San Luis Obispo County Short Sale Homes: "Just Say, NO!"
If you are looking at a “short sale” to purchase, but the seller (or borrower) has a 1st trust deed and a 2nd, the likelihood of both lenders working out a solution is slim to none—particularly if a home’s value has continued to diminish during the short sale process (typically 6 months or longer).
So you know, a successful short sale on a home with both a 1st and 2nd trust deed is entirely contingent on the 2nd trust deed recouping a minimum of 10 percent on the current loan’s balance. Furthermore, the actual close-of-escrow-ratio of homes being sold through a short sale process is less than one percent.
If you are one of the many who still believe that short sales are where the “deals” are, consider the following: let’s say there’s a home you especially like and is being offered as a short sale . . . it has a 1st TD loan balance of $325K and a 2nd TD loan balance of $100K, its current market value is $350K (via recent appraisal), and the 2nd TD note holder, in this case, is going to need to recoup a minimum of $10,000. Even if the owner/borrower is presented with a full-price offer from a qualified buyer at $350K, you’ll see from the numbers (while adding a minimum estimate of $20,000 in closing costs) that the 2nd TD is not going to recoup their “minimum 10 percent.”
If the 2nd TD loan holder doesn’t get what they require to make the short sale happen, they will not grant the owner/borrower’s short sale request via the sale of the property. If the 2nd TD loan holder refuses to grant the short sale, the 1st TD loan holder will then move to foreclose on the home, after which the home will come back onto the market as an REO (a.k.a real estate or bank-owned).
Because banks take so long to make short sale-related decisions, and because values continue to decline in some areas, by the time a bank agrees to do a short sale, the borrower’s home may be worth less than a buyer’s previously-submitted offer reflects; thereby furthering to diminish any hopes of a successful short sale. Furthermore, if the value of the home has gone down, then the possibility of the buyer getting their loan is not likely either.
Because banks aren’t in the business of being property owners, they are going to place the home back onto the market (typically below current market value) where it will be sold to the highest bidder. As you can imagine, this can actually create the same kind of buying frenzy we’ve seen in the not-to-distant past.
My suggestion to anyone wanting to either buy or sell via the short sale process is to do your homework. With a call quick, I can help make this process even easier by verifying the number of loans on a property, the loan amounts, and most importantly, if and when a “Notice of Default” has been issued.
This is important because if an NOD has been issued, it will provide an approximate “opportunity time line” as it applies to when the home will be foreclosed upon. It will also keep you from wasting your time putting offers on homes offered as “short sale opportunities” —especially with the knowledge of junior lean holders’ 10 percent loan balance minimums and when a home is actually scheduled for foreclosure.
So you know, when an NOD is filed on a property, the owner has 90 days to bring the loan current, including any back taxes. If after 90 days the borrower is still in arrears, they are given an additional 20 days to pay the loan in full. After that, the home is foreclosed upon. If an NOD has yet to filed on a property, and with the time it’s taking to get banks to issue them, a prospective buyer could wait up to a full year or longer for a bank’s short sale decision.
My advice: “don’t get involved in a short sale purchase unless there’s only one mortgage lender with a 1st trust deed recorded on the property. If price really matters, concentrate on REOs (bank-owned homes); this is where the real bargains are in today’s market.
Posted at 01:47PM Dec 03, 2009 by Paul Pickering in Real Estate | Comments[0]
