Foreclosures & Short Sales

In short, a foreclosure is a situation in which a homeowner is unable (or unwilling) to make principal and/or interest payments on his or her mortgage, so the lender, usually a bank, can seize and sell the property as stipulated in the terms of the mortgage contract. (Hence the term—bank owned.)  Often foreclosures appear on the market as homes for sale as bank-owned foreclosures.

Foreclosure Pricing

Often times, bank owned foreclosures are often priced BELOW market value, in order to generate many offers as quickly as possible. It is common for foreclosures in Coronado and San Diego County to sell well-above the asking price. Banks prefer to sell to all-cash buyers, but often buyers with conventional loans are acceptable.

If you’re buying a bank owned foreclosure, it is very important to move fast. Time is of the essence! Most of the time, bank owned foreclosures go into contract in just a few days.

Tips on Buying Bank Owned Foreclosure Listings

1. Budget Carefully. Don’t let a small price tag lure you into a quick deal. Make sure you have the money for extensive repairs.
2. Do your homework. Many bank owned foreclosures in Coronado and greater San Diego get listed far below market value to entice multiple bids above the asking price. Have your agent check the comps so you can make a competitive offer.
3. Pay for a good home inspection. Banks generally require a home inspection when lending money for a mortgage. But even if you’re paying completely out of pocket for an ultra-cheap find, you must get a good home inspection. Distress sales are famous for deferred maintenance. No one wants to move into a home and discover that sewage is leaking underneath the house.
4. Don’t ask for a termite report. Most banks won’t do them, and asking for one usually makes your offer less competitive.
5. Don’t trust the bank to make home repairs. Most bank-owned foreclosures are sold “as is.” Some, however, will agree to repairs. We advise you to hire your own contractor to make repairs. Banks will use the cheapest contractor around—who often does the worst work.
6. Pay for your own title report. Use a reputable title company to get a good title report. This is absolutely essential when buying a foreclosure because you need to insure clear title.
7. Look at the landscaping. If the house has been neglected, untrimmed vines, trees and bushes contribute to the deterioration of the house. It doesn’t take a big tree to mess up a foundation.
8. Work with a buyer’s agent. Unless you are a seasoned investor, please do not attempt to buy a bank-owned foreclosure without buyer representation. Distress sales are difficult transactions and the banks are notoriously hard to deal with.
9. Don’t expect to profit from a quick sale. Investors who buy intending to do as little as possible to a house, hoping to resell for a profit when the market turns around, may find little profit and a lot of headache.

Buying Short Sales in Coronado, CA and Greater San Diego

What’s a Short Sale? Short sales are when the seller owes more on the home mortgage than the home is currently worth. If he cannot (or will not) continue to pay the mortgage loan on the property, the lender may decide that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which usually involves big fees for the bank and a poorer credit outcome for the seller.

Some real estate experts estimate that up to 50% of real estate sales in 2010 will be short sales. We certainly have our share in Coronado and San Diego.

Short Sale Example

Say someone bought a house in 2005 for $850,000. He pulled all the equity out of the house in a refinance, and currently owes the entire balance of the mortgage–$850,000. Now he lost his job, and can’t make the mortgage payments. He wants to sell, but his home is only worth $700,000. If the bank agrees to let the home owner sell the house for $700,000 to a buyer, then what you have is a short sale.  Under many (but not all) circumstances, the bank will forgive the seller for the $150,000 deficiency.

If you are thinking of buying a short sale in Coronado or greater San Diego, it is important to know how they work. Short sales are not traditional sales, and they are usually the most time consuming, most difficult type of sale you can do. However, they can be great deals, so we always encourage buyers to make the offer.

Tips for Buying Short Sales

1. Be prepared to wait it out. Closing a short sale can take months.  If you are in a hurry, this is not the right type of sale for you.
2. Keep looking. Don’t get your hopes up for just one property. It’s important to keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic– the right property will come along. In most areas it is completely legal and risk-free to have multiple offers out at any given time with the proper contingencies.
3. Loans owned by 1 bank usually better than 2. If the seller has loans owned by two different banks, it is a lot more difficult to approve the short sale. This is something the agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved.
4. Lowball offers get slow or no response: Remember that the bank is typically unaware of the pricing during a short sale. When lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback.
5. Do your homework. Your agent must check comparables before submitting offer. The agent must be sure to check recent home sales in the area to give buyers a better idea of the properties that are selling. This will give the agent and the seller appropriate grounds for an asking price that will be more likely to be approved by the bank.
6. “Approved” prices are quickest: It is important to remember that short sales are not always timely; however, making an offer on an “approved short sale” can be a quicker process. An “approved short sale” has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up buying the property. These types of short sales are some of the most highly desirable.
7. Some banks look want strongest buyers, some want strongest offers: The bank has all the power in approving short sales. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer the buyers with large down payments while others just want the highest price regardless of down payment. Many buyers want to know if they will get a deeper discount for an all cash offer. This is very hard to predict and one will never really know until they make an offer. As long as the buyer is surrounded by a good team we would advise them to do just that.
8. When you get approval, must close on time. During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. Because of this, it is important to take care of all loan paperwork immediately after opening escrow. We’d advise buyers to be extra prepared and try to have the loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension will need to be made immediately. If the request is made early enough, many banks will grant an extension but don’t just assume it will happen.
9. Pay for a good home inspection. Banks generally require a home inspection when lending money for a mortgage. But even if you’re paying completely out of pocket for an ultra-cheap find, you must get a good home inspection. Distress sales are famous for having deferred maintenance. No one wants to move into a home and discover that sewage is leaking underneath the house.
10. Pay for your own title report. Use a reputable title company to get a good title report. This is absolutely essential when buying a distress sale because you need to insure clear title.
11. Work with a buyer’s agent. Please do not attempt to buy a short sale without buyer representation. Distress sales are difficult transactions and the banks are notoriously hard to deal with.
12. Don’t expect to profit from a quick sale. Investors who buy intending to do as little as possible to a house, hoping to resell for a profit when the market turns around, may find little profit and a lot of headache. Some cities are cracking down on neglectful property owners, charging penalties that increase over time, and unmaintained homes lose value quickly.

Interested in Buying a Foreclosure or Short Sale in Coronado, CA or Greater San Diego?

Search the MLS for the largest inventory of Coronado, CA and greater San Diego bank owned foreclosures and short sale listings. Or, get property details, photos, and other great info emailed straight to your inbox as soon as a property gets listed in the MLS with our automatic email updates. It takes just a minute to sign up, and you’ll get notified of new Coronado, CA and San Diego bank owned foreclosure and short sale listings before most agents know they exist!  Or, simply contact us for a free buyer consultation.