Which Option Is Best For You?
Short Sale
- You are in control of the sale, not the bank.
- It allows the homeowner more time to find a new place to live instead of facing eviction.
- Contrary to popular belief, you can be current on your payments and still effectively complete a short sale.
- Typically less damaging to your credit report than a foreclosure because you make an effort to work it out with the bank.
- If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
- Judgments are often negotiated between the seller and the short sale bank. In some cases, such as in California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
Foreclosure
- May prevent the homeowner from obtaining another home loan for 3 years.
- With certain restrictions, you may be able to buy another home in 3 years if the home was your primary residence.
- May also face tax liability. If the lender chooses not to record the deficiency judgment they have the option to write off the loan and issue 1099 which the homeowner will pay taxes on.
- In California, a deficiency judgment may be filed regarding a hard-money loan, and the sale takes place as a trustee’s sale.
REO
(already foreclosed homes also known as “Real Estate Owned” or “Bank Owned”) and Short Sale homes are commonly lumped together in terms of distressed property sales; however, they are quite distinct from one another.
- Short sales happen before a property goes to foreclosure. Short Sales are sold by the homeowner with a Realtor representation. Once a buyer is procured, the homeowner approves the offer, subject to Lien Holder approval. Realtor will negotiate with the homeowner’s lien holder to get the offer approved below the loan amount balance. Many of the short sales incumber additional liens (tax liens, second liens, HOA liens) that may be required for the Buyer to pay off. These can be negotiated down or eliminated when the bank is also willing to accept a higher loss.
- REO/Bank Owned properties are sold after the home is foreclosed and the bank or lender takes control of the property. REO sales are directly negotiated with the Lien Holders, through an assigned Realtor. In most cases, REO properties have clear title as the banks pay off previous/other liens that were encumbered on the property.
- REO/Bank Owned properties auctioned at the County Court Steps, are not always guaranteed to have clear title. These properties are often sold as is, sight unseen. In most cases, these properties are sold to cash buyers.
Short Sale and Foreclosure Market
The Orange County market is generally low in distress property inventory; however, opportunities are out there. These may range from condos, starter homes, to custom estates priced well into the millions. Short Sales and REO’s have been in all neighborhoods including Aliso Viejo, Laguna Niguel, Ladera Ranch, Irvine, Newport Beach, etc. These are not always price point driven.
When deciding to purchase a Foreclosure or Short Sale home the best options “truly rely on the buyer and their priorities.” When the real estate market is a Seller’s market, chances are the banks will not be as inclined to negotiate as much as they would in a Buyer’s market. Please note that distressed properties also may propose additional costs for a Buyer. Many banks do not offer to pay the typical seller’s costs due to the loss they are incurring with the sale. This means more out of pocket costs for a buyer.
To learn further if a foreclosure or short sale is right for you, consult with Cesi Pagano and Associates directly.
