Massachusetts Foreclosures - Short Sales
Foreclosure proceedings typically start with a formal demand for payment which is usually a letter issued from the lender. This letter of notice is referred to as a Notice of Default (NOD). The lender will typically issue this notice when the homeowner has been 3 months delinquent on the mortgage payments.
If the home owner deems that he can not continue making payments for the property, he will try to sell it. Unfortunately because of the steep drop in home prices, some home owners will be forced to attempt a short sale:
- Sell for less: In a short sale, the home owner will try sell his property for less than is owed to the bank. For example, the owner may have bought the property for $400k and still owes the bank $380k. Since buying the property, the home has lost significant value. In a short sale, the owner may try to sell the house for $350k. This means that even if he sells the house, he will still owe the bank $30k ($380 owed to bank - $350k selling price)
- Saved credit rating:If the home buyer is able to successfully sell his home and the bank agrees with the price, the bank will usually forgive the remaining amount owed ($30k in the above example) and the home owner is able to save his credit
- Stop making payments: Since the foreclosure process anywhere from 6 to 12+ months, the home owner is able to stay in his property without making any mortgage payments. In essence, they are living in their property rent free in exchange for ruining their credit
Short Sale Pros
- Motivated seller: The home owner has a firm deadline to sell him home and has to sell it within the foreclosure time period (usually 6 months) otherwise the bank will take over the property. As the deadline draws nearer the owner will drop the price as much as he can to get the property sold.
- Face to face negotiation: Since the home owner is selling the property, the home buyer will be negotiating with a real live person who is motivated and willing to reduce prices even more.
- Good Condition: Since the home owner still owes the property and in some cases, he is living in the home, the condition of the home will usually be good.
- Good prices Prices are usually good during this process ask the home owner is willing to negotiate. In addition, banks are equally motivated as the foreclosure process is highly expensive and they want to avoid the process as much as the home owner. Banks would rather sell the home at $350k today (so they can reinvest it) rather than the same amount much later (6 months+) when the foreclosure is complete.
Short Sale Cons
- Uncertain bid process Once a home owner has agreed to sell the property for a certain price, the bank must review and approve the transaction. In some cases, the bank will refuse to approve the sell of the property because the price is too low.
- Emotional home owners Getting foreclosured is stressful process and home owners trying to short sale their property may be going to a mix of emotions. Some times this stress leads to irrational behavior a difficult negotiation process