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South Lake Tahoe Short Sales: A Primer for Investors (Pt One)

February 18th, 2010 categories: For Buyers, For Sellers, Foreclosures, Lake Tahoe Real Estate, South Lake Tahoe, CA, Stateline, NV, short sales

South Lake Tahoe Short Sales: The Evaluation

It starts with a South Lake Tahoe seller owing more than they can get.

This is the first of an eight-part series on short sales. Think of it as a primer if you will, one from the point of view of the home buyer / investor, although the short sale process discussed here is same for the South Lake Tahoe seller as well.

The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.

A short sale occurs when a homeowner can not pay their loan, but the lender concludes that selling the property at a loss will gain more proceeds than any other option. A short sale is therefore based on consent by both owner and lender. It is a means for both parties to avoid foreclosure, hopefully.

Not all short sale agreements, though, necessarily relieves the owner from the obligation to pay the remaining balance of the loan, which is known as a deficiency judgment, though in certain cases, and in certain parts of the country, they do exactly that.

It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.

(current South Lake Tahoe, CA short sale summary and statistics here)

Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Part Five: The Offer and Short Sale Agreement (here)
Step Six: The Lender's Short Sale Decision (here)
Step Seven: Negotiating with the Lender (here)
Step Eight: The Closing (here)

Part One : The Property Evaluation

A short sale can not occur if there is enough equity in the home to pay off the home loan, or if a lender thinks they can break even via foreclosure. The homeowner must be "under-water" in their loan. The property evaluation in this sense refers to whether it qualifies for a short sale or not. (The numbers come later.)

Here's what happens with a successful short sale: everybody wins!

  • The seller gets out of a loan they can not pay with less credit damage than that of a foreclosure.
  • The buyer most often gets to purchase a property below market value.
  • The lender ends up making more money than by foreclosing on the property.

The buyer is best served by a purchase at the lowest possible price that will be approved by the lender. Remember, the seller gets no cash out of a short sale, though some sellers can remain emotionally involved… because it is still their house that they are selling.

Often a short sale is on the market before it becomes a short at a higher price. The Owner's pricing strategy in cases like this is usually at a price that will pay off the loan, and hopefully a little bit more. In today's market, though, homes priced with this in mind from sellers who are in, or are approaching default, rarely sell.

To approve a short sale, many lenders want to see some documentation that the market will not produce a sale at a price sufficient to pay off their loan. A record of the house being on the market for some time at a price that would do such, an appraisal, and/or agent price opinions are examples of these kind of documents.

Buyers must look closely at short sales.Here's what we counsel our buyers to look for in a short sale transaction:

  • A property with only one loan (second mortgages always complicate the process exponentially).
  • A home with clear title and no liens or claims against it.
  • A home with enough time to complete the short sale process before the lender might take foreclosure action.
  • A willing, detached seller who wants to avoid foreclosure, get the house sold, and move on with his life (the condition of the home is often a good indicator of this).
  • Documentation the home is at a bargain price, sufficient enough that equity is instantly created with purchase (we routinely provide extensive home evaluations for all of our buyers).
  • Evidence from the seller, or sellers representative, that we think might convince a lender that a short sale is necessary.

In summary, a buyer wants to look for a homeowner owing more on their home than they can get in a sale, and a situation where the lender will approve a purchase price that meets their investment, or home ownership goals.

Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Part Five: The Offer and Short Sale Agreement (here)
Step Six: The Lender's Short Sale Decision (here)
Step Seven: Negotiating with the Lender (here)
Step Eight: The Closing (here)
 

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This entry was posted on Thursday, February 18th, 2010 at 8:07 am and is filed under For Buyers, For Sellers, Foreclosures, Lake Tahoe Real Estate, South Lake Tahoe, CA, Stateline, NV, short sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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