The Difference Between Foreclosures and Short Sales

We get this question all the time - what is the difference between a foreclosure and a short sale? And which is the better deal?

A foreclosure or REO (which stands for Real Estate Owned) is a property that the bank has already taken back through the foreclosure process. The owner has moved out and the bank holds legal title to the property. In some states the previous owner still has a “redemption period” to get the home back from the bank. But Las Vegas foreclosures are final and the bank can turn around and sell them right away. An offer on a foreclosure property can take anywhere from one day to two weeks to be accepted by the bank and usually 30 to 45 days from acceptance to close.

A short sale or pre-foreclosure, on the other hand, is where the owner owes more money on the property than it is worth and is trying to sell it for less than the amount owed. An offer to purchase may be approved by the owner (who is not going to walk out with any cash anyway), but the contract is still subject to final approval by the bank (or banks if there is more than one mortgage on the property). The bank has to agree to take less than what they are owed. Once a bona fide offer is received, the seller is required to write a hardship letter stating why they should be eligible to do a short sale. They must also provide bank statements, paycheck stubs, and a financial statement to show that they cannot make the payments. In addition, the seller’s Las Vegas real estate agent must provide a market analysis of the most recent comparable sales to justify the selling price. The bank will also send out their own appraiser some time during the process to get an independent analysis done.

Just the approval on a short sale can take anywhere from 60 to 120 days, and sometimes even longer. Until the bank approves the sale, the buyer is in limbo, not knowing whether they will actually be able to buy the home. There is, unfortunately, no way to speed up the process. The banks won’t even talk to the real estate agents or sellers in the meantime to let them know what the status of the approval is. Often the property goes to foreclosure sale before an approval can be generated.

In either case, don’t expect to have repairs made or receive a lot in buyer concessions (closing costs paid by the seller). Most short sales and foreclosures are sold “as is, where is.” Banks will only be willing to do the minimum repairs to a property that will allow it to be financed. (Missing flooring, missing stove or A/C, etc.) On a short sale the seller does not have the money to make repairs at all.

In the past six months we have seen many short sales on Las Vegas homes and condos that have been foreclosed upon even though there was a good offer on the table. The kicker is, after the foreclosure is complete the bank often turns around and lists the property for LESS than the offer that was tendered!

Though this doesn’t seem to make any sense, there is actually a good rationale behind the bank’s actions. If a bank approves a short sale, they cannot write off the loss (the difference between the mortgage owed and the actual sales price). With a drop of more than 30% in the Las Vegas real estate market over the past two years, a home that was worth $300k might now only be worth $200k. If the buyer got in with no money down originally, the bank is facing a principal loss of $100k plus expenses and past due interest payments.

But if the bank forecloses on the property, they can write off 100% of the loss. Now they can afford to sell that $200k home for $170k and still come out ahead of the short sale scenario by taking the $100k+ write off on their taxes.

Generally speaking, we can get our clients better deals on Las Vegas condos and homes by targeting foreclosure listings. Foreclosure buyers need to keep in mind that EVERYONE is looking for those deals right now. Sales volume in Las Vegas in August and July was back up to 2005 levels, and most well priced foreclosures have multiple offers submitted. Most foreclosures are actually selling above the listed price, not below.

Buyers need to keep in mind that these foreclosures are steals to begin with. Then they need to have a savvy agent that can provide comparables to judge a home’s true worth. It’s not how much you can “get off” the sales price that counts - it is how much the winning bid is in relation to the home’s value. Buyers need to be patient and realize it might take anywhere from two to six offers to acquire the home of their dreams at the price they want to pay. But IT CAN BE DONE!

Loan Modifications for Las Vegas Homeowners?

After the boom of the Las Vegas real estate market 2003 through 2005 and the subsequent decline of 2006 through 2008 and the ensuing Las Vegas foreclosures, many borrowers have been left owing much more on their Las Vegas homes than what they were worth. For those going through divorce, health issues, job relocation or job loss who can no longer afford the payment terms on their loan, there are only three options: foreclosure, short sale or the newest rage: loan modification.

Foreclosure is the most drastic of the three alternatives. Not only is the borrower’s credit ruined for many years, the banks can later come after the borrower for any loss (deficiency) they may take on the home at a foreclosure sale.

A short sale is better, when it can be achieved. While the borrower’s credit is ruined for a number of years, the bank cannot look to the borrower to make up any loss the bank sustains as the bank has already “approved” the short sale amount. However, short sales are very difficult to close, and only an experienced Las Vegas short sale real estate agent can cut through the red tape. And, if the agent can find an investor to buy the home, often the investor is willing to allow the original owner to remain as a tenant.

A loan modification is a legal agreement that takes place between the home owner (or their legal representatives) and the lender that holds the mortgage note (deed) to the property. The modification is an agreement between both parties to resolve the homeowner’s financial situation so that he can afford the mortgage. It is intended to avoid a possible foreclosure and ensure that the homeowner can handle the new monthly payment on a long term basis. Depending on the circumstances, the lender may choose to lower the interest rate on the mortgage, lower the principal balance due on the mortgage, and/or extend the length of time for repayment of the mortgage.

Below are the top 5 frequently asked questions about loan modifications.

