The Florida Dream
Damon Duvall

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Mon, Jul 31, 2017 at 7:20AM


Short Sale Homes

Short Sale homes are not as common as they were in 2008-2010. However, there are still some available. Keep reading and I will tell you much of what you need to know about them. What they are, how they may affect the seller, things potential buyers should consider and some potential pitfalls. 

Anyone can claim to be an expert. Let me take just a moment to share some of my experience with you. I am aRealtor in Windermere Florida. Going way back in time I will list of few items of importance. In the late 1980’s I purchased my first repossessed home. It was a VA Repo. I sold it in 8 weeks for a 40% profit. We did not stop with one. Later I was forced to move out of Florida because of personnel issues. My then home became a Short Sale. I not only did the work, I experienced it as a seller. I then moved to Minnesota for 2 years where I was once again in real estate.Fifty percent of my sales were foreclosures or short sales. Minnesota has what is called non-judicial foreclosure. Locally it is called a sheriff sale. As you can see I have experienced and worked in this field for quite some time

What is a Short Sale?

A Short Sale is a process, a godsend and a nightmare. It depends on who you are and how you handle your business.

A Short Sale is when the bank is willing to accept less for a home than what is lawfully owed. Short Sales historically have been approved primarily for two reasons. A buyer can show that he/she can no longer afford to make the scheduled payments and the buyers situation is not likely to change. Or the buyer is being “forced” to move out of the area and will not be able to afford the home. Both take a lot of supporting documentation.  

People Short Sale homes to avoid foreclosure and because it may have less of an effect on credit scores and credit history. The tax implications may also be far less.

A seller has a rather odd role in the process. Usually the seller will tell the Realtor what to list the home for. However. the Bank will make the decision on which offer they accept.

Seller Pitfalls Everyone Should Know

Yes everyone. The seller’s pitfalls will affect the ability to have a successful closing. Listing all of the potential pitfalls would take up a terrabyte drive. So I will only list a few of the common ones.

    1. The seller’s lack of knowledge is definitely the number one problem.
    2. A seller must be able to provide the documentation requested by the lender in a timely manner.
    3. A seller can list their home as a short sale before it is approved for short sale. Often a seller actually is not qualified for a short sale or there is not enough time left before foreclosure. A short sale can be completed in 4-5 weeks but most of the time expect 3 months.
    4. If a seller files bankruptcy then no deal. Short Sale over. A seller typically will not be making house payments at all during the process. This does give them more money for other bills etc. That is why this item is not higher on the list.
    5. Outside interference. I had a seller get sued during the process. It changed the dynamics considerably. We still got the deal done but it was really nasty and the sellers (a married couple) had to be separated at the closing.
    6. PMI- Most homes today have it. PMI may affect the bank's decision depending on what you owe when you apply for your short sale. Remember if you paid for Mortgage Insurance the bank will receive it at foreclosure. This affects their willingness to accept offers in certain situations.

Buyer Pitfalls

Buyers have problems also. This is a nightmare for a seller. Because time is an issue. Also a bank may deny any offers if they feel like they want to foreclose soon. In a state with Judicial foreclosure you may have quite a while to complete a short sale. I know of one seller who lived in a home for over 3 years before being evicted.That rarely happens today because the banks have fewer Short Sales to deal with. Your Realtor or an attorney is the best guide in your state for this information.

  1. Seller finds out about tax implications during the process. This is a big one. A lot of sellers not using attorneys have no idea. Your forgiven debt can be taxable as income. This was waived for years but do not count on it. If you Short Sale a home and $100,000 is the amount of loss the bank incurs then you can end up paying income tax on that $100,000.
  2. Seller gets angry at the buyer. The seller may say ”they are stealing our home” or “It isn’t fair”. This often happens when the offer has been accepted by the lender and the seller realizes a lack of control.
  3. Buying a home as is. Note to self here. A title search is usually $75-$100 and a home inspection can sometimes be done before putting in an offer. A small price to pay if the situation calls for it.
  4. Lienholders and HELOC (home equity line of credit) these may also need to approve the short sale.
  5. The buyer may need to come up with funds for the closing or is caught lying.
  6. Approving lender. The buyer should be absolutely honest with the buyer’s lender. To make this short the buyer should have a cash cushion at the closing and be prepared to potentially pay more of the closing fees. Anything can happen.

Before We Go On

Buyers as you can see Short Sales have some challenges. If you are in need of a home in 3 months this may not be for you. If you have the time and money Short Sales can be a good way to purchase a home. Even If you have been down this road several times I suggest you use a Realtor.

Sellers, you cannot Short Sale a home without a Realtor. Because the bank will not let you. I also recommend you use an attorney if you can.

You may be told that the bank will give you money to move. That will likely be used up by the attorney in mystery fees. A good option is to ask your Realtor if they have any certifications pertaining to Short Sales. If they do not ask if he/she will be assigning it to a Realtor who does. I worked at a brokerage where this was common and it worked very well. I have no special certifications. I have handled many Sales and REOs. However, if I list your home as a Short Sale I am probably going to recommend an attorney and work with them.

