About Short Sales

F.G. (NY): “Foreclosures are the top subject in the economic news today. Will it affect my condominium association too? What can be done?”

Dear F.G.: Foreclosures stalk condo owners like a predator looking for his prey. They are at an all time high in over 20 years, especially in the big cities. They are evenly split between builders going out of business and buyers that bite off more than they can chew. With people’s financial house in complete disarray due to general economic conditions or loss of income, condo foreclosures are becoming a fact of life. This is more common than most would have you believe.

If mortgage payments are not made by the current owner, a foreclosure may occur. The bank or lending institution will sell the unit at below market value. This is devastating if it happens to you.

The bank or mortgage lender has no choice but to get some money back through foreclosure because of the lack of payment by the owner. The bank or lender may allow someone else to make the payments and move into the condominium.

When too many condominium owners lose their units to foreclosure, condo associations feel the financial pain. That is bad news for homeowners who depend on them to take care of building maintenance, property insurance, utilities, landscaping, and other amenities that are shared in common.

Borrowing money from a bank or from the association’s reserve, reducing contributions to reserves, reassessing costs, renegotiating service contracts, and delaying capital expenditures are some of the actions that the Board of Directors can take. Obviously, these actions are not very palatable to the owners. Cutting back on amenities, increasing monthly assessments, and levying special assessments usually affect owners immediately.

The Board can offer payment plans or loans to the owners. They can waive late fees or penalties to help owners catch up on delinquencies. Some condo associations are assessing anywhere from $10,000 to $30,000 per unit to make up for the shortfall.

Just because the funds are inadequate, associations cannot abandon their fiduciary responsibility. They must continue to make an effort to collect delinquencies.

When a condominium association forecloses on a unit, the payments will cease. The bank or mortgage lender may accept a deed to the property from the association in lieu of a foreclosure. This could result in a faster sale of the unit to a new owner. The top priority is to get someone into the condominium who will pay the assessments.

Times have changed. Foreclosure stalkers (politely called investors) are not showing up in bunches at foreclosure auctions to snap up great bargains. We always used to hear about the great times when condominium properties were sold with profit to interested buyers and the associations recovered all their money - plus making a profit that financed the new landscaping at the front gate. Those times are gone!

It’s unfortunate but foreclosed homes currently represent half of all of all the homes sold in the US. Before the bank forces foreclosure there is in a period called pre-foreclosure which can last anywhere from two to twelve weeks. Many of the real estate gurus have made a fortune on pre-foreclosures and consider it as one of the best, if not the best, way to invest in real estate.

Many of the ‘for sale by owner’ signs that you see are from owners that are in pre-foreclosure. The bank usually allows the homeowner time in which to try and sell their home before it is foreclosed. This is common because the bank is not in the real estate business and would prefer the current owner sell the home to cut their losses rather then having to seize the home themselves.

Here are several reasons that real estate experts feel it?s a better idea to purchase a home during a pre-closure period instead of waiting to buy a foreclosed home at a government auction:

- Pre-foreclosed houses are often times cheaper considering it?s being sold by a home owner that is in a hurry to sell it before facing foreclosure.

- Because you are working with the owner you’ll be able to ask questions about the property you wouldn’t be able to otherwise.

- Typically less competition then at a foreclosure auction where there is multiple bidding for the same property. Foreclosures attracts more of the mass real estate market then pre-foreclosures does.

- More time to evaluate financial scenario then at an auction.

- You will be given more time to access and evaluate your finances before buying a pre-foreclosed home.

- You can bring an inspector along with you to inspect the pre-foreclosed home. You will be given more time to have it looked over.

- You will be allowed to make a low down payment on a pre-foreclosed house. At a government auction you would be required to pay the total amount in cash.

As with any house purchase make sure you check for any judgements, or liens against the estate. Bring along someone how is familiar with buying real estate and if possible have the house professional inspected. The risks are comparable to a traditional type of home purchase but with the advantages of foreclosure discounted pricing.