For perhaps the first time in history, bank owned properties are numerous in just about any real estate market. First time homebuyers, investors, and the average homebuyer in the U.S. markets are eager to purchase bank owned property.
On the surface, bank owned properties seem like a great deal. Often, they do offer significant savings. Yet the purchase of a bank owned property, whether it is a short sale or a foreclosure, also comes with specific parameters and cautions for the buyer and the seller. Buyers must remember that a bank owned property purchase is vastly different from the routine property acquisition.
Bank Short Sales Statistics in Southeastern Virginia
Halfway through 2010, there are over 50 bank owned property listings in Williamsburg, James City County, Yorktown, Northern York County and sections of New Kent County and Charles City. In Hampton and Newport News Virginia, there are approximately 175 bank owned homes for sale. In the Northern Neck Counties on the Chesapeake Bay, there are 28 short sales and foreclosures for sale. These numbers indicate the recession is not over. Homebuyers can expect bank short sales and foreclosures to be listed for some time to come.
For property owners who are underwater, or owe more on the home then it is currently worth (and/or cannot afford their present mortgage due to reduction in income, unemployment, or change in life circumstances) a bank short sale may be a viable option.
Bank short sales are a tedious process. Those banks who accepted TARP money, such as Bank of America or Wells Fargo (the former Wachovia) are more inclined to short sale a property. These banks actually have the leverage to take the loss on the loan.
Some banks are not so amicable about a short sale. Instead these banks allow properties to go into foreclosure. Statistically, an average of 75% of short sales are withdrawn or often end in foreclosure. Banks can hold the inventory this way, and wait for property values to increase.
Buyers and sellers need to know that a short sale may take anywhere from four weeks to eight months or more to complete. If a buyer and seller are participating in a short sale, they must be patient.
There are some tricky issues with short sales of properties. To complete a short sale, a good attorney is necessary. The attorney will negotiate with the bank to obtain the best possible conditions for sale of the property. When there is a second mortgage on a property, there is little chance the company will receive any proceeds from the short sale. Since the second mortgage stands to loose the most from this type of sale, the company may hold up the process.
Making a short sale on a property does not ensure the property owner will leave free and clear from financial responsibilities. Mortgage companies may still elect to hold the former homeowner responsible for financial losses even after a short sale is completed. A knowledgeable REALTOR will retain a qualified real estate attorney to ensure that the final contract includes verbiage requesting the remainder of debt owned by the first or second lien holder is forgiven. Inserting this clause may or may not work, but it should be written into the contract.
The best way to find a foreclosed property (or a short sale) is to retain a qualified REALTOR in the desired area. This REALTOR will conduct a special search on the MLS for bank owned properties.
Foreclosed properties may be recently vacated, and some may have been left empty for a year or more. Some property owners elect to speak with their lender about their inability to maintain the loan, then voluntarily vacate the property instead of waiting for foreclosure. The homeowner will send the deed and keys to the lender and leave the premises. If a homeowner leaves in this manner, some banks may even forgive the unpaid balance.
Mortgage companies and banks like to privately “extend and pretend.” This means the lender acts as if the loan is performing so they don’t have to declare it as a non-performing loan. If the loan were classified as non-performing, the bank would have to pay more reserve money to ensure the investment. Bank owned properties stand vacant longer in this market for this precise reason
Once the lender takes possession of the property, it has the option to auction the foreclosure at the courthouse. Often these home auctions will only net 50% of the home’s value. If a lender cannot obtain enough money for the foreclosed property through public auction, it may hold it and leave it vacant or put it on the real estate market.