Are you wondering what type of sale, a foreclosure vs. short sale, will give you the best return on investment?

It is often tough to decide which one will give you a better ROI but knowing the details about each type of sale, will help in making your buying decision. In most cases, both properties will usually be distressed and there are usually additional steps you will have to take as the buyer when buying a distressed home.

• The definitions of foreclosure vs. short sale: With a short sale, the homeowner receives permission from the lender to sell the home for less than what is owed on the mortgage. This is a pardon from the banks because the homeowner can no longer afford the mortgage payments but they want to avoid foreclosure. A foreclosure is a property that is now owned by the bank. The previous owners did not pay their mortgage and after falling delinquent, instead of requesting a short sale, were forced to vacate the property.
• There is a big difference in the time it takes for a foreclosure vs. short sale. Don’t be deceived by the name, “short sale” as they usually take much longer than a foreclosure. A lender has 30 days to respond to a short sale offer and up to 60 days to approve or reject the offer. After the 60 days, you must wait for closing. Just because the short sale deal is set, doesn’t mean the home will not be foreclosed. If the short sale deal takes too long, the lender may be forced to foreclose regardless of your short-sale deal. With a foreclosure you can hear back within a few days if your offer was accepted. If you are in a rush, a foreclosure is a faster route.
• In a foreclosure vs. short sale, a foreclosed home will be empty since the lender has evicted the previous owners or they have abandoned their home. Short sale properties still have the homeowners living inside. In most cases, the short sale homes are better maintained than foreclosed homes since the homeowners are still living in them. There is the chance that an angry distressed homeowner could cause deliberate damage to the home upon moving out.
• When negotiating a foreclosure vs. short sale, you usually have more negotiating power with a foreclosure. Short sales usually have limited room for negotiating, depending on how much the homeowner’s mortgage is for and what the bank is willing to work with.
• Foreclosures usually require more repairs to be made that short sale homes. In a foreclosure vs. short sale situation, make sure to inspect the home thoroughly and make sure you are aware of any major repairs needed to make the home livable. If you are buying a foreclosure, never spend more than 5 to 10 percent of your purchase price for renovations. If you do, you might be getting as good of a deal as you think.

Have you recently bought a foreclosure or short sale home? Please let us know your thoughts on the buying process. Looking to purchase? Please call The Lawhead Team at 760-518-8700.

Just yesterday we received a letter from the California Association of Realtors (C.A.R.) announcing new Fannie Mae and Freddie Mac Short Sale Guidelines.  See below:

Over the course of the past year and a half, C.A.R. has been working vigorously to address your concerns related to short sale transactions.  As a direct result of our efforts, we have made significant improvements through discussions with legislators, housing regulators, and lenders.

C.A.R. has long advocated for a streamlined, standardized short sale process, and I’m happy to inform you of changes announced today by the Federal Housing Finance Agency (FHFA) that will align guidelines for Fannie Mae and Freddie Mac short sales and allow lenders and servicers to quickly and more easily qualify borrowers for a short sale. 

Here are some specific changes that are effective Nov. 1, 2012:

• Eliminates current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).
• Enables servicers to quickly and easily qualify certain borrowers who are current on their mortgages for short sales without waiting for an approval from Fannie Mae or Freddie Mac
• Offers special treatment for military personnel with Permanent Change of Station (PCS) orders.
• Standardizes and clarifies foreclosure suspensions on a property with an approved short sale.
• May pay borrowers up to $3,000 in relocation assistance.
• Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.

Additionally, FHFA clarified that a borrower experiencing a hardship must wait at least two years before becoming eligible for a Fannie Mae or Freddie Mac loan.

These changes follow FHFA’s announcement in June that established strict timelines for servicers to respond to short sales within 30 days of receipt of a short sale offer, provide weekly status updates to the borrower, and communicate a final decision to the borrower within 60 days of receipt of the offer.

For details of Fannie Mae’s new short sale guidelines.
For details of Freddie Mac’s new short sale guidelines.

Military homeowners benefit from new short sale guidelines.

There are some new guidelines being put in place for short sales and one of the beneficial ones has to do with military homeowners.

Check out the article from DS News about the new guideline for military homeowners to make short sales an easier process to sell their homes without having to first go into default.

