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Foreclosure, Short Sale and Bank Owned Properties
Foreclosures, bank owned and short sales in the Washington Metro area three different terms for homes being sold under challenging circumstances.
In the foreclosure process, the owner has given the property back to the lender due to an inability to make mortgage payments. The property is then sold at auction. A bank-owned or real estate owned (REO) property is one that reverts back to the lender if that property fails to sell in a foreclosure auction. Finally, a short sale occurs when purchasing a home for less than what is currently owed to the bank. In other words, the owner has not yet relinquished the property but may have gotten behind on payments. Short sales have increasingly come into favor in recent years when it comes to challenging financial situations as it allows the owner to get out of debt and negotiate a solution for less than the principal owed. For lenders, this can be a preferable alternative to the uncertainties of the auction process.
For home owners, having to give up a property can be the most trying and challenging of circumstances. For a real estate buyer, a foreclosure, REO or short sale can provide an opportunity to purchase a property at a sharply reduced price.
Foreclosure, Short Sales and Bank Owned Properties in the Washinton Metropolitan Area
There can be any number of reasons for falling behind on mortgage payments, from the loss of income to unexpected expenses. While the DC Metro real estate has rebounded well from the recent real estate downturn, certain areas have been more adversely affected than others. A case in point is Prince George’s County, Maryland, where a rash of new home construction coincided with the national economic downturn. The ripple effect caused a plunge in real estate values that didn’t begin to correct until around 2012.
If you are a home owner in Virginia, Maryland or Washington, DC, and are trying to cope with financial hardship, District Partners at Compass can help. We have considerable experience with challenging situations and are sensitive to the stresses involved. If your property has not yet reverted to the bank, we can give you an honest and accurate opinion of its current value and discuss the possibility of a short sale process. This can provide the opportunity to avoid foreclosure, and help preserve your credit.
Short Sale: A win-win transaction between you and your bank. Why?
Understandably, a short sale isn’t what any home owner would normally consider a winning circumstance. But nonetheless, there can be a positive outcome during a difficult time. A short sale is much less harmful to your credit rating than continued delinquencies, a foreclosure or bankruptcy. Your mortgage account is likely to indicate “account settled for less than full balance” in the aftermath of a short sale and you can get back on the path to good credit.
Why would my lender approve a short sale?
Banks don’t like having a lot of properties on their books—they’re not as profitable as loans, interest, or other cash-based assets. Also, the foreclosure process is costly for them, in time spent, attorney fees and money lost in general. Short sale properties also tend to be in better condition than foreclosures which have often stood vacant for a period of time.
But why would a lender accept less than what is owed?
Banks don’t like short sales—they would much prefer to continue collecting interest on loans. But once it becomes obvious that a home mortgage is in serious danger of going underwater, they look pragmatically at alternatives. A short sale can bring a better return than a foreclosure auction, and doesn’t carry the same associated legal fees, maintenance costs, property taxes and ownership costs.
Is a short sale an option for you?
There is no quick or easy answer. It depends on circumstances which can often be complex and challenging. First and foremost, it’s preferable to either hang onto a property or sell from a position of strength. But if you’ve reached the point where sustaining a mortgage is no longer possible, a short sale can be the best alternative.
Can you determine what the short sale outcome will be?
Unfortunately, no. Like any attempt to sell real estate, a short sale is speculative. It’s difficult to predict what your lender will be willing to accept, and if you will achieve a “Full Release” of responsibility. But what we can do is to share our knowledge and experience with you, and represent your real estate interests diligently. We have a lot of experience with short sale representation and take it very seriously.
Our commitment in a short sales representation is to present all of the advantages, difficulties and obligations equally. We want to properly educate and prepare our clients for the challenges of the short sales process. That said, the majority of our shorts sales representation clients realize a satisfactory full release of their mortgage obligations upon completion of the transaction.
Keys to your ultimate success include the following:
Early detection of your financial challenges, and a decision to sell before hiring a trustee attorney to intervene in a foreclosure proceeding.
A truthful hardship statement with supporting documentation.
Diligent representation by an agent with short sales experience.
Why is a short sale more advantageous than a foreclosure?
If a short sale transaction is successfully completed, your credit report will only show any late payments along with an “account settled for less than full balance” notation. This is much preferable to a foreclosure which will result in the inability to obtain another mortgage for as much as seven years. New laws and banking regulations will make credit damages even worse. A successful short sale will allow you to repair your credit faster, and you could qualify for a new mortgage within a couple years.
Who pays the real estate commission in a short sale in Virginia, Maryland and Washington, DC?
It can vary according to state and representation, but District Partners at Compass understands the hardships the hardships that are facing its short sales home selling clients and does not charge them a commission. In certain cases, a lender may pay a commission, but regardless, all we ask of our clients is honest recommendations and referrals to friends and family.
What documentation will be needed for a short sale?
You will need plenty—a short sale transaction requires similar documentation to that which is needed when obtaining a mortgage in the first place. Plus, you will have to document your financial hardship and prove to your lender that your case is legitimate.
District Partners at Compass will contact your lender and inform them that you have chosen us as your representation in the negotiation of a short sale. Your lender’s loss mitigation department will subsequently instruct us in the documentation to collect. Typically, your lender will need the following:
A form authorizing release of information to District Partners at Compass. A hardship letter explaining your situation. A listing agreement and seller representation form between yourself and District Partners at Compass. A financial worksheet in your lender’s format. Copies of your two most recent tax returns. Copies of your two most recent bank statements for all accounts. Copies of your two most recent paychecks or other similar documentation of your most recent earnings. An opinion of your home’s value from District Partners at Compass.
How long does a short sale process take?
This depends on a number of circumstances, including getting a suitable offer and the cooperation of your lender. Typically, once a buyer has tendered an acceptable offer, the process can take between 90 and 180 days. However, we have recently been seeing short sales being approved and finalized in as little as two weeks. Conversely, certain transactions can take as much as 18 months.
The factors involved include how many mortgages you hold on the property, bank policies and the banks receptivity and need of liquidity. Just know that it is in everyone’s interest to complete the transaction as soon as possible and District Partners at Compass is sensitive to your need for expedience.
The short sales stigma:
Nobody wants to lose their home, or to have to sell it under less than ideal circumstances. It can be hard letting go. But while challenging, a short sale is a better alternative to foreclosure and possible eviction. Short sales have rapidly gained popularity in recent years as a practical solution in times of home ownership distress. Don’t feel alone. We are here to listen and help.
District Partners Real Estate will work with you and your bank. We have extension experience and the most updated Certifications in the Real Estate Industry to help guarantee a successful Short Sale. If you find yourself in a tough situation, give us a call. We will give you our very best advice. That is our promise.