Between Pre-Foreclosure and REO Lives the Short Sale Opportunity

Wednesday, February 24th, 2010 | Bank owned, Foreclosures, Pre-foreclosure

These days you can’t turn on the news without hearing the latest statistics and status of the housing foreclosure crisis. It’s everywhere, and not likely to go away anytime soon. But, do you really know what is involved with a foreclosure? Do you know what going into foreclosure means to the distressed homeowner? Let’s look at some of the basics, and also find out when is the right time for a real estate investor to jump on a short sale opportunity.

The foreclosure process is essentially a conversation between the homeowner, lender and real estate professional. Together they need to decide what to do with the home since the grand Plan A (home ownership via regular and consistent mortgage payments) has not worked. Unfortunately, it often ends up being a one-sided conversation, with the lender doing all the talking. This is where the savvy real estate investor can play a pivotal role by negotiating with the lender on behalf of the homeowner. Here’s what happens in the foreclosure process:

1. The homeowner is making regular payments (Plan A) on a mortgage from a lender.
2. The homeowner loses their job or primary source of income, jeopardizing Plan A.
3. The homeowner scrambles to find money to make their payments, but those resources quickly run out, and the mortgage payoff adds up with each missed payment.
4. The homeowner tries to find a buyer to pay an asking price for the house that will cover their loan amount, which is difficult in an unstable real estate market.
5. More mortgage payments are missed. Meanwhile, the lender earmarks the property for the “heading to foreclosure” list, and notifies the homeowner.
6. After regaining their breath, the homeowner realizes they need a Plan B. This is when the desperate homeowner is going to be most receptive to any offers of help, and this is where you come in.
7. The lender files a lawsuit to repossess the property, kicking the foreclosure process into gear. This foreclosure notice becomes public record, and now (at pre-foreclosure) the short sale negotiations can begin.
8. Meanwhile, more mortgage payments are missed, and once the lender received final approval from the court for the foreclosure, an auction date is set.
9. The home’s value is determined by a drive-by appraisal, which sets the opening auction bid (generally 2/3 of the estimated value).
10. The property is auctioned off to the highest bidder (end buyer, investor or the lender). Ninety-six percent of the time, the lender “wins” and turns the property into an REO, or bank-owned property.
11. At auction, all opportunities for a short sale are over, unless your state allows a redemption period after the auction.
12. The lender then tries to sell the property to an end buyer or investor for a partial recovery on the unpaid loan. They can then legally pursue the homeowner for the unpaid portion of the loan through a deficiency judgment.

The details may vary by state, but the main steps are the same. As a real estate investor and short sale expert, you can provide relief to the homeowner by stopping the foreclosure process, and giving them a chance to get out of a very stressful situation. Don’t be left wondering what to do next…take the first step to building your short sale expertise by registering to become a Real Estate Rebel today.