New Guideline Will Make Short Sales Easier for Military Homeowners

Under a new guideline, military members with Fannie Mae or Freddie Mac loans will now have an easier time with short sales.

Federal Housing Finance Agency (FHFA) Acting Director Edward J. DeMarco announced in a release Thursday that military homeowners who receive Permanent Change of Station (PCS) orders can sell their homes via short sale without having to go into default first.

“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction,” said DeMarco in a release. “These Fannie Mae and Freddie Mac policy changes, in combination with related guidance last fall, should now provide military homeowners with access to the immediate and automatic full range of foreclosure alternatives.”

With Short Sales making up a large majority of the real estate market, home buyers are forced to consider purchasing a short sale property.

While buying a short sale may not be the most pleasant real estate transaction, it is still doable and The Lawhead Team would like to provide some tips to making sure you are fully prepared to start your short sale buying process.

A short sale is an attempt by the current owner to sell a home instead of the bank taking it back to partially save their credit and lift the burden of the huge mortgage debt they were paying.  Unfortunately, with a short sale the entire process relies on the hope that the bank will take a loss, approve the sale and eliminate the costly process of foreclosing, clearing and reselling a home.

The potential buyer should keep these tips in mind:

• It is better to have a loan owned by one bank than two: If the seller has loans owned by two different banks it is a lot more difficult to approve the short sale. This is something the agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved. Buyers should know that when the seller only has loan(s) with one bank the short sale often becomes more buyer-friendly. 
• The bank doesn’t set the price, they agent and seller do: The agent and seller often create a very low asking price in order to attract buyers. The bank is normally unaware of the asking price; however, the bank has the final say in what an acceptable offer will be. Since the bank has the power to ultimately accept or deny offers, their lack of price awareness often leads to the process taking longer than anticipated. The bottom line is that the buyer needs to remain positive and patient throughout the entire process, sometimes even for months.
• Lowball offers are rarely given the time of day: Remember that the bank is typically unaware of the pricing during a short sale. When lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback. Surprisingly, it may also take painstakingly long to hear back even on good offers due to the high volume of transactions lenders are inundated with these days.
• Price should be based on comparables in the area: The agent must be sure to check recent home sales in the area to give buyers a better idea of the properties that are selling. This will give the agent and the seller appropriate grounds for an asking price that will be more likely to be approved by the bank. Checking comparables will also give the buyer a better knowledge of what price homes in the neighborhood are selling for and ultimately make them a more informed homebuyer.
• Don’t get attached to the one short sale you’ve put an offer on: Despite their name, short sales are normally not “short”. It can sometimes be a very long process. Don’t get your hopes up for just one property, keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic, the right property will come along. It is usually a good idea to have multiple offers out at the same time just in case the one you want falls through.
• If you are looking for a faster deal, put an offer in on an “approved” short sale: It is important to remember that short sales are not always timely; however, making an offer on an “approved short sale” can be a quicker process. An “approved short sale” has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up buying the property. These types of short sales are some of the most highly desirable.
• The bank ultimately has all the power: The bank has all the power in approving short sales. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer the buyers with large down payments while others just want the highest price regardless of down payment. Many buyers want to know if they will get a deeper discount for an all cash offer. This is very hard to predict and one will never really know until they make an offer. As long as the buyer is surrounded by a good team we would advise them to do just that.
• Buyer is responsible for any repairs: If there are improvements that need to be made on a home, even if they are necessary to get a loan, it is often unlikely that they will be done. Typically there is some sort of credit issued and the buyer must take the responsibility of fixing anything that is broken.
• Once the approval is made by the banks, you must close on or before the closing date: During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. Because of this, it is important to take care of all loan paperwork immediately after opening escrow. We’d advise buyers to be extra prepared and try to have the loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension will need to be made immediately. If the request is made early enough, many banks will grant an extension but don’t just assume it will happen.

Short sales can be a great opportunity to find your new home at a competitive price. A short sale could also be a major headache that lasts for months. It is important to have a good understanding of the factors that lead to a successful short sale to make it an enjoyable and profitable experience. Remember to contact The Lawhead Team for all your Real Estate questions and needs.