Blog - Casey Margenau

Foreclosure vs. a Short Sale

By now everyone knows that the real estate market is suffering from at least 20% reduction from its high. During that period many buyers were signing up for loans that deferred higher payments to the future. Adjustable rate loans, negative amortization loans and others form the same ilk, along with job lost are now having a negative effect on homeowners. This leaves many homeowners with unaffordable house payments or a home that is valued less than its purchase price. What do you do?

Obviously, if you must sell your home and cannot afford to “bring money to the table” or cannot keep up your mortgage, you are looking at scenario that you may not want to face. If you are one of these homeowners you may be tempted to walk away, but sticking your head in the sand, never works. For instance, you may still own the bank or others for liens on the property even after it has been foreclosed and/or repossessed by the bank. Fortunately, there are other options that allow both the bank and the seller to come out ahead.

In lieu of foreclosure another option is a “Short Sale.” Just what is a Short Sale? A “Short Sale” is when a lender agrees and accepts less than the total amount of the debt to release the property’s deed of trust or mortgage to allow it to sell. A Short Sale can be a Win-Win for everyone. Now be careful, many think, and I have seen it that you will automatically be released of the debt and will end up owing nothing. That is not always the case. However, there are many good reasons to consider a short sale over a foreclosure especially if there is more than one mortgage or deed of trust.

A short sale done right can save the lender money (legal expense of a judicial foreclosure), bring in a higher value for the seller and the market by having the home sell at a higher value.

Most of all, the seller, as noted in the short sale vs. foreclosure matrix, comes out a winner. First, you may be able to negotiate a lower payment or even no payment under certain conditions until the home sells. Of course, you will need to maintain the property, pay the utilities and other related home expenses. But for that, you get control of the sale, not the bank, and you can stay in your home until settlement. You also spare the social and financial stigma of being foreclosed on. Your credit is much less harmed and those with security clearances can save them. See matrix.

The buyer can benefit by getting a great value, since the buyer has to be flexible in things like settlement and also gets the opportunity to buy a home that might not otherwise be able to be sold. The market also benefits because values are consistent with or homes and the house is maintained for the potential buyer and neighborhood.

If a short sale is something you may need to consider there are things to think about.

As you can see from above a short sale effects credit less than a foreclosure. You may be able to buy another home after only two years. Now let’s get into how this works: if and only if you get someone who knows what they are doing, you can be release from the loan. It is not always the case. Many lenders, especially the 2^nd trust holders will try to keep you on the hook for the remaining balance. But under a short sale, since you have the power of control of the sale, you are empowered to require a release of liability. Your power is only as strong as the banks’ interest in foreclosure. This is why a negotiator is key. Today like anytime there are people that try to take advantage of a short sale processes for their own capital gain. This is something you need to watch out for and stay away from...

Some buyers will come in offering to buy your home but have an end-game. This investor will only buyer if he can find a buyer willing to offer him more money. This action is more commonly referred to as “flipping.” If he does not find someone then the investor will just walk away. The investor will then try and take on the bank’s negotiator, this is like letting the fox watch the hen house. These folks are trying to make a profit off of others misfortunes.

The goal is to sell your home, get out from under liability and get started on rebuilding.

Tax Credit Statements and October Sales Numbers

NAR economists estimate that the current tax credit has contributed approximately $22 billion to the general economy, and approximately 2 million people will take advantage of the tax credit this year.

They say that “The substantial rise in home sales we’ve seen over the past few months proves that the tax credit is working” This incentive is helping to stabilize the housing market and stimulate the economy. Extending and expanding the home buyer tax credit will enable even more families to take advantage of current low interest rates and affordable prices to invest in their future through homeownership."

Northern Virginia: October 2009*

*Courtesy NVAR, www.nvar.com

The Northern Virginia Association of Realtors® reports on October 2009 home sales activity for Fairfax and Arlington counties, the cities of Alexandria, Fairfax and Falls Church and the towns of Vienna, Herndon and Clifton. A total of 1,604 homes sold in October 2009, a 10.09 percent increase above October 2008 home sales of 1,457.

Active listings decreased by 21.91 percent from last year, with 6,877 active listings in October, compared with 8,806 homes available in October 2008. The average days on market (DOM) for homes in October 2009 decreased by 38.30 percent to 58 days, compared with 94 days in October 2008.

Sales prices were lower than those realized last year. The average sales price in October decreased by less than one percent from October 2008, to $424,510, compared with last October's average of $427,502.

The median price of homes sold in Northern Virginia rose in October to $356,800, which is a decrease of less than one percent compared with October 2008's median price of $359,000.

The number of pending home sales in Northern Virginia in October shows an increase of 24.06 percent at 1,990 compared to 1,604 in October 2008.

Greater Northern Virginia: October 2009*

Sales activity in Greater Northern Virginia (NVAR jurisdictions plus Prince William, Loudoun and the Greater Piedmont counties) for October 2009 shows a decrease from October 2008.

The number of Greater Northern Virginia region homes sold in October was 2,902 a 3.27 percent decrease from October 2008's total of 3,000 sales. Pending home sales showed a slight increase from October 2008's 3,543 to 3,670 in October 2009, a 3.58 percent increase.

The average sales price of $360,964 in October 2009 increased by 5.86 percent over October 2008's average sales price of $340,993.

Across Greater Northern Virginia, the number of listings showed a decrease from 2008 numbers, with 13,395 listings active, which is 26.84 percent less than this time last year, when 18,309 homes were available. The average DOM for a home sold in October 2009 was 57 compared with last year's 103 DOM, a decrease of 44.62 percent.