking in with the listing agent on a weekly basis. You both need to know the listing agent is on top of things and is checking in with the bank on a weekly basis at minimum. This should help keep your file in front of the bank's negotiator.
Do I have to be behind on payments to sell my house as a short sale?
Not necessarily. This will be determined by your bank. Many banks will allow you to maintain your payments throughout the short sale process. Others will require you to go delinquent for a specific period of time or maybe even throughout the entire process. It really depends upon your individual bank's process and requirements.
I have also had situations where a bank requires one thing during one part of the process and then requires clients to go delinquent during the end of the process. I wish I could give a more clear-cut answer, but it really depends upon your bank and who the investor of your loan is.
If your bank does require you to go delinquent, make sure you talk to a real estate attorney and tax adviser before you decide whether or not to do so.
How does a short sale affect a security clearance?
We have been helping lots of people with security clearances lately. I know I keep saying this, but with short sales everything is on a case-by-case basis.
With a security clearance, one of the most important things you can do is speak with your HR department or superior so you can find out how it will affect you.
You can then mention it in your hardship letter and see if your bank can work with you on acceptable terms that will not affect your job security. Make sure you understand all terms of the approval to your short sale before you move forward to ensure one last time that it won't hurt your clearance.
Do you foresee a decrease in the number of foreclosures in our area over the next year? Are the banks hanging on to a lot of foreclosures, waiting for a better housing market?
We have seen the number of foreclosures ebb and flow in our area over the last several years. It is very hard to talk about the supposed "shadow inventory" because we have been waiting to see it for years. We do know banks are holding on to some properties and there doesn't seem to be much of a rhyme or reason why.
There are still a good number of foreclosures in our area, although not as many as we have seen in the past. One of the reasons I believe this has changed is due to the fact that many of the banks are doing a better job of negotiating short sales and working with mortgage holders prior to their homes foreclosing.
Cathy Jett: 540/374-5407
Email: cjett@freelancestar.com