How does the loan modification process work? The process is simple, but results can vary greatly depending on how you go about it. Homeowners can try to negotiate on their own behalf with the bank to reduce the payments on their Las Vegas mortgages. But without the technical know how and an understanding of the systems and entities involved, seldom will the homeowners achieve success on their own. Or if they do, the rate and terms negotiated may not be the best possible.

The other way is to talk to a professional modification consultant and to see if you qualify. After you have been pre-approved, you will need to provide the back up documentation to your representatives. Your representatives will present your situation to your lender and handle the negotiating for you. The modification process can take up to 90 days, but the results usually benefit both the homeowner and the lender in knowing that a possible foreclosure will be avoided. Before anyone walks away from their home, they should find out if they qualify for a modification.

How do you qualify for a loan modification? Any homeowner that has experienced a hardship that prevents the homeowner from fulfilling their monthly obligations may qualify. Typically, anyone who has seen a loss of income, anyone who is currently late on their mortgage, anyone who is in foreclosure, anyone who has had medical issues, anyone who has divorced, or anyone who has had any other form of legitimate financial hardship that can be proved may be eligible for a loan modification. Modifications can be used for Las Vegas condos as well as homes.

What are the benefits of a loan modification? The benefits usually involve a lower interest rate for the homeowner, a reduction in the principle owed, and/or possibly the term of the loan can be extended. In some cases all three of these modifications can be negotiated for the homeowner. Each case is unique, and the outcome will be based on the negotiating between the client or their representative, and the lender. But typically anyone who has experienced a hardship should achieve a lower monthly payment.

What are the negatives of a loan modification? The negatives will also vary on a case by case basis. There is usually an up front fee charged by most companies. Be sure that you contact a modification consultant or company that has a high success rate and no up front fees. If a company does not use attorneys with strong relationships to the lenders, their chances of a successful negotiation will be less than those companies that have already established those relationships. Other negatives should be discussed up front by any modification consultant or professional company that you talk with.

So unless you find someone reputable that has successfully done Las Vegas loan modifications (preferably referred to you by a satisfied client) it may make sense to at least try and sell your home on a short sale. The benefit is, if the bank approves the sale they cannot come after you later for a deficiency judgement for any money they may lose. If you would like more information on the shortsale process and how it works, please contact our office at 702-985-7654. With so many homes for sale in Las Vegas, you need to make sure you choose an agent experienced in the short sale process.

Canadian Financing for Las Vegas Real Estate

We have discovered a great lender for Canadians wanting to buy Las Vegas homes or condos, either as a second home or as an investment! This lender charges no loan discount points or origination fees, and the rates are the same as what a US citizen can obtain.

Lately all our blog posts have been about finding Las Vegas mortgages for our clients. With the high rate of national foreclosures, many traditional venues and programs have been discontinued, leaving buyers, even those with substantial down payments, in limbo. It has truly been a challenge for us to find mortgage lenders with reasonable down payment and rate structures.

In our never ending quest for foreign national financing for Las Vegas real estate purchases, we have literally stumbled across a lender who is able to loan money at competitive rates to Canadian citizens. This lender is able to use Canadian credit scores and income to provide mortgage loans for the thousands who are trying to flee a harsh winter climate for a few months each year.

General program guidelines for this lender are as follows:

The program is available for both second homes and Las Vegas investment properties. The minimum down payment is 20%, although the best financing on investment properties would be with a 25% down payment.

The programs that are offered are full qualifying loans. Available are the 3/1, 5/1, 7/1, and 10/1 Adjustable Rate Mortgages. Each is a 30 year loan with a 30 year amortization locking in the loan rate for the short term of the loan. For example, if you got a 3/1 ARM, your start rate would be locked in for three years. (Rates are typically lower for shorter loan locks.)

The typical documentation list is as follows. Based on your own individual circumstances, more documentation may be required:

2 years personal tax returns including all pages and schedules
2 years T4s
2 years corporate tax returns including all pages and schedules (if self employed)
Most recent 2 months bank statements reflecting name, account number, and 2 month transaction history
Most recent 1 month retirement / investment account statement reflecting name, account number, and current balance.
Mortgage statement on any property owned in borrowers personal name reflecting name, property address, current balance, current interest rate, and current payment.
Line of credit statement on any property owned in the borrowers personal name reflecting: name, property address, current balance, current interest rate, current payment, and available balance.
Lease agreement for any rental properties.
Clear copy of passport to include the signature page and picture page.

Two unique benefits of this lender are their rate renegotiation prior to closing and their loan modification process.

The rate renegotiation is available to a client in the event that they lock their rate in but before closing rates drop. The borrower has the ability to renegotiate the rate to that day’s pricing with a modest premium paid.

The loan modification process would come in to play should rates drop after the borrower has closed the loan. There is a one time modification available to the borrower. It allows them to simply lower the rate with no documentation, appraisals or closing fees that a refinance would incur. It is one page that the client signs and it gets recorded behind the deed of trust. Again, a modest fee is paid for this privilege should the borrower elect to take advantage of it.

Like all loan programs, there is no guarantee on how long this one will last. So if you are a Canadian citizen who has been thinking about purchasing property in the States, call us right away so we can put you in touch with this lender. 702-985-7654 Once your financing is in place, we can find you a phenomenal STEAL on Las Vegas foreclosures! Las Vegas Nevada real estate hasn't been priced this low in almost ten years.