A California short sale process is never too easy for the sellers – as it disturbs the credit rating of the sellers, apart from making them lose the property, without them gain anything in return. The bank or the lender also goes through considerable hassles – in the form of cost for the legal processing of the documents, not to mention the settlement of the due mortgage in many cases. It is only the buyer who can make a profit out of the California short sale process – in the form of a worthy investment at a lower price than the market prices.

Finding a good realtor or sales representative is important, so as to be able to negotiate the costs for California short sale process properly. A realtor would also help in bringing in good property deals, according to the preferences specified by the buyer. Making an offer that is acceptable by and sellers and the lenders alike is not difficult- it just takes being patient and observant about the market prices.

The California short sale process deal can then be closed successfully after negotiation, after the lender has transferred the necessary documents to the buyer.

Real Estate Pros and Cons

Today’s current real estate market can be quite challenging to maneuver.  Not only are we dealing with foreclosures and short sales, but a recession, frozen credit lines and uncertainty of the economy as a whole.  But to any situation, there are 2 sides: a pro and a con which we will go over.

Pro – Very Low Mortgage Rates

It seem surprising that even now, rates are continuing to stay at historical lows and for many borrowers with good credit, a mortgage can now be much more affordable at hundreds less a month, savings tens of thousands from the life of the mortgage.

Con – Frozen Credit Lines

Banks are no longer lending freely.  Even though they received quite a bit of money from the bank bailouts, they are holding on to much of the cash.  Many are looking for reasons not to lend.  Although, placing better restrictions on the lending process is still a good idea, some lenders are waiting for real estate prices to bottom out so that they do not end up in a situation where most of their assets/collateral are worth much less tomorrow.   Many are asking for more of a downpayment to cover this vulnerability.  You may also need to be prepared to pay an extra point when obtaining your new property.

Pro: Finally, some good housing deals!!

Real estate prices have fallen dramatically over the past 2 to 3 years.  Prices have flatten to property values equal to 2003 in some areas.  The real estate market is still falling down and there has been no appreciation for these past few years.  Thus, many desperate sellers and bank owned foreclosures are willing to sell for a lot less.

Con: Watch what you are purchasing!!

Values are “great” in many areas, but you still need to be watchful of what you are buying at an amazing deal.  Many problems can be found when purchasing a short sale or foreclosure.  Check out projects that are incomplete, a ruined carpet, missing appliances, and much more.

Pro: Plenty of time to check out the growing inventory of homes!

There are many homes to search through on the MLS sitting for many months (and some for over a year).  Shopping around for the perfect home is quite nice in this market to ensure you get the most home for your money.  Take your time and check out all the homes.  In most cases, you’ve got time.

Con: What if the real estate housing bottom is still far away?

Lenders or banks are looking for when the housing market will “bottom” out before lending more freely again.  The residential market appears to be correcting itself a bit.  The economy overall has everyone’s attention – who knows how long it will take to strengthen consumer confidence again but for sure, when things start to “recover” overall…housing will be climbing in price again.

Typically there is a higher risk of being pursued for a deficiency judgment when there is more than one mortgage obligation.

Although, watch out.  Not all the time are there multiple offers on a property and the agent may come back asking for the highest and best offer when there are no other offers on the table to get you to offer more.  However, there are banks that will not counter on short sales or REOs and you must think about making your highest and best up front.

Banks are really trying to get these homes off their books as the bank may have hundreds more to sell.  Before making a higher offer, ask your agent to pull the tax records to find out what the original mortgage amount was and check to see how much the lender paid for the property.  It will help you paint a bigger picture on what number the bank is looking at and how desperate they will want to get this property off the books.  Your best best, is to offer a comfortable amount (without lowballing) and move up the closing date or more earnest funds.  The bank wants a quick close, so this will help entice them to accept your offer.

The varying situations of ownership are being seen quite often in real estate listings:

• Privately Owned – It was typically unusual for the mortgage company to have any say in the selling process since the sellers would have sufficient proceeds from the sale to pay off the mortgage and closing costs at the close of escrow, without asking the bank to accept less on the amount owed on the mortgage loan(s).
• Bank Owned Homes – These properties have gone through foreclosure auction and were purchased by the bank.  The bank is now the owner of the title and is selling the home.
• Short Sales – The homes are sold by the individual (they still have title) but they will need bank’s final approval on the sales price agreed since the bank or lender will be receiving less money than the full amount owed on the mortgage loan.

The best way to tell if the home is not a typical sale, is to review the description under Marketing Remarks.  Some times the listing agent will hint to the type of sale of the home.  Or, you could try using online lookup services like ziprealty.com which will note on the home if it is a foreclosure.  For short sales, take a look at the listing price and check out the price the owner paid for the house.  That will usually give you a hint on the type of sale it will be.

Via the MLS real estate agents will have access to additional information and can check tax records, ask a title company to do research or call the listing agent to obtain the information.

Since banks do not want to retain ownership of many homes with failing mortgages, they are becoming more open to modifying loans. So what is a loan modification?

A loan modification is where the lender and borrower agree on new terms of the loan and the loan is restructured so that the homeowner avoids losing the property.

A true loan modification is a good permanent solution to help the homeowner afford the mortgage on an ongoing basis and help them stay in their home.  It is different than a repayment plan or foreberance which are typical short term solutions “band-aid” temporary solutions.

The loan modification could include a reduction in interest rate, a change from a fully amortized Interest Only payment for 5 to 7 years with an extension of the loan term, or a reduction in principal balance (which can be rare).  The modification does not require an apprasial, title reports or credit reports and are simply a way to renegotiate the terms on the note without doing a refinance.

Loan modification offer quite a number of positive solutions to these difficult times by keeping families in homes, the house off the market and can be done quickly.

But who qualifies for a loan modification?

A loan modification is a viable solution if there is a hardship that left the homeowner unwilling to make the current mortgage payment or an increase in payment due to an ARM will make it difficult for the homeowner to pay.  There also needs to not be enough equity in the home to sell it and payoff the mortgage without the lender agreeing to take less on the mortgage.  Finally, the homeowner must prove they can afford the modified payment.

Housing prices have generally decreased 20 to 30 percent, depending on where you live.  Due to the uncertainty of selling/buying the 2 homes, you may want to consider how comfortable you are with owning two homes, or you could consider getting renters to your current home.  The rental income will need to be sufficent enough to keep your debt-to-income ratios low when you add on another mortgage payment to responsibility.

Most of important of all, in this market, you do not want to buy before you sell.  Make sure to get a very strong offer on your house before putting an offer on anything else.

Recommended Reading:

• The Complete Guide to Locating, Negotiating, and Buying Real Estate Foreclosures: What Smart Investors Need to Know – Explained Simply