A short sale occurs when a seller wants to sell his/her home but owes more to the bank than the home is worth. They will then negotiate a sale with a buyer and then ask the bank to agree to the terms of a sale, which means a loss for the bank.
The PROS:
The hope is that the bank will be willing to take a loss before foreclosure rather than have to wait for the foreclosure process to occur, and then have to take a loss anyway.
Because it takes so long for an answer the buyer can make offers on multiple properties and could potentially keep offering until they get the best deal from the bank.
The buyer can drop out any time during the period while waiting for an answer from the bank.
The CONS:
It can take the bank months to get back with an answer on the accepted price. All lenders on the property must agree and since the second holder may not get paid they may stop the sale.
The bank is the one who actually determines the sale price. If the seller agrees to a price of $500,000 but the bank says they will only agree to $550,000 then the buyer either has to pay $550,000 or decline to purchase the property.
In many cases the seller has to pay taxes on the debt forgiveness and they may not be able to come up with the money. If this happens, they cannot go through with the sale. They may not understand the tax ramifications when agreeing to the sale and when they find out there is still time to stop the sale if the bank has not already agreed.
FORECLOSURE
After a seller has stopped making payments for 3 months the bank can give notice of default and start the foreclosure process. The process can take up to 180 days depending on the circumstances. California uses a deed of trust rather than a mortgage so at the end of the foreclosure process the trustee holds an auction on the courthouse steps. At that time the buyer needs to have all cash and must totally pay off what is owed to the bank, taxes, and any second holders. This rarely happens in this market as most foreclosures owe more than the properties are worth. There is no title insurance on the foreclosure and you may find out you have purchased a property with a huge second or third loan that needs to be paid off.
BANK OWNED
If no one buys the property the bank gets ownership. They then try to sell the property. Occasionally they give the home to an auction house to auction off other properties, but in this area most of those homes are cleaned up a little and sold through realtors.
The PROS:
This is generally the place where you get the best deal. Once the banks own the property they are highly motivated to sell and will often do so at steep discounts.
The CONS:
There are not that many bank owned properties compared to short sales, but the numbers are increasing.
The sale is as-is with no fixes done by the bank and generally no disclosures available.
LONG TIME SELLERS
These are the people who have owned their homes a long time and/or owe little or nothing on the property. If motivated they are able to sell their homes for a very low price.
The PROS:
Quicker turn around time and less hassles.
The seller may do some repairs or give credit for repairs.
Disclosures are available.
The CONS:
You never know what a seller will take until you ask. It may take a lot of unsuccessful offers before you get the price you want.
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