About Short Sales

One of the latest buzz in real estate business today are REO properties. REO stands for Real Estate Owned.

With a glut of REO properties on the market and so many short sales facing impending foreclosure, many buyers are wondering, and are even confused about, which offers a better investment opportunity.

Foreclosure happens not only if the owner fails to pay but also when the lender refuse to cooperate.

In order to recover the expenses incurred on a foreclosed property, the mortgage company or bank would like to hire a real estate agent to help them find a good buyer for the foreclosed property.

The idea of foreclosed properties shouldn’t scare you as these properties may range from poor to perfect condition. The property is foreclosed simply because of the inability of the owner to pay the mortgage.

Buying REO homes is often seen as a very safe way to buy or invest in property, especially for the novice. There is no risk to the purchaser and you can be certain of the ownership, as the bank provides a good clear title.

In order to succeed in the real estate business, one needs to have a thorough understanding of REO and how it works. Buying REO’s could really be a good investment opportunity for those who understand the whole concept.

It can really be tough to invest in an REO. It helps to have all the information you can get in order to help you decide whether or not to invest with an REO property.

A short sales is one of the tools mortgage lenders use in soft real estate markets to deal with the high tide of foreclosures they’re experiencing today. When a homeowner with a high mortgage balance gets behind on his loan payments, a lender has a decision to make related to how to handle the default. He can either start foreclosure procedure or try to get the homeowner to sell the property and pay off the loan.

If the owner is willing to cooperate and sell the property, lenders will often settle for an amount far less than the current balance owed on the mortgage loan. Lenders would rather give homeowners a shot at selling the property below market value before running a foreclosure auction. When a home is sold at a price that won’t net enough proceeds to pay of the entire mortgage balance, this is called a short sale.

Though it seems counterintuitive, lenders are willing to give the go ahead for home sales at prices that won’t satisfy the full balance owed on the mortgage. This short sale process provides a lender-approved means of mitigating a lender’s losses due to a homeowner’s default and subsequent foreclosure on the property.

Why would a lender approve the short sale knowing it will result in a loss? In the event of default on the loan that carries a high balance, the lender is simply trying to lose less than he might if he were to actually foreclose and repossess the house. The cost of foreclosure is high. It includes legal fees, lost interest, eviction costs, property taxes and insurance and real estate commissions.

This is why negotiated short sales may often bring the lender a higher net amount than a home acquired through foreclosure and resold later. Lenders have taken so many REOs (repossessed houses) they are now facing enormous costs, time, and losses as these non- performing assets are sitting on their books. But the foreclosure costs aren’t the only thing that creates an enormous pressure on lenders.

Lenders are also pressured by local governments to keep repossessed, unoccupied homes in good repair in order to keep away vandals and drug criminals. Some municipalities even file civil lawsuits against lenders who fail to keep REO properties in good repair, result in even greater losses for the lender. Considering all of the ways in which a foreclosure could cost the lender money, short sale becomes a lender’s preferred alternative.

Many lenders slash prices deeply in an attempt to get rid of their crowded REO inventory, and lenders now realize just how much of a financial burden a large inventory of REO homes can be. Because of this, lenders are very motivated to avoid foreclosing on homes in the first place. Short sales have become so common that many lenders now have specialized staff on hand whose primary job is to handle short sale offers submitted on properties in foreclosure. Lenders are pulling out all the stops to avoid foreclosing on properties that add to their growing inventory of foreclosure homes with high ownership costs and associated expenses.

Short sale has many advantages for home buyers, since it provides an opportunity to buy a home at a substantial price discount before the public foreclosure auction. Realize though that a short sale is always subject to lender approval. Real estate investors can take advantage of this option by “flipping” the home to sell it at a profit, or by using the bargain home as a rental for ongoing income.

But why would a homeowner agree to a short sale? With so many homeowners out of work and unable to pay their mortgages, more and more homeowners are facing the real possibility of foreclosure.

When homeowners are in over their heads with over-financed homes and no resources to pay high mortgage costs, short sale is often the only choice to exit a home gracefully after defaulting on a mortgage loan. For investors, short sales present an ideal opportunity to sell a foreclosure home at a great profit.

It’s possible to handle your mortgage loan modification process yourself. If you decide to take on this job, it’s important to know what to do. Even more important is knowing what NOT to do! In this article, we’ll take a look at a few mistakes to avoid when turning in your mortgage loan modification application.

Mistake: Talking with the wrong person. If you get called at home by someone from the collections department, don’t start talking to them about mortgage loan modification. Then can not and will not help you. They may say that they will help you if you pay up, but in reality they can’t help you. Speak with the correct department at your lender’s office instead.

Mistake: Not taking the time to study the mortgage loan modification process. If you don’t take the time to do a little preparation before turning in your application, you may as well save yourself the hassle. Without preparation, there is an enormous chance your proposal will be denied.

Mistake: Not being completely truthful on your application form. This will get you in trouble. Many people fail to realize that a lender WILL check up on the facts provided on a mortgage loan modification application. If you get caught, you will immediately lose all chances of getting your mortgage loan modification accepted.

Mistake: Paying a big upfront fee to your mortgage loan modification company without checking their credentials. Because of the rise of foreclosures these days, there are a lot of mortgage loan modification companies rushing into the market. Some of these companies are not very qualified to handle your mortgage loan modification. You need to make sure that you’re dealing with a qualified, reputable company before paying them a dime. Mortgage loan modification should get you out of financial hardship, not deeper in the hole.

Mistake: Not reading up on the approval criteria of your lender. If you fail to study the approval criteria for a loan modification proposal, you will almost surely get denied. Most mortgage loan modifications get denied because of the fact that the applicant has not read up on what should be included in his or her modification proposal.

Your application will look good to a lender if you don’t make the mistakes we’ve outlined in this article. The final decision is up to the lender, but taking the time to do your mortgage loan modification right greatly increases your chances of being accepted.