Foreclosures & Short Sales
Foreclosures & Short Sales
If you’re having trouble paying your mortgage and would like to talk about your options, please contact us so we can discuss your situation in detail. You can also contact the Colorado Foreclosure Hotline at 1-877-601-4673 (HOPE).
If you’re interested in purchasing an investment property, foreclosure and/or short sale property, please contact us so I can begin finding a home that meets your specific criteria.
nounnoun: foreclosure; plural noun: foreclosures
The selling of “real property”, by legal action, to satisfy a debt to a third party, when the property has been pledged as security for the debt and there is default of the payments and/or terms of the agreement.
In other words, the lender agrees to lend you the money as long as you make payments. If you don’t, they can and will take back the property.
The timeline for a foreclosure sale is as follows:
- After missing a few payments (the number can vary) the lender will file a Notice of Election and Demand (NED) with the Public Trustee in the county in which the home resides. This is the start of the clock.
- NED recorded within 10 business days of receiving packet from the lenders’ attorney.
- Sale date is set between 110-125 calendar days after the NED was recorded.
- Combined Notice is mailed within 20 calendar days after the NED was recorded.
- Second Combined Notice is mailed with 45-60 calendar days prior to first scheduled sale date.
- Combined Notice published in local paper 45-60 calendar days prior to the first scheduled sale date.
- Notice of Intent to Cure must be received at least 15 calendar days prior to the first scheduled sale date. The cure, in the form of a cashier’s check, must be paid by noon the day before the sale.
- The court order authorizing the sale and the signed and itemized bid must be received by noon two (2) business days prior to sale day.
When a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
Short Sale example:
You owe $100,000 and the lender agrees to accept $90,000 as payment in full. They may or may not require that you pay the deficiency amount after the short sale is completed. The deficiency amount is NOT taxable, as of January 1st, 2008.
Specific and standard procedures are set forth by Colorado statute for notice, conducting the sale and redemption rights. These procedures are administered by the Public Trustee of the county in which the home resides.
6 Common Short Sale Misunderstandings
Short sale transactions can be an excellent choice for homeowners who must sell and who owe more on their homes than their current values. Unfortunately, there are numerous misunderstandings regarding short sales and it is extremely important to understand the proper procedures and best practices in this process should you choose this path for your homeowners/sellers.
THE LENDER/BANK WOULD RATHER FORECLOSE THAN CONSIDER A SHORT SALE TRANSACTION.
This is likely the most common misunderstanding. In reality, banks DO NOT want to foreclosure on properties, as the foreclosure process is rather costly and lengthy. Banks, lenders, investors, and even the Federal Government have stated publicly if a homeowner is qualified for a short sale, the transaction needs to be considered, based upon:
- FINANCIAL HARDSHIP: There is a current hardship causing the homeowner to have trouble affording his mortgage.
- MONTHLY INCOME ISSUES: The lender will want documentation showing that the homeowner cannot pay the monthly payment or will soon not be able to afford the monthly payments.
- INSOLVENCY: The lender will want proof that the homeowner does not possess significant liquid assets that could pay down the debt of the mortgage.
YOU MUST BE LATE ON YOUR MONTHLY PAYMENTS TO BE ELIGIBLE FOR A SHORT SALE.
While this may have been true in the past, today, lenders/banks are interested in verifiable hardships, monthly payment shortfalls, or pending monthly payment shortfalls and insolvency. If the homeowner meets these requirements, and is unable to afford his mortgage, act immediately. Any delay may limit the homeowner’s options for a short sale transaction.
IT IS TOO LATE TO NEGOTIATE A SHORT SALE TRANSACTION BEFORE THE FORECLOSURE.
This misunderstanding probably hurts the homeowner the most. Many mortgage holders do not understand that foreclosure is a long process, and there is time to evaluate options and potentially make decisions that could result in a better outcome.
LISTING A PROPERTY FOR A SHORT SALE IS AN EMBARRASSMENT TO THE HOMEOWNER.
It is quite understandable that homeowners may have reservations about going public regarding their financial distress. Recent predictions, however, indicate that one in eight homeowners in the U.S. is currently behind in their payments.
SHORT SALE TRANSACTIONS ARE IMPOSSIBLE AND NEVER GET APPROVED.
This is inaccurate. Short sales are becoming more streamlined and lenders have become more knowledgeable and willing to work with homeowners to complete these types of transactions. Real estate professionals are also becoming better educated in the short sales process. There are absolutely no guarantees in any distressed situation; however, the short sale transaction process has become more efficient, while timelines for approval have also become much shorter.
PROSPECTIVE PURCHASERS ARE NOT INTERESTED IN SHORT SALE TRANSACTIONS.
This is a major myth and homeowners hear this frequently, oftentimes causing them to be wary of listing their homes as short sales. This is not accurate. In fact, many real estate professionals receive phone calls/emails from prospective buyers who only want to look at short sales or foreclosures. For prospective buyers, short sales and foreclosures are synonymous with, “wise financial transactions”. International buyers are targeting these distressed assets as well. Those real estate professionals who choose to obtain the necessary knowledge to become proficient in the short sale transaction process will be in a position to help more clients.
Short Sale FAQs
Q. How does a short sale affect my credit?
A. Although a foreclosure will lower your credit score by ~200 points or more, there isn’t enough data yet to estimate how much a short sale will affect your credit. With the number of short sales increasing, the effect will be easier to estimate in the next 1-2 years. A short sale shouldn’t be as damaging as a foreclosure.
Q. How long will it take my bank to approve a short sale?
A. This depends on a number of factors, including how many lien holders there are, how big the deficiency is and whether there is mortgage insurance on the loan. Generally, it can take anywhere from 60 days to over a year.
Q. Why does it take so long for a short sale to be approved?
A. Many large banks (like Bank of America) have multiple backend investors for each loan, so they have to get approval from all parties before they can accept anything. Other factors that affect the length of time include whether or not your loan has mortgage insurance on it and if there are multiple mortgage loans. To get a true approval, all interested parties have to accept the deal.
Q. Both of my mortgages are with the same company. Will this speed up the short sale process?
A. It depends on the bank. Some banks will treat this situation as one loan but others won’t. The main factor is whether or not there are different backend investors for each loan.
Q. Is there any hope that the short sale process will be more efficient in the future?
A. Short sales appear to be taking less time now that banks are implementing more systems. Banks are realizing that it costs them less to do a short sale than a foreclosure, so they are motivated to do more of them. As an example, Bank of America is doing 7 times more short sales than foreclosures!
Q. Why are banks starting to do more short sales now, rather than foreclosures?
A. Banks have 2 main reasons for the switch from a “foreclosure” mentality to a “short sale” mentality. (1) Short sales are usually much cheaper than foreclosures and (2) they are receiving government incentives to perform short sales.
Q. If I have to sell my home or I think I might fall behind in my payments, should I call my bank first?
A. In most cases, yes. Many times, your bank will be more willing to work with you down the road (short sale, loan modification, etc) if you’ve been proactive with them and tried to work something out up front. The bank DOES NOT want to foreclose on you or accept a short sale because it costs them so much money. They would prefer working things out with you, if possible. Typically, your bank won’t even talk to you about this unless your 1-2 months late on your mortgage payments. If they won’t talk to you, give me a call and we can discuss your options.