SHORT SALES:  THE LEAST YOU NEED TO KNOW.  The last 3 offers I wrote in Santa Cruz Real Estate would have been short sale transactions

•q       "RISKY" ALTERNATIVES TO THE SHORT SALE:

Become an "Equity Purchaser," aka "Shark." One who is a Non-Owner occupied "equity investor," buying a sellers equity at a DEEP DISCOUNT, to bring loan current. The EP is often deeded onto title. Seller's often remain in the property as co-owners, or rent back from the EP. The plus for the seller is no damage to credit, with a place to live, without moving.

Beware of the "Foreclosure Consultant," who charges a separate fee (not a commission) for a "Rescue Plan" Consultation, and does not have any agency with bank, buyer, or seller. This means no fiduciary responsibility. "Consultants" often do not hold real estate licenses. Both Equity Purchasers and Foreclosure Consultants invite Civil Code Violations CC 2945 and 2945.11, which protect distressed sellers from fraud by the above. 

Be aware of the: "Soldiers and Sailors Act" by Congress, which provides protection with an Automatic Stay of Foreclosure, for military.

•q       A "SHORT SALE" IS DEFINED BY: "ALL liens of record PLUS costs of sale, EXCEEDING CURRENT MARKET VALUE." Said to be "Upside- Down" in payment.

Simply put: Seller owes more than what they can sell for.

This includes, but not limited to: Tax Liens, Mechanics Liens, 1st TD, 2 TD, 3TD et al., Unpaid Judgments and Small Claims, and Unpaid HOA Dues. (Many people who do not pay their mortgage are also not paying many other bills, which may be secured by real property. For example: Home Equity Lines of Credit (HELOC's), Mechanics Liens, and Boat Notes).

•q       BANKS DO NOT INITIATE SHORT SALES. SELLERS & AGENTS DO:

The above Beneficiaries (aka "Bennies") are always negotiated with by the seller, or assisted by the agent. Lien holders rarely agree to 6% listings. Commissions can range from 1-5%, depending a number of factors.

•q       "VALUE OF A SHORT SALE VS. THE COST OF FORECLOSURE" ANALYSIS:
 
This is performed by the bank. Banks take up to 45 days to perform this analysis, only after a Short Sale Package is submitted.  All lien holders must weigh options before committing to a Short Sale, IN LIEU OF A FORECLOSURE. By foreclosing, lien holders assume all the risks by taking back the property:

•q       RISKS INCLUDE:

Exposure to vandalism by the seller, deferred maintenance costs, cost of actual foreclosure process, the months of unpaid mortgage, (at least 4 months!). Also, the cost spent marketing the REO (Real Estate Owned), and commissions paid to future agents.

•q       A four-month process is typical from Notice of Default (90 Days/ 3 Moths), to a Notice of Trustee's Sale (21Days/3 weeks), and is sold at auction by Trustee's Sale on day 22 if no resolution is reached, AND NO BK IS FILED.

•q       Many sellers will file chapter 7 Bankruptcy, forcing a "Stay of Foreclosure." Some sellers do this simply to buy time sufficient to close a current escrow, and then just cancel the BK application. This is known as "Stopping the Clock" of the four month process. Once a bankruptcy is accepted, a bank IS NOT ALLOWED to offer a Short Sale to the seller, and will be sold at a BANKRUPTCY SALE.

•q       The bank then hires attorneys to file for a "Relief of Stay" which allows them to continue foreclosing even though you are in BK.

•q       However, courts are reluctant to approve this, and prefer a BANKRUPTCY SALE in order to pay off more creditors than a NON-JUDICIAL FORECLOSURE would, provided there is more equity over and above paying off the lien holders. Other "Non-Secured" creditors may be able to be paid off.

Example: If 450k is owed on the home, and the home can sell for 600k, the courts know the bank will "under price it" to recapture just the loan and costs- but not a penny more, especially in a declining or even a flat market. Banks want to "cut their losses." Courts want to realize the MAXIMUM RETURN, where Banks want only the note value and costs.

(In a rising market, banks are willing to price REO's along side the competition, going with the upward trend).

•q       WHAT TO ASK A SELLER:

It is very much like a traditional listing except for the "sense of urgency," caused by deadlines and a sense of doom by the seller. Ask the seller: Did the seller disclose All Liens and encumbrances? Are there Late Payments, Notice of Default, or Notice of Trustee's Sale? Determine with a net sheet if there is enough equity to pay all liens AN