Short Sales and Foreclosures

A short-sale is a pre-foreclosure situation in which the lender agrees to accept a price/loan pay-off that is below the current loan amount - essentially to keep it from going to foreclosure.
 
We always need to verify that the lender has indeed authorized it before making an offer. Many properties are listed as short sales before the sellers have jumped through all the hoops and restrictions, only to find that they don’t qualify.

It’s possible for a buyer to snag a very good deal via a short-sale, but I have to warn you that the whole process tends to be exceedingly slow and frustrating without much assurance that you’ll actually end up with the property. Estimates are that 95% of short-sales never go through. The lender or servicing company will accept an offer on a property and then sit and wait to see if any better ones are coming in before giving its final approval. The time-lag for that has increased from a couple of weeks to several months or more. Until that happens there's no contract. In many cases the lender will simply reject the offer. Absurdly enough, if the buyer wishes to up the offer, the new offer goes back to the bottom of the pile and the waiting game begins again. The latest short-sale successfully completed in our office took over four months to close escrow.
 
Up to a couple of years ago nobody had ever heard of them in reference to real estate (they have no resemblance to stock short-sales). Now they're getting more common. Not many at the high end of the market, but once in a while we see one pop up.
 
Basically the seller is upside down with his loan. That is, the loan amount exceeds the market value of the property. But, he still owns and often still lives in the house because the bank hasn't foreclosed, yet.
 
One other consideration is that the property is always sold, "AS IS" so you're not going to get anything in the way of seller concessions or repairs. .
 
Some people focus on finding them exclusively, along with foreclosures, because a buyer can wind up with smoking deal. But, that can be a mistake because many of them come with major issues - made worse by neglect. Plus, the whole process of dealing with a lender's over-burdened bureaucracy (sometimes out-sourced overseas) that often doesn't seem to care whether or not the transaction ever happens is frequently, as I mentioned, very frustrating for everyone involved.

Or, the seller can inadvertently blow up the whole transaction by declaring bankruptcy at some during the process. In that case, the contract is canceled and the property put in the hands of the courts. All sorts of pitfalls abound, so they’re not for the faint of heart or anyone without infinite patience.

Beyond that, we've been able to get a fair number of contracts at short-sale level prices on properties where the seller is up against the wall or just highly motivated to sell. In general, the whole market, including many of the primo properties, is selling at huge discounts compared with two or three years ago. So just zeroing in on short-sales doesn't make much sense.

Some of the above applies to foreclosures as well, although the process, surprisingly, is somewhat less of a hassle be cause the turn-around time for bank acceptance is considerably quicker. Once the lender has foreclosed on a property it theoretically goes to auction. For various reasons, very few sell at auction and the vast majority are assigned to listing agents and return to the Multiple Listing Service. In general, foreclosures are easier and faster to work through. And, usually less expensive than they were as short-sales.

There are relatively few of either short-sales or foreclosures in the Sedona area compared with Phoenix or even the rest of the Verde Valley. We’ve had far fewer investors who’ve gotten in way over their heads as other parts of the country. At last count I identified about 25 short-sales and 20 foreclosures on the market here currently. That figure is growing, but it’s still a tiny percentage of the 525 houses on the market currently.

Having said all of that, we do keep and eye out for them and have successful experience in working with both short-sales and foreclosures in which our clients have done quite well.