Thursday, May 29, 2008

Short Sales & Foreclosures in Philadelphia

During any market, good or bad, people look for bargains. In the current market, there is a lot of curiosity and interest by consumers in the difference between foreclosures ,pre-foreclosure properties and short sales.

Strictly speaking, every property is a pre-foreclosure property. The term however is used to indicate a home where the homeowner is in default under the current mortgage, and the next step for the lender might be to begin the foreclosure process. Once a lender begins the foreclosure process, they have taken steps to secure the property which was pledged as security for a debt which is now delinquent. In Pennsylvania, this process culminates in a Sheriff Sale. At the Sheriff Sale, the bank will bid an amount equal to the debt, the delinquent interest, the late fees and all of the costs incurred taking the property to the sale. If there is a third party who bids a higher amount, they will be the purchaser at the sale. The amount bid by the lender is not related to the market price of the property, but to the outstanding debt. Once the lender owns the property, they will evict any tenants (or former owners) and then price the property at a market price and begin to market the property.

Short Sales were formerly fairly rare, but with a higher level of delinquencies, have now become a portion of the real estate market. The actual of a short sale is a sale where title has transferred; where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cure all deficiencies. As you can see, this is a situation where settlement has already occurred. More properly, what most buyers get involved with is a potential short sale, which is one where the listing (and/or selling) agent reasonably believes the purchase price may not be enough to cover payment of all liens and costs of sale and the seller is unwilling or unable to bring sufficient liquid assets to the closing.

These sales require a buyer with a lot of patience, a cooperative seller, and a listing agent with a lot of persistence since the process involves not only the agreement of the seller, but the approval of the lender, who is probably receiving less then the amount they are owed. Approval of a short slae by a lender may involve not only the primary lender, but possibly approval for other individuals who have an interest in the original mortgage loan, or possible releases from lenders who hold junior liens (liens that were recorded after the first delinquent loan). In the current market, many lenders are more responsive and more flexible then formerly, but the process still varies from lender to lender, and approval times can be anywhere from two weeks to as much as 4 or 6 weeks.

While I might not avoid a property that was a potential short sale, I would, as I said before, be prepared to be very patient, and to determine prior to making any offer, just how ready I was to wait as long as it takes to get an answer.


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