A great article about Short Sales in the KCM Blog site, plus it sheds some light on Virginia Foreclosures and Short Sales.
As agents we get a ton of questions about Virginia Short Sales and Virginia Foreclosures. I personally feel and tell all my buyers the deals in the Short Sales. The Tidewater and Richmond Markets seem to have higher foreclosure prices than you would expect. Believe me, there are some good foreclosure deals but most need a ton of work. There are a few good banks out there that will let the agents lend an opinion for resale. I have a good relationship with a local bank that allows me to input my two cents in the selling the home. This bank is very good at remodeling the entire house and then placing it back on the market. In some cases, all new kitchen, granite, paint, HVAC, windows, roof, siding. All key and expensive elements of a house. It also is nice to see a new and remodeled house in the subdivision.. Unfortunately, most homes in foreclosure in Virginia are in rough shape and bring the other homes down with it. In a short sale you usually have a regular seller that has a great house that isn’t worth what they paid for it. Buyers that purchased in 2005-2009 are often the ones that got caught in the mix. It is a tough situation when you paid $600,000 and the house is worth $400,000 today. No matter the situation, you have to go short if you need to sell. The article below addresses a different part of the process and how most of the time it’s best for a seller to short sale rather than foreclose. Both options effect your credit, but some more than others. Read below to get play by play on a typical sellers situation, learn about Virginia Foreclosures and the process first hand.
From the KCM: Today’s ever changing real estate industry has brought upon some very challenging questions from our clients. We as counselors, want to put forth the best, non-emotional advice that we can, in hopes that we can help our clients and their families navigate the rough waters of the short sale process.
The most prevalent question and one that continues to permeate the industry is:
“Why should a seller go through the short sale process rather than letting their house be foreclosed upon?”
While we cannot speak to every client circumstance in a virginia foreclosures or short sale, we can say one thing with complete conviction. In almost all instances in which a potential seller is contemplating whether they should short sell their house or let it go through the virginia foreclosure process, a short sale is the better option. The following are examples to consider:
Example A- Short Sale
Mr. Smith owns a home in which he has a mortgage balance of $220,000 and a current market value of $150,000. Mr. Smith has elected to short sell his property. His Realtor successfully obtains a buyer who puts forth an offer price of $120,000 (80% current market value according to Realty Trac Foreclosure Report 5/26/2011). After reviewing the buyers offer and the financial hardship information from Mr. Smith, Mr Smith’s bank agrees to accept the short payoff of $120,000 which would leave a deficiency balance of $100,000.
The transaction closes and is final. Mr. Smith then pulls his credit report 30 days after the transaction takes place. On the report he notices that the mortgage trade line states “Mortgage debt was settled for less than full” and the balance on the mortgage is $0. Mr. Smith is now on the road to financial recovery.
Example B- Foreclosure
For the ease of illustration we will use the same value and mortgage debt amounts as in Example A. However, Mr. Smith has elected to forgo the short sale process and let the bank foreclose on the property. The bank holding his mortgage facilitates the proper legal procedures to foreclose on the property, all of which are costly. Mr. Smith is notified and his property foreclosed upon of which is taken back by the bank to sell as an REO.
Six months later, the bank finally sells Mr. Smith’s home only they sell it for $90,000 (60% of current market value according to Realty Trac Foreclosure report dated 5/26/2011). Remember, as a short sale, the home would have sold for $120,000 keeping the deficiency to $100,000. In addition to the deficiency now being $130,000, the bank has elected to add on legal costs of $15,000 and asset preservation costs of another $5000 for a total deficiency liability of $150,000. Mr. Smith pulls his credit report 30 days after being notified that the bank has sold his property and of his liability.
On the report he notices that the mortgage trade line states “Foreclosure” and the balance is $150,000. Because of Mr Smith’s choice to choose foreclosure vs. short sale his road to financial recovery has taken a major detour. He not only has a foreclosure on his credit report but know has a much larger deficiency balance in which the bank, in most cases, will report on his credit report as a balance owed.
The Best Option is clear
While the financial and credit advantages are clear when choosing a virginia short sale over a virginia foreclosures, other advantages are sometimes overlooked. The most important of all of them is maintaining the seller’s dignity and peace of mind. We have heard too many stories of families having to leave their homes because of a Sheriffs order or some other type of legal action. The short sale process alleviates this negative social impact. The process puts the control back in the seller’s hands so that they can get back on the road to financial recovery and start providing for their families. In the battle of the two evils, a short sale always wins!!!
Virginia Foreclosures and Short Sales on the rise, get a good agent to walk you through the process.
About John Martin
A leader in the Richmond, Williamsburg, and The Peninsula community since 2001. A solid and consistent top producer, even in a down market. Almost $22,000,000 in closed or pending sales since January 2013. Specializing in luxury homes, listings, sales, and staying current.