When homeowners fall behind on their mortgage payments, the threat of a foreclosure or bankruptcy becomes overwhelming. To avoid these problems, many homeowners decide to pursue a short sale. Despite the name, short sales can take up to several months to materialize. Even after all the time and effort, however, just one mistake can lead to a foreclosure anyway.

Learn from These Short Sale Mistakes

A homeowner might be so desperate to free themselves from their mortgage and avoid foreclosure that they make careless mistakes during the short sale process. To make your short sale successful and prevent the chance of a foreclosure, avoid:

• Failing to market the house. Short deals are bound by the lender’s deadline. If you don’t sell the house in time, then the entire short deal may be void. To ensure that your house is sold during the proper time frame, take every opportunity and avenue possible to market the short sale.
• Waiting to speak with your lender. Many homeowners in danger of a foreclosure decide to pursue a short sale without getting approval from their lender. However, just because the homeowner successfully manages a short sale, the lender might not agree and is under no legal obligation to do so. Furthermore, homeowners must adamantly make the case to their lenders that they are under extreme hardship and absolutely cannot pay the mortgage.
• Showing restrictions. Sellers who create appointment restrictions and various rules and regulations limit their potential. Appointment restrictions limit the potential buyers who would have otherwise visited your home, while creating stringent rules such as “no photographs” is likely to turn off buyers. In the end, the seller must be as cooperative, not restrictive, as possible when dealing with both the lender and potential buyers.

Part of the reason the housing market has begun its, albeit slow, recovery is due to more  lenders accepting short sales in lieu of foreclosures. Although the market isn’t necessarily healthy, a short sale saturated market beats a foreclosure saturated market any day. In fact, there is much to be gained for homeowners looking to score a good deal, but it comes with considerations.

Making It Work

Buying a short sale isn’t for the faint of heart. It takes a lot of effort and patience to successfully navigate the process on the part of the both the seller and the buyer. However, you can get your dream home for a great price if you follow a few tips:

Best offer — unlike  buying a home in a traditional sale, submitting a bid on a short sale should be your best and highest offer possible. There is very little room to negotiate in a short sale, and the bank is likely to reject any offer that is “low balled”. Remember that the short sale is already likely to be listed far less than fair market value, so going in at the highest you are willing to  pay is your best strategic move.

Clean offer — when buying a short sale it is important to remember who holds the power, the lender. This means that they have the power to accept or reject on offer for any reason they see fit, including minor things like asking for closing costs assistance, financing conditions or the like. When submitting your bid on a short sale, present the cleanest offer possible that does not require any additional effort on the part of the lender.

While it is important to put your best foot forward, always be smart about purchasing a home. Don’t enter a contract you are not comfortable with. Home inspections and financing a budget friendly amount is important, so don’t force a bid on a home that may be out of reach because of the lender’s standards.

The housing market is in a unique position these days. For sellers, times can be tough as many foreclosures and short sales are available, bringing down home prices. For buyers and investors, now is a great time to potentially get a good deal. But, is buying a short sale really worth it?

A Great Deal?

By now you probably know that short sales can be a lengthy process, and one that is full of waiting to hear if the bank has approved your bid on the home. For some people, the up to four month waiting period is no big deal; for others it can be a deal breaker. Not only is waiting a problem when you may be required to vacate your current property, but there can be time limits on your loan that jeopardize the final sale of the property. Bank loan approval letters often give a 30-45 day limit to close on the property before the approval becomes invalid. With a short sale, you could easily be subject to reapplication procedures for your loan approval.

Waiting periods, strict and clean offer requirements and, in some cases, higher down payment and closing costs are all common deterrents for people looking to buy a short sale. However, they aren’t all bad news. Here is how to increase your chances at a smooth and successful short sale:

• Be sure you have enough cash to put towards down payment and closing costs before applying for a loan pre-approval.
• Get a loan approval letter and ask your potential lender for recommendations about buying a short sale.
• Work with a short sale experienced realtor to help you find the best deal and negotiate the sale.
• Present your highest offer the first time, making it as free from terms and conditions as possible.

While not everyone is jumping at the chance to get back into the real estate market, industry analysts suggest we have been seeing signs of improvement in the last several months. A short look at what is going on today reveals some promising signs for homeowners and those struggling with underwater homes.

Positive Trends

The market has been saturated with foreclosures and short sales for quite some time, both of which have put a damper on an already weak industry. New reports suggest that the number of foreclosed homes or those in short sales is decreasing. People are buying them at great prices and many have been able to avoid putting them into the market to begin with through help from lenders by way of mortgage modification.

As a result, home values are rising for the first time in years. This comes as great news to current homeowners who have been riding out a storm of sinking value for a while. The median home price in many areas of the country rose by $30,000 in recent months, some areas seeing value increases near 50 percent. Of course, this rise in value by 50 percent isn’t helping sellers turn a profit just yet; but is, instead, helping to regain lost ground from years past. Regardless, demand from buyers is up and sellers may actually have a shot at breaking even, if not profiting, in the near future.

These days, both borrowers and lenders are looking more towards short sales as a foreclosure alternative. With close to 40,000 short sales already completed this year through Fannie Mae, the Federal Housing Finance Agency is announcing new rules to help streamline the process.

