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Understanding Clovis Foreclosures and Short Sales
July 28th, 2009
Understanding Clovis Foreclosures and Short Sales
Less than a year ago, few people had heard of foreclosures and short sales. Today, they’re the most common types of homes on the market in Clovis. Even so, these terms are still confusing to most home buyers and sellers. Because the market is flooded with foreclosures and short sales (with many, many more expected over the next year), we thought we’d write a post to help answer the following questions: “What is a Clovis short sale,” “How is it different than a foreclosure,” “How come we have so many short sales in Clovis,” and “Is buying or selling your home as a short sale is a good idea?”
Short Sales 101
A short sale (also known as a “pre-foreclosure”) occurs when a Clovis homeowner tries to sell their home for less than they owe on their mortgage. For example, assume Carl owes $300,000 on his home but it’s now worth only $250,000. In a short sale, many lenders will agree to accept $250,00 and forgive the rest of what is owed on Carl’s mortgage. Why? By accepting a short sale, the lender/bank can avoid a lengthy and costly foreclosure process where few people win.
Advantages of Short Sales
On the other hand, shorts sales can be a win-win for everyone involved. For Clovis home buyers, short sales are usually much cheaper than buying a “regular” home. Clovis sellers also benefit because they are able to return to home ownership much sooner (in as little as 2 years) compared to a foreclosure.
Even banks benefit from short sales since they’re less expensive than foreclosures helping them recoup more of their losses which in turn stabilizes the economy quicker.
Finally, Clovis itself benefits from short sales because when homes go into foreclosure they not only drag home values down even further, but foreclosures often make neighborhoods become less safe (pests, crime, vandalism).
Why Are There So Many Short Sales?
You’ve heard the expression, “what goes up, must come down.” It’s true in real estate, too. After the sky-high home prices of 2006, home values had no where to go but down. Unfortunately, falling home prices have created a financial black hole for many homeowners where they now owe more money on their home than it’s worth. This is problematic because when people lose their job (unemployment is nearing 10%), file for divorce (as 50% of married couples do), or get sick and can’t pay their bills, they are forced to sell their home. In a “normal” market people often could sell their home, take the equity and move on with their lives. But that isn’t the case anymore. Many homeowners have little to no equity in their home so selling for profit isn’t an option.
Now you kno why short sales are increasing. When homeowners fall behind on their payments short sales are one of the few available alternatives to foreclosures. They’re not perfect and sometimes messy, but when done correctly they can be a lifesaver to everyone involved.
Short Sales vs. Foreclosures
Losing your home to foreclosure because you can’t keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. Unfortunately, it’s also an event that keeps on affecting you long after your home is taken from you by devastating your credit score. Of all the available options, most experts agree that foreclosure is the worst. Why? The inevitable result of a foreclosure is the lender takes your house. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. That’s why we believe it should be avoided at all costs.
On the other hand, a short sale is a growing and popular option for homeowners mired down with financial problems. If you can get your lender to agree, short sales allow you to sell your home for less than what you owe your lender. Experts advise pursuing this option the minute you realize that you’re falling behind in your payments and won’t be able to catch up. The longer you wait and the greater the amount you’re behind, the less likely it becomes that your lender will even be willing to discuss a short sale. So act TODAY if this describes your situation!
Keep in mind that while a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200-300 points. However, this can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current.
Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider a short sale and check with your lender before your options become more limited.
Are Short Sales a Good Idea?
Yes! Everyone wins in a short sale transaction – the buyer, seller, bank, and community. As a buyer you’ll actually be part of the solution to the current market meltown. Plus, you’ll be getting a great deal on a home. But most importantly, you’ll be helping a struggling homeowner(s) get on with their life.
If you’re a Clovis home seller, short sales are a MUCH better option than foreclosure. But you have to act quickly. The longer you delay the less options you have.
Summary
Short sale are typically done to prevent a home foreclosure. Buyers, sellers, the bank, and the community can all benefit from short sales. For the Clovis seller, a short sale provides the opportunity to avoid foreclosure and the dreaded implications that a foreclosure brings, in addition to being able to return to home ownership sooner. Short sales are also great options for savvy Clovis buyers. You can help the community, a struggling family, the economy, and yourself all at the same time.
If you’re interested in buying a short sale or listing your home as a short sale, let us know. We’ll walk you through the process.
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