Analysis of Short Sale, Pre-Foreclosure & Foreclosed Phoenix Homes -
Their Challenges and Opportunities in the Phoenix Real Estate Market|
Homeowners of a Phoenix Short Sale and Pre-Foreclosure homes require and should seek the agreement of their lender(s) to accept less than the remaining loan balance on their principal residence as satisfaction of the loan so they are able to sell their Phoenix home and avoid foreclosure. By avoiding foreclosure, Phoenix homeowners may be able to reestablish credit in as little as 2 years versus a minimum of 5 years to reestablish credit to purchase another home after a foreclosure. In all cases the homeowner is unable (or unwilling) to make their monthly mortgage payments and/or make up the difference between the sales price plus homeowner payment obligations including outstanding loan balance, unpaid interest, taxes, fees and other closing costs that exceed the sales price the Buyer has agreed to pay for the property. SHORT SALE: In a Short Sale, the lender(s) will determine whether or not the homeowner's hardship warrants accepting less than the full loan amount owed as satisfaction of the loan and paying all of the Owner´s fees and closing costs, as well as sales concessions to the buyer, so the property can be sold. In most cases a homeowner is two or more months late on their mortgage payments and can demonstrate their inability to pay their mortgage, but has not received a Notice of Default. In the event a successful Short Sale does not occur, the homeowner will loose their home through foreclosure. Here is a Phoenix Short Sale Guide to help you evaluate your options. BENEFIT: The homeowner's credit is not damaged to the extent it would have been by being foreclosed and will be able to reestablish credit much more quickly - as early as 2 years for the short sale versus 5 years for a foreclosed homeowner. PRE-FORECLOSURE: An Owner of a Phoenix home in Pre-Foreclosure is unable to meet monthly payment obligations, has received a Notice of Default or some other legal notification that the property will be foreclosed and should be seeking the lender´s agreement to accept less than the full loan amount owed to facilitate a close of escrow as a Short Sale. As in the case of a Short Sale, the lender will judge the homeowner's hardship to determine if it warrants accepting less than the full loan amount owed to enable the property to be sold. BENEFIT: An Owner of a property sold as a Pre-Foreclosure will not be able to reestablish credit for a minimum of two years - but this is three years sooner than a homeowner whose home is foreclosed. FORECLOSURE: Homeowners of a foreclosed Phoenix homes were unable or unwilling to sell their home and/or make arrangements with the lender to accept less than the full amount of the loan as satisfaction of the loan. At the end of the Trustee Sale 90 day reinstatement period the lender must foreclose on the property to take ownership and sell the property to recover as much as possible of the loan amount owed, plus fees, expenses etc. paid by the foreclosing lender. The Owner of the foreclosed Phoenix home will require a minimum of five years to reestablish credit and to be able to purchase another home. TAX CHANGES TO ASSIST HOMEOWNERS LOSING THEIR HOMES: Recent legislation has negated the lender's requirement to send a 1099 to notify the IRS of the amount of debt relief provided the homeowner involved in a Short Sale or Pre-Foreclosure of their principal residence. In some cases lenders are requiring homeowners to agree to sign an unsecured note for the amount of shortfall or debt relief. Even though the lender is not required to issue a 1099, the homeowner still has the responsibility of showing the amount of debt relief on their tax forms. Arizona is a anti-deficiency state for the amount of the purchase loan to acquire the property initially. New loans in access of the original purchase loan amount may not be exempt. Homeowners who receive a discount (a.k.a. lender concession or debt relief) in the loan amount in order to sell the property may still be subject to an Arizona deficiency judgment. Owners who must sell their principal residence are strongly advised to seek legal and tax advice prior to deciding what action they will take. CHALLENGES: Phoenix Short Sale and Pre-Foreclosure homes are listed for sale in the Phoenix MLS, often without a hardship package submitted to and/or accepted by the lender or lenders. Lenders typically refuse to review the merits of a Short Sale or Pre-Foreclosure until an offer to purchase is accepted by the Owner. When the homeowner receives a bona fide purchase offer, the lender(s) will accept and evaluate the hardship package from the homeowner to determine if the homeowner is qualified for a reduction in the loan amount to facilitate a sale. The lender will request one or more broker price opinion from REALTORS who are not a party to the transaction and/or a formal appraisal to determine the fair market value of the property and how much money could be recovered by foreclosure versus agreeing to a concession in the loan amount to facilitate the close of escrow. The lender is now able to evaluate whether the purchase offer is reasonable, based upon current fair market value, and worthy of accepting. Unfortunately, this process can easily take 4 - 6 weeks and many Buyers choose to withdraw their offer, rather than continuing to wait for a lender response. During this time other offers are collected and all Buyers are requested to submit their "best and final offer" when the lender(s) approve a Short Sale/Pre-Foreclosure. The first Buyer is not given preference.
While Phoenix Short Sale and Pre-Foreclosure homes offer good buying opportunities because these homes are owned by responsible sellers who have remained in the home and continued to maintain it, the approval process can be longer than a standard escrow. As you would expect, Short Sale and Pre-Foreclosure homes sell for a higher average price per square foot than a Foreclosure because of their superior condition. REASONS WHY A LENDER DOES NOT COOPERATE WITH A SHORT SALE OR PRE-FORECLOSURE Lenders are in the business of making loans and collecting interest and principal payments. They do not want to own homes. When there are extenuating circumstances, lenders may decide to work with a responsible owner to avoid foreclosure and not pursue a judicial foreclosure or deficiency judgment to recover the money they are owed and the owner agreed to repay. 1.) Lenders are willing to make concessions to facilitate the sale of a principal residence. But Phoenix second home and investment properties are generally not good candidates for a Short Sale. 2.) Principal residences with refinanced loans exceeding the purchase loan amount plus the cost of any subsequent improvements to the property may not be good candidates for a Short Sale or may be subject to deficiency judgment. 3.) Homeowners, who owe more than the current market value of the principal residence and have the financial assets to make their loan payments and/or pay down the loan amount to cover the deficiency in the loan pay off the loan and pay all escrow closing costs, but choose not to, probably aren't good candidates for a Short Sale. 4.) Whenever a lender determines the borrower received "kickbacks" at the time of the original purchase or was involved in loan fraud or other wrongdoing to acquire the property, disqualifies the property for a Short Sale or Pre-Foreclosure. 5.) Homeowners who decided to buy another property before defaulting on their current home loan are participating in practice known as "Buy and Bail" and legal action against these homeowners is being pursued. This automatically disqualifies the property for a Short Sale. 6.) The lender may be willing to participate in a Short Sale providing the homeowner agrees to accept an unsecured note in favor of the lender to repay a portion of the lender escrow costs to close. In the event the homeowner refuses to agree sign the note, the Short Sale or Pre-Foreclosure may not be approved and the home is foreclosed. There are many other circumstances that could impact the lender´s favorable decision to cooperate with the homeowner involved in a Short Sale or Pre-Foreclosure sale. Unfortunately, a bona fide Buyer making an offer is not aware of any of these issues beforehand and the lender has not yet made a determination. That determination is most often made AFTER the Buyer makes an offer to purchase and waits to learn the outcome of the lender´s determination.
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