Efficiency Is Key

The new guidelines for Fannie and Freddie are designed to consolidate all short sale programs into one streamlined program. The idea is to allow borrowers to determine their eligibility for a short sale and lenders to qualify borrowers for a short sale with greater ease. Starting November 1, 2012 the new guidelines are as follows:

• Borrowers holding Fannie or Freddie backed mortgages will be automatically eligible for a short sale if they have experienced a death of a co-borrower, divorce from a co-borrower, disability or illness, or are required to transfer for employment.
• Borrowers will be able to pay off a deficiency balance at the time of closing rather than be pursued legally for the balance at a later time.
• Borrowers who are military personnel who are relocated will be eligible with no obligation to pay the deficiency balance upon sale of the home.
• Borrowers are now eligible to receive up to $3,000 in relocation assistance upon sale of the home.

Lenders will also be under new rules that will require them to:

• Respond to offers within 30 days.
• Provide weekly updates as the status of an offer.
• Communicate the final decision within 60 days from receiving an offer.

Lenders are now offering short sales as a foreclosure alternative in today’s real estate market. While short sales can benefit both the distressed seller and the lender, they do come with some ill effects for others.

Apples To Apples?

One of the biggest issues short sales bring with them is their effect on neighborhoods. While short sales aren’t as damaging to the value and appeal of a neighborhood as a foreclosure, they can drag down the rankings of other homes.

Areas with high volumes of short sales are finding that they affect appraisals of nearby homes. In other words, traditional sellers are finding that their home isn’t worth what it could be simply due to the comparable properties nearby selling for reduced prices in a short sale. This is especially damaging in areas hardest hit by the foreclosure crisis, such as Florida and Nevada; where the sale of non-distressed properties is resulting in a loss for the homeowner.

Homeowner complaints have begun to flood the offices of each state to review how appraisals are conducted. Concerns are growing about the fate of the housing market and any chance of future recovery if even non-distressed properties continue to take losses.

Five years ago buying a short sale was practically unheard of, but in today’s housing market they can be a hot deal. While most sellers and buyers are aware that short sales can be difficult, most people have no idea how to prepare for the process.

Expecting The Unexpected

There is no doubt that the seller has the toughest job in the short sale process. As an alternative to foreclosure, they are selling only to avoid going under financially and suffer credit damage. As the main mediator between a potential buyer and the bank, the seller has no power and all the responsibility. Sellers should be aware that they can only accept an offer to present to the bank and cannot officially declare the home as sold. Further, sellers should expect that the bank will reject offers and the process could be prolonged, costing them continued payments on the mortgage until the house is sold.

Buyers are in a unique position to gain a home, often for less than valued. However, buying a short sale takes patience. Buyers must present the best offer possible to eliminate a drawn out negotiation process. Banks are often unwilling to accept offers full of conditions or that lack an adequate price. Buyers should be aware that their top dollar for purchase is generally the best offer to make right out of the gate. Further, it should be expected that it can take anywhere between one to six months before hearing about the status of their offer. Therefore, buyers should not consider a short sale if time is of the essence.

While many of us are off playing in the sun, some families are facing tough times fighting off foreclosure through short sales. A recent review of real estate statistics predicts that short sales may peak to all time highs this summer, particularly in harder hit areas like Nevada, California and Florida.

Seasonal Spike

One reason the increase in short sales is expected during the summer months is that most families plan their home selling and buying before the start of the new school year. Summer is one of the busiest times of year for all home transactions and with a large short sale inventory sitting around, many are finding hot deals on homes in their desired neighborhoods. Not only can families gain a great deal on a home, many sellers are finding they can get out from under their mortgage debt more easily than in the past winter months.

Lenders are also jumping on the pro-short sale wagon, which has lead to the increase in short sale supply on the market. Now finding that short sales are more profitable than a foreclosure in most situations, lenders are approving short sales at much higher rates. As far as the market goes, short sales are also more favorable than a foreclosure saturated market, which tends to carry a heavy stigma.

While no one wants to be on the losing end of all the short sales going on in the real estate markets throughout the country, many people are jumping at the opportunity to be on the purchasing end.  Short sales can be great opportunities for you to be a buyer.  Banks are anxious to get these houses that came onto their books because of mortgage debt out into the market and off their hands quickly!  Here are a few tips on how to take advantage on short sales and profit from another’s unfortunate mortgage debt.

Tips on Short Sales

Get your credit score in line ahead of time, and make sure you qualify for purchasing the kind of short sales you are looking into.  These deals happen fast because the banks don’t want to have them on their hands.  You have to be ready to go as soon as you find a house that matches up with your needs and desires.  Being prepared is essential to getting what you want out of short sales.

Don’t sign anything until you’ve actually seen the house.  Because many short sales are dealing with houses whose owners had mortgage debt (and likely other financial problems), the house may not be in top physical condition.  Know what you’re getting into, and don’t let the mood of the quick deal pressure you into buying something you’re going to regret later on.

There might be tax breaks or other government incentives associated with buying short sales.  Ask the bank and your real estate agent about these before you get too far in.  You might be able to afford something better than you initially thought!

When it comes to working your way through the mass of financial information and terms that’s thrown at you as a homeowner, you’ll probably find that good, clear definitions can be hard to come by.  With recent developments in government policies relating to short sales and foreclosure, many homeowners (especially those facing financial difficulties) find themselves asking, “What are short sales?

Short Sales

Short sales are increasingly common in today’s down real estate market.  When a mortgage owner can no longer pay the mortgage, the mortgage lender will sell the house, using the funds to help pay for the remaining difference between what the homeowner paid and what the homeowner still owes.  Because the sale is always at a loss, it is known as a short sale.

A short sale can be a reasonable way for you, as a mortgage owner, to get out of a house that you can’t afford because of a change in your income or market conditions.  While short sales used to be extremely uncommon, these days they are more widely prevalent. However, the process can still be tedious for sellers and patience goes a long way towards a successful sale.