Sheriff's Auctions, Short Sales

Some states have Sheriff’s Auctions and non-judicial foreclosures. You still have time for a Short Sale in some of these states. In fact, normally you know exactly how much time.

Follow along and I will share with you some valuable tips. Keep in mind every state has different rules. Some of the same principles will still apply.

The owner of the home stops making payments. So eventually the bank files a court action to take possession of the home so they may sell it. The clock starts and this is what happens.

The state or county will officially inform the seller of the court action. Usually in 6 months the right to “redeem” the property will be auctioned at the Sheriff’s Office or an office with those duties. Most of the time the only bidder at the auction is the bank that owns the property. I have personally seen $1,000,000 homes auction for ½ of their worth. Normally the bank will show up with certified checks and if you beat their bid by 1 dollar you win. Well, kind of.

The owner of the home or the seller has 6 months to redeem the property plus penalties and fees incurred by the bank. This can be a tremendous windfall for someone. Also in some states because the auction is publicly announced the homeowner will not have the same tax penalties. But that is not my specialty.

Normally after the auction the homeowner/seller will begin to Short Sale their home.They usually have six months to find a willing and capable buyer and successfully close the sale. This amount of time may vary depending on what state and county the home is in.

Investors will be knocking on their doors offering to purchase their right of redemption. I have done it myself. It is generally called cash for keys and it is an excellent way to acquire a home if you are very careful. You will need an experienced attorney to maximize the benefit and avoid some financial pitfalls. Most of the time the home is successfully sold or redeemed by an investor before foreclosure. In some states the investor redeems the home within 3-5 days after foreclosure in a "grace period". Doing this allows the investor to acquire the property without the HELOC and second mortgages. The HELOC and other lenders pursue the original borrower. As I said, use an attorney.

Finding Short Sales

 You can and should start with a Realtor. All short sales are most likely going to be in the MLS. Realtors have direct access to not only the MLS but other Realtors who are in the process of listing short sales. If you are considering spending hundreds of thousands or over a million dollars on a short sale trust me. Extra experience when that includes intelligence and work ethic will be a great asset.

Short sales may be called subject to bank approval, pre-foreclosure, subject to third party review and pre- approved by a bank. All good tip offs that it may be a short sale. Most Realtors will list properties just as a Short Sale. Contact us. We can help and advise you along the way.


Bank Owned Properties REO's

Questions and Faqs

What is an REO

Real Estate Owned. To make a long story short a home has failed to sell and bank was the high bidder at the auction. So the bank has become the sole owner of the property. Homes in the inventory of banks are a liability to the banks. So banks sell the homes. How they do that depends somewhat upon the size of the bank and property.

Where can you find REO's?

Everyone thinks they know the answer to this. Typically they reply "on the internet". That is mostly true and I will address that momentarily. Here is what happens in an ideal situation.

The bank evicts any residents in the home after receiving full control of the home. That is another story completely. So let's just start off with the home empty and the bank has full ownership. Normally smaller banks will have a contact point inside of the bank for REOs. That person will reach out to what is hopefully credible local Realtor or someone he/she is "familiar with". The Realtor will perform what is called a BPO. A Broker Price Opinion. I have done these for banks before myself. The bank may ask for a quick sale price and a price that the home should sell for. In Minnesota the bank I dealt with lowered the price 3% every 2 weeks until the home sold. They said that was their practice. Not all banks do things the same way..

Larger banks have what is called Loss Mitigation Departments. They will either reach out to a list of Realtors they know or met at a REO function. Or they will reach out to a service which acts as the middleman and finds a Realtor to perform the BPO. After receiving the value of the home (which may just include the Realtor driving by the home) the bank will set the price. I have literally been paid to drive by and evaluate homes from the street. It sounds crazy but it is true.

The larger banks may use a real estate brokerage to sell their homes or they may list them on certain sites online. Each bank has it's own approach. The homes may sell without ever being on Zillow or a similar service. Realtors know where these homes are are listed online. I already have most of the sites saved to my laptop. I highly suggest you contact a Realtor to assist you. For just a few hundred dollars (typical admin fee) you can't beat having an intelligent experienced Realtor. So in a nutshell you can find them online or if you are lucky at a local bank. Good luck with the latter if the home is actually a good buy.

Should you buy an REO?

The answer is sure if the price and situation is right. Here are some important items to keep in mind. The previous occupants most likely did not take care of the home. If the home has a septic tank or pool have them professionally inspected. Or consider the possibilities when you make your offer. I have seen septic tanks take $15,000 to repair right before a close and we all know what pools cost.

The home has probably sit there for a while. Stuff happens and expect to possibly have bugs and mice etc. No big deal but make sure the attic is looked at even if you maybe bring an experienced friend with you to view the home. Also is the water turned on? Why isn't it? Can it be? Etc etc. That being said there are some very nice REO properties. If you are looking for a REO or even considering buying one this is my suggestion. Get a Realtor who has more than 2 years as a full time Realtor and you will most likely be on your way to satisfaction. If you live in central Florida contact me. I would love to speak with you about it and we buy/sell a lot of them.

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Damon Duvall


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