Short Sales and Foreclosures

In today's constantly changing real estate market, I am constantly being asked about short sales and foreclosures. Most people want to know if I do them, and others want to know what all the hype they hear about them is about. I do work the foreclosure and short sale market, but it is a very complicated market. To make things a little bit easier to understand, I will first define what a foreclosure and a short sale are and then tell you the pros and cons of each.

A foreclosure is the legal process reserved by a lender to terminate the borrower's interest in a property after a loan has been defaulted. When the process is completed, the lender may sell the property (usually at an auction) and keep the proceeds to satisfy its mortgage and any legal costs. Any excess proceeds may be used to satisfy other liens or be returned to the borrower. Not that many years ago, purchasing foreclosure properties and reselling them was a highly profitable business if done CORRECTLY. Today it is much harder to make money with foreclosures. The main reason is that many people that are being foreclosed on owe more money than what their properties are worth. In the past, most people owed less than the market value of their homes because of larger down payments. Because of that, many buyers at the auctions perceived value in those homes being sold. Today things are much different. Most of the properties for sale at auction are worth far less than what is owed on them because of smaller downpayments, multiple loans on a property, as well as declining prices in today's real estate market.

So what is the definition of a Short Sale? A short sale occurs when a property sells for a price that is insufficient to pay back the loan(s) secured against it (or any other liens against the property, such as delinquent propert taxes, Homeowners/Condominium Association Fees, etc.) as well as standard sales closing costs. In such a case, in order to complete the sale, the Seller, must either: (1) come to the closing with sufficient cash from other sources to cover these shortfalls; or, (2) the lender(s) must agree to forgive all or a portion of the amounts they are "short" or make other arrangements for repayment (such as execution of a promissory note). This second alternative is commonly known as a Short Sale. As a buyer, purchasing a home thru a short sale, if done CORRECTLY, can be highly profitable. If done incorrectly, there can be a huge loss in both money and time.

Short sales and foreclosures are being discussed more and more in today's real estate market. There is an opportunity to make a great deal of money if done correctly. But like I mentioned before, there is a greater opportunity to lose both money and time. This is mainly due to the extremely complicated process and tax consequences associated with them. I would highly recommend getting involved in foreclosures or short sales only if you are working with someone that is very familiar with the process.

Amit Bhuta
Real Estate Helper
Kendall Village Homes
(305) 439-3031
www.DadeCountyMLS.com