A pre foreclosure is when the lender agrees to accept something less than the full amount of the payoff to avert foreclosure. Most lenders have discovered that it is cheaper to have a short sale or other activity rather than letting the property come back as an asset. This is especially true when the loan amount is much greater than the value of the property.
Keep in mind that when the property becomes REO (real estate owned), the lender now is responsible for the gardening, utilities, taxes, insurance, etc. For this reason, lenders are slow to foreclose on homeowners who are upside down on their mortgages.
For those who are having a hard time making payments and meeting their obligations, a short sale can be done. To have the best chance of success with a short sale, one needs to understand and do the following:
- As a seller, you need to be aware that you will need to provide full documentation to the lender when you request their approval of the short sale. This typically includes, tax returnes, paystubs, W2's, bank statements, and an explanation of hardship. The lender is looking to see if there a true hardship. This information may be compared to the origional application for the loan.
- Always seek advice from a Certified Public Accountant or CPA before agreeing to do a short sale. Also, it is recommended that you seek legal advise prior to doing a short sale. This is very important because your real estate agent or broker is cannot legally advise in those areas.
- Always use a real estate agent that has had past success in getting short sales approved. While there are many short sales on the market, there are very few closed short sales.
- Use the proper forms for listing and purchase offers on short sale or notice of default properties
- Market the property agressively and get feedback from people on the price. Let the lender know what you are doing to market the property. The lender wants to see that you are trying to get the best price possible.
- Last but definately not least, BE FLEXIBLE. Don't be surprised if there are several issues that the lender comes up with. Remember, if you don't bend, you will break.