By Anessa V. Cohen
It is an old story. People looking to buy a home think, “If only I could find a foreclosure, I could get a bargain and fix it for myself!” I have heard this desire coming from many a buyer throughout the years.
I guess the idea in some people’s minds is that a “foreclosure” is the same as a “distress sale” in which people are ready to sell for anything (or maybe even ready to give it away just to get rid of it) and all you have to do is be the first one in the door to get it. Sort of like a “going out of business” sale! Like winning the lottery!
Today’s foreclosures are not usually bargain-basement sales, and most if not all come with a lot of baggage, such as major repairs and renovations—usually the kind needing a major overhaul by professional contractors, as well as title and CO (certificate of occupancy) issues. I have seen many a foreclosure in which the bank will not offer a CO for the property it is selling and the buyer gets no representations and is stuck working out the legalities and nightmares on his own.
Foreclosures are for the savvy buyer only. Others can get really hurt if they do not know what to look for in these “as is” sales. This does not seem to stop people from trying. I think there must be a “Foreclosures for Dummies” edition out there that many brave buyers believe prepares them for finding that elusive foreclosure with their name on it that will be the bargain of the century!
Short sales, a process that was heard about but not seen often, came into vogue after the last mortgage meltdown. Many homeowners wanting to sell their homes found themselves “under water”—the mortgages they owed to the bank were far higher than the market value their homes could ever realize in the event of a sale. The short sale became more prevalent as banks became inundated with properties headed for foreclosure. The big problem with short sales is that you need to have a lot of patience and a lot of time to kill, with all the required paperwork just to see if the bank will approve your proposed deal and let you buy this “great deal” from the seller.
A short sale is essentially the sale of a house for less than the amount still owed to the mortgage lender. For example, let’s say Joe Shmoe has a house that is only worth $400,000 and no one is willing to pay him any more than this for his house. But he has a mortgage of $550,000 that needs to be paid to the bank. He cannot sell this house without the bank agreeing to take less than the $550,000 owed to it. This means that the additional $150,000 owed to the bank must be forgiven and the bank must sign off on taking this amount as a loss.
Since most mortgages are held by investment groups, not banks, when an application is made to the bank servicing a mortgage requesting that the lender allow a short sale for a particular property that is underwater, the application must go through many processes. The bank needs to prepare a short-sale request package to be presented to the investment group holding the mortgage note to see whether they will entertain this application. This process can take many months, usually depending on the lender, and also includes the lender taking one or two appraisal opinions regarding the market value. They want to verify the claim of the homeowner that the property is really underwater before even considering whether to agree to a short sale.
If the lender agrees to the short sale, and the price agreed to is a good deal, it was worth the long wait. The buyer wins a great bargain, and the homeowners wins in that they got out of a difficult situation. We are seeing more and more of these short sales, and many are finding that they are realizing their real dreamed-of bargain by having the patience to wait the process out. v
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker and a licensed N.Y.S. mortgage broker and originator with over 20 years of experience, offering full-service residential, commercial, and management real-estate services (Anessa V Cohen Realty) and mortgaging services (First Meridian Mortgage) in the Five Towns and throughout the tri-state area. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa.cohen@AVCrealty.com.