By Sunny Isles Real Estate Expert on May 4th, 2011
Buying Miami foreclosure home is a far different thing than buying a Miami short sale home
Both of them involve properties that are in distress. A foreclosure action is taken by the bank that owns the mortgage on the home when the owner becomes behind in their payments. There is a specific process the bank must go through to take this action and, in the end, the bank owns the property.
A short sale is a much different thing. There are specific consequences for the buyers involved in these transactions and it’s important to understand what you’re getting into if you decide to buy a distressed property in either scenario.
Purchasing Foreclosure Homes in Miami or Fort Lauderdale
When a homeowner cannot make their mortgage payments for some reason and falls far behind, the bank will try to recover their money by seizing the home. After the home is seized, the homeowner loses all of their rights to the property and the bank will generally sell it off as quickly as it can. Approximately 4% of the homes in the use are facing the specter of foreclosure.
When a homeowner falls behind in their payments—usually 3 months behind, in most states—the lender will send what’s called a Notice of Default (NOD). The NOD informs the homeowner that their property will be put up for sale if they fail to make good on their mortgage payments and constitutes a threat to take the home away from the homeowner. The bank, not having been paid, has this option and the homeowner will likely find themselves without a roof over their head if they don’t make the situation right. This happens for many reasons. Recently, high unemployment and the bursting of the Miami real estate bubble have contributed to what’s been termed the Foreclosure Crisis in the media.
Buying a home that’s in foreclosure is much faster and more convenient than buying one that’s being offered in a short sale. If you make an offer to the bank, they have 7 business days to reply, ensuring that there is speedy communication between the buyer and the bank. Where a short sale is concerned, the situation is much different.
Purchasing Miami Short Sale Property
A short sale is a way that the homeowner tried to make the situation with the bank right but is also one in which they walk away from the property.
A short sale is oftentimes brought about because the homeowner is facing a financial hardship. They may have lost their job, incurred high medical expenses or have endured some other setback that resulted in them not being able to make their house payments anymore. When this happens, they have the option of simply defaulting on their loan, which is never a good idea. As an alternative, they can arrange for a short sale of their property. They may also pursue this action if the value of the home is less than the total amount of loans and liens against the home; a situation that is oftentimes referred to as a mortgage being “underwater”.
The bank has to approve the short sale. This requires that the borrower provide them with evidence of their financial hardship. This is oftentimes done with the assistance of a realtor and the bank or other lender will generally take the petition more seriously if it’s filed by a real estate professional.
After the bank has approved the short sale of the home—which may or may not happen—the home is put off for sale in the normal fashion. It is listed on the Miami MLS system and the realtor does the work of advertising and showing the home to perspective buyers. The difference between this transaction and a normal real estate transaction is that the lender understand that the property will not sell for the value of the loans against it and, therefore, that the sale will be literally short of the original value of the home.
The seller gets to walk away from the sale without owing any money, in the ideal situation or them. This is a way that they can sell their property instead of having it foreclosed upon and it is sought out by sellers who want to mitigate the damage to their credit. There will, however, still be damage to their credit in this situation.
For the buyer, the real difference is that the short sale process is a competitive bidding process. It can take up to 6 months or a year to find out whether your offer has been accepted. Because you have committed to that deal, of course, you cannot make offers on other homes that may become available on the market. This can severely limit the ability of the buyer to stay active in the real estate market and, of course, this makes the arrangement much less attractive to very aggressive buyers.