Short sale VS Foreclosure

The owner of the title company we use also has her mortgage broker's license in order to negotiate with banks on short sales. She also attends bank backed seminars with RE brokers and the general consensus is that a short
sale is better because it will only lower your credit score about 100 points vs a foreclosure or bankruptcy will lower it a minimum of 200 to 300 points, not to mention many years to re-establish your credit.
So if you have an excellent credit score of 800 & short sale your house, & are only dropped to around 700, you still have good credit.
This is why so many people that CAN afford to pay their mortgage, but are way upside down are doing a "strategic" give back to the bank. Why make payments on a 500,000 mortgage, when the house is only worth 250,000 or 300,000. They can go and buy a newer, better house with more upgrades for half the money, as opposed to continuing to make inflated payments on a house that might not ever get back to the original value, or if it does it could take 3 to 5 years or more.

I've heard as well as short sale may be better than a foreclosure. In the middle, there's a "deed in leiu of foreclosure" too.

BUT - I wouldn't necessarily agree someone would have any type of good credit after - even if your score dropped to 700. All three forms of losing a house are still breaking your credit obligation. Someone with a 700 score may get quickly pre-approved for another mortgage on-line, but would surely have it rejected during the more thorough underwriting process. I believe there's a 4 year period for no new FHA loans after a foreclosure.

- Tom

I have a orthopaedic surgeon that enlarged his practice & hired three more
doctors. While in the office & talking to one from Az., he told me he short saled his Az. house that had a 1.2 million mortgage for 630K. He then moved here to Fl. & bought a waterfront house for 800K with only 20% down ... I guess it works with standard conventional financing since the numbers worked on the monthly income vs payment ratio.

I understnad now that it depends on the factors specific to each individual's unique situation. Danke.

This is a good thread. It's good to know details like this since so many people have credit problems in the 21st century.

Alice and Jim
HomeStar2020

Here's a great article from J.P. Vaughan on foreclosures, I hope you find it helpful.

Foreclosure
Purchases

Finding Good Deals At
Auctions and From Lenders

If you can't get it in pre-foreclosure, what then?

Finally the big day arrives, the auction date. There are different ways this
happens, depending on your state of residence. It may be at the courthouse.

The courthouse
In mortgage states, the sale of the property, auction or foreclosure takes place at
the courthouse. The foreclosure process is systematic and well-defined process.
At regular times of the day and week, the court auctions off the property (the
sale). You can find out the times by simply calling the office and asking the clerk.
You may have heard the statement that the property "was sold on the courthouse
steps." Most often it actually happens in the lobby, foyer or a specified location
indoors out of the weather.

A typical sale would involve:

a. A scheduled time for properties to be sold.
b. A clerk making an announcement of file case numbers and their status
(solved, available, etc.)
c. A clerk listing the case and/or property description and asking for bids.
d. The bidding starts and a winner emerges.
e. The property is bought and paid for at the courthouse.

The property will usually have at least one bidder. The lender wants to ensure the
property is sold for at least what is owed on the property. Therefore the lender or
their designate starts the bidding at the amount being foreclosed on. If that is the
only bid, the auction is over. The lender will actually receive the money so there is
no real cost There have been the occasional errors where the lender did not
protect their debt and a bidder other than the lender received the property for a
song. If there are multiple bidders the process can be quite entertaining.

We suggest very strongly that you go and visit the courthouse and watch
several auctions. You will earn a lot about the process. You may even try to
get to know some of the other individuals at the foreclosure. Banks, lawyers,
agents, investors, title company representatives and more will sometimes be in
attendance. They are all excellent contacts for the investor. If you own a
property, check the documents while you are at the courthouse. Just ask the
clerks. It will help if you have the legal description. Get it from your mortgage
documents. Also review the bulletin boards in the offices and pick up any
publications and notices in the offices. Check the Lis Pendens list (legal notice of
foreclosures).

In deed-of-trust states, the process is a little different The trustees controlling
title of the property can control the location of the sale, which may or may not be
at the courthouse. Usually the trustees publish notices of sale location.

You have covered a lot of information about foreclosures here. Let's wrap it up
with one last general look.

How do find foreclosure deals?

There are numerous ways to find foreclosures properties. Listed below are some
of the most common:

Courthouse Research
You can usually find information you are looking for the Clerk of the Court's
office, County Recorder's office or Land Records department. In the U.S., this
will be on a county-wide basis. Start by calling the County Courthouse to find
where real estate property records are located. Each Courthouse has different
methods of filing documents, some in large books, some on microfiche files, and
others on computers. As time goes by, this is becoming more and more
computerized. In a very progressive county, this information may even be online.

It is important to ask a County employee for assistance. They can show you
where real estate property records are located. They can show you where to
start your search and where you can get more detailed information when you
locate a potential suitable property. You may want to start with the lis pendens
files or the docket sheet, where the most recent court actions are first recorded.

Write down the foreclosure case number and then review the file to gather data
about the foreclosure. All the information concerning the title to a property is
public record. Remember, only recorded information in the public records can
enforce the priority is established by the date and time of recording.

