Short Sales

Short sales. We have all seen the term but are not sure what it is? There is much going around about short sales but not everyone knows exactly what they are and how to go about purchasing one. Please allow me to shed some light on the subject.

First of all, for those of you that do not know what a short sale is. A short sale is where the bank/mortgagee/lender has agreed to take less for a property than what is owed. For example, if you have a $150,000 mortgage but homes in your area are selling for $130,000 it would be difficult to sell your home for more than $130,000. In a short sale, the bank will agree to let you sell your home for less than what you owe, $150,000. Sounds great doesn't it? But there are some drawbacks. Let's see what they are.

Sellers are more than happy to sell their property to get out from the burden of debt they can no longer carry. The following are some terms, and problems, most sellers are unaware of.

Deficiency. A deficiency is the difference between what you owe the bank/mortgagee and what you sell your property for. For example, if you owe the bank/mortgagee $125,000 and sell your property for $100,000 there is a $25,000 deficiency. Someone will have to make up this difference because banks are not in business to lose money. Typically a bank will not let you sell your house for less than what you owe without a deficiency. In this scenario you are still responsible for the remaining $25,000. Sometimes, if a property owner has shown, and can prove hardship (loss of job, death of the family breadwinner, work related injury limiting wages, and various other things that would cause someones income to be greatly reduced) for an extended period of time, the bank will waive the deficiency. However, the property owners problems are not over yet.

Gifts. If the bank/mortgagee shows compassion and waives the deficiency it is now considered a 'gift' by Uncle Sam. In Uncle Sam's eyes the bank has 'gifted' you $25,000 by not making you pay the remainder of your debt. Because it has been 'gifted' it is now considered income and you will have to pay taxes on it. Either way you look at, the bank/mortgagee or Uncle Sam are going to get their cut.

For Buyers the attractive prices are easy ways to lure you into the process of buying short sales. To lure buyers in short sales are listed 10, 20...50% less than comparable properties. More often than not the bank/mortgagee have not given approval of the short sale The price was there to lure an uneducated buyer into submitting an offer. By doing this the seller shows the bank/mortgagee there is activity on the property and they are trying to sell. It is great for the seller but the buyer is getting into unchartered waters .

Banks, especially larger banks, are flooded with short sales. Their short sale departments are usually understaffed and overworked making the process of buying a short sale extremely long and drawn out. When a buyer makes an offer, even if the offer meets price and terms advertised, it could take months for a response. That is just the response, not an accepted contract. If negotiations need to take place you can usually add a minimum of a couple more weeks. Finally, after the price and terms are set you can start the closing. Oh by the way, that will probably take another month, if not longer.

I hope this has helped shed some light on short sales. If you have questions on short sales, foreclosures, or private sales please feel free to contact Pete Popovich at 1.800.845.9506 or 843.338.6737 or pete@schembrarealestate.com

Foreclosures, Foreclosures, Foreclosures!!!

FORECLOSURE. For most of us the word Foreclosure means a home, condo, or property that can be purchased for mere pennies on the dollar. Although that might have been true in the past, the foreclosure market is vastly different today than the foreclosure market of years past. Allow me to explain.

Foreclosures, in the traditional sense, have always been the result of someone who has fallen on extremely difficult and unfortunate times; i.e. loss of job/business, divorce, death, etc. However, years ago the lending requirements for home purchase were much more strict then they are today. A 30-year mortgage, 5-10% down payment, interest only loans, etc were almost unheard of . To purchase a home you often needed 25%-30% down with only a 10-15 year term. Because of this there was much more equity in a home when foreclosed on and the bank could sell it for significantly less and still make money.

Fast forward to the modern era. A vast portion of foreclosures today are the result of people that got into exotic loans; i.e. interest only, reverse amortization, 100% financing, etc. Because of these exotic mortgages banks do not have the equity in foreclosures they once did. Without any equity a foreclosed property does not have the 'wiggle room' in price that many people think. As a result banks are less inclined to let these foreclosures go for a 10, 20, 30% loss.

Another point to consider is some banks are currently flooded with foreclosures, often understaffed. As a result the time it takes to get a response from the Seller, i.e. the bank, is significantly delayed, often for weeks. Buyers are left to ponder while their Earnest Deposits are tied up. Foreclosures are often distressed and in need of extensive work to make them habitable. In some cases foreclosures have the baggage of liens and back taxes.

So remember, the next time you see the word FORECLOSURE and start to get excited you might not be getting the deal you thought. If you enjoyed reading this blog and would like further information on foreclosures in the Hilton Head/Bluffton area contact Pete Popovich at 843.338.6737. Don't forget to log on next week for our blog on Short Sales.

Family Enjoyment for Less!

In the past 100 years there have been 11 recessions in our country, or 1 approximately every 10 years. During this time people realize the old way of doing business is broken and new ways need to be found. Values of everything, including real estate, go down because people are afraid of what might happen. Those that are savvy take advantage of this once in a decade opportunity and purchase things when they are at their lowest!

People purchase property on, and around Hilton Head Island, for three reasons 1) Family enjoyment 2) Family enjoyment 3) Family enjoyment. If you and your family have always wanted to enjoy the amenities our beautiful island has to offer, on a more permanent basis why wait? Now is the perfect, once in a decade, opportunity for you and your family to purchase property on Hilton Head Island. Take advantage of rock bottom interest rates and property prices and start to enjoy the life that you and your family have always dreamed about.

Traditionally if something is at its lowest there is only one way for it to go, up. With interest rates at their lowest levels in over 37 years and home prices their lowest in a decade now is your chance to take advantage of this opportunity and capitalize. Why wait for interest rates and prices to rise before you buy something? You and your family deserve to enjoy a 'piece of paradise' for less!