Tuesday, May 27, 2008

Short Sale Homes in the San Fernando Valley - Warning Signs

Short Sale Homes in the San Fernando Valley - Warning Signs!

Is a short sale home right for you? That would depend on your level of risk and time.

In most cases, short sale homes are also in the pre-foreclosure process. What this means is not only does the home-owner owe more than the home is worth, the owner is also not paying their mortgage payment. When the home-owner has not paid their mortgage in the last 3-4 months, the trustee will file a Notice of Default (NOD) on title. Because NOD's are public information, everybody who monitors foreclosure activity in the area will know this homeowner is in financial trouble.

If after several months after the NOD is filed and the home doesn't sell, the trustee will then file a Notice of Trustee Sale (NOT) which means the property will most likely be foreclosed on in the coming few weeks.

As a buyer, you definitely want to avoid any property with a NOT filed on title. Usually, the listing agent might not even be aware of the NOT and will continue to market the home in the MLS. I would consider these properties repossessed by the bank. It's important that your agent knows the status of the property before you write an offer. A preliminary title report can also provide more information on the foreclosure status.

As a home-buyer buying a short sale home, you want to minimize your risk by taking the following actions:

1. When writing an offer, give the listing agent no more than 30 days to receive a written approval of your offer from all lenders on title. After your offer has been approved, then place the initial deposit in escrow.
2. Do not place more than $500 in escrow in case the property gets foreclosed upon or the seller decides to abandons the home and becomes unreachable.
3. Make sure the owner is responsive and cooperative with the listing agent, bank, and you.
4. Have an addendum drawn up where if one party is unreachable after so many days or if the property is repossessed, that any deposit in escrow to be refunded to buyer.
4. Do not deposit any more money into escrow until your loan has funded.

The only monetary risk which is unavoidable is your home inspection and appraisal fees. Be sure not to initiate these activities until you have received a written approval from the lenders that they have accepted your offer.

Keep in mind that sometimes it can take anywhere from 2 weeks to 5 months to receive a response from the bank. In the meantime, keep actively looking for a home. You might find a bank owned home or a home selling from a sellers with a lot of equity.

If you need to make a move within the next 30-90 days, I suggest you avoid short sale homes and pre-foreclosure home.

As always, make sure you are working with a professional short sale specialist.

Written by: Richard Johnston, Remax
San Fernando Valley

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