To check on deed information, visit the Tax Assessor's office or in another part
of the Courthouse. Locate the correct volume and page to find the deed. The
deed will show the owner's name, give a legal description, and will have a map or
plat book and page that shows the physical plat of the property.

In many instances, you will find a mortgage on the pages following the deed.
From the mortgage document you can determine the type of financing, original
loan amount, interest rate, legal description, date of first payment, procedure for
foreclosure, assumable or non-assumable indicators, and any prior liens.

If other liens are found, recheck them in the appropriate Deed Book. These are
going to have to be dealt with if the property is to be purchased before the
foreclosure sale. Check also for judgements by looking in a Judgment Book and
page number or on a microfiche file. If found, check to see if the judgement was
paid. By definition, a lien is a claim one has for securing a debt owed by
someone. A judgment attaches to and serves to lien all real estate owned by a
person in the country where it was files. A property owner with no liens can,
therefore, give good title to his or her property.

There are many sources to find foreclosures. Hopefully, you can find the
foreclosure before it has gone too far into the foreclosure process. Find below a
few locations to begin the search:

Newspaper Classified Sections
Legal newspapers
Attorneys
For Sale by Owners
Realtors
Auction Companies
Banks- REO departments
U.S. Marshall's Service (check the HUD Web site)
Listing Services
IRS auctions (check the HUD Web site)
Bankruptcies
Probate Court
Your own advertising
County courthouse, town ball, or registry of deeds
Check for "new cases"
Check for "sale" file

Fannie Mae, Freddie Mac and Friends

Fannie Mae and Freddie Mac are secondary market corporations. As such, they
buy mortgages from mortgage lenders soon after the loan is made, then bundle
them as securities (combines a bunch of them together) and sell these securities
on the New York stock exchange. (Just for the sake of interest, Fannie Mae is an
acronym for "Federal National Mortgage Association" - FNMA. Freddie Mac
comes from "Federal Home Loan Mortgage Corporation." Since the term
Fannie Mae had already been around 30 years, it seems that people felt the need
to give it a name, too.

Fannie Mae and Freddie Mac are private, shareholder-owned companies that
work to make sure mortgage money is available for home buyers. They do not
lend money directly to home buyers. Instead, they work with lenders to make
sure the lenders don't run out of mortgage funds, so more people can achieve the
dream of homeownership.

Fannie Mae was created by Congress in 1938 to bolster the housing industry
during the Depression. At that time, Fannie Mae was part of the Federal
Housing Administration (FHA) and authorized to buy only FHA-insured loans to
replenish lenders' supply of money.

In 1968, Fannie Mae became a private company operating with private capital
on a self-sustaining basis. Its role was expanded to buy mortgages beyond
traditional government loan limits, reaching out to a broader cross-section of
Americans. Likewise, Freddie Mac is a stockholder-owned corporation
chartered by Congress in 1970 to increase the supply of funds that mortgage
lenders, such as commercial banks, mortgage bankers, savings institutions and
credit unions, can make available to homebuyers and multifamily investors.

Today, both Fannie Mae and Freddie Mac operate under a congressional charter
that directs them to channel their efforts into increasing the availability and
affordability of homeownership for low-, moderate-, and middle-income
Americans. Neither corporation receives no government funding or backing.
.
So why should you know this?
Since these two companies own the vast majority of mortgage loans made in this
country, you can imagine they end up with a lot of foreclosure properties, as well.
Just like banks, Fannie Mae and Freddie Mac feel pressure to get rid of
inventoried properties. Their mandate is to provide mortgage loans, not to own
houses. They are therefore highly motivated to sell.

You are looking for highly motivate sellers, so Fannie Mae and Freddie Mac are
two good places to look for deals. Another great source of deals in many market
is HUD, the U.S,. Department of Housing and Urban Development. FHA is a
HUD mortgage financing program. Any time a FHA mortgage goes into
foreclosure, HUD administers it and sells the property at auction. The same thing
applies to VA mortgages, those funded for those who qualify by the Department
of Veteran Affairs.

The best news here is that there is a single source to go to gather information
about all these auction opportunities. The "Homes-For-Sale" section at the
HUD website (www.hud.gov) has links to a number of goverment agencies and
secondary market companies that hold foreclosure properties.

As opposed to the bank foreclosure auctions, these auctions are a lot easier for
new investors to work in, as well. Typically they allow time for you to obtain
financing after you get the bid, and all bids are submitted in writing, so that you
don't have the auction mentality forcing prices upward. We suggest you go to
these various Web sites and read their information on how to make bids. It can
lead to a lot of good deals for you.

In Conclusion

Foreclosures can be a very profitable for your business. Whether it is a
pre-foreclosure case, or already in the possession of the lender, you have a highly motivated seller who needs your help. Since highly motivated sellers lead to good deals for you, the investor, this is one of the areas you might want to concentrate
on.

-J.P. Vaughn