Short Sales vs Bank Owned Condos

When is a Short Sale Not A Short Sale? When It's A Long Foreclosure Process!

April 6th 2008

Miami Beach, Florida

Today's real estate vocabulary has expanded to include terms like foreclosure, short sale, pre-foreclosure, bank-owned properties, REO or real estate owned. There are many who would believe that they are all interchangable terms for a "good deal" in real estate. Au contraire! Now bank owned properties, REO, foreclosure properties can be priced in the market and present opportunity but pre-foreclosure and "short sale" properties do not.

Let me give you my most recent real life example of this...there were two condos for sale on Brickell Key..one was banked owned for $225,000 and the other was very similar for just $199,000 as a short sale. The buyer wanted the better priced short sale, he made an over-asking price offer of $205,000, 20% in escrow, and he was pre-approved as he works for a bank. We submitted the offer to the attorney who forwarded it to the lender. Some six weeks later, the lender counters at $230,000. This price was $5,000 higher than the last sale , two weeks before. (The $225,000 bank owned property had been sold in the meantime for full asking price.) It was not a "short sale."

So here's the problem, our buyer missed a real opportunity to get a great price on Brickell Key, by mistakenly chasing an arbitrarily priced, unapproved "short sale". How can you avoid this situation? Ask your Realtor...is this property "bank owned" or a "short sale" when asking about a property you find on the internet.

Let me explain how a short sale becomes a long foreclosure:

The primary requirements for a bank to entertain a "short sale" are relatively straight forward...the mortgagor must be suffering a hardship...like an extended illness or a loss of employment not just bad business decisions...plus...investors need not apply. If the property under consideration is not a primary residence you can forget about it.

Think about it. Someone owns a house in Coral Gables, and buys a condo in a new condo conversion building just off Brickell Avenue in Downtown Miami. They bought it in 2005 at the absolute top of the market and used an interest-only mortgage and now the market value is less than they paid and the rent they try to collect is less than the carrying charges and the toilet needs fixing and why did they think this was a good idea in the first place...oh that's right, they were gonna "flip it" to the next guy in a couple of years because real estate never goes down...remember. So now they're going to ask the bank to take less than they owe.

Have you ever borrowed money? Was the bank friendly, nice, courteous...did they do everything as promised...was your loan package delivered on time to the closing? Was it a "low-stress" experience for you. Not! Over the years we have seen banks treat their potential new clients with such disdain that we can hardly expect mercy or understanding when, all of a sudden, we can't pay them back!!! I'm reminded of the closing scenes of Mel Gibson's "Braveheart"...with Mel being the borrower...not a pretty picture.

Hey, it's not the banks fault that the borrower over extended themselves. Is it? Just because they put 10% down, got they're financing with a "stated income" loan...no fraud there...why should the bank just "take a haircut for them?" After all, it's not the banks' money the bank lent, it's their depositors money...right? What...you were expecting "It's a Wonderful Life" or something? And the fact is...the banks won't do it!

What they will do is foreclose on the property. And they'll take their sweet time about it. In most cases, longer than a year. And there will be all sorts of fees...legal fees, filing fees, late fees...you know...fees!

They'll take a deposition, they'll find out about retirement accounts, they'll see if they can find any assets... anywhere... and they'll go after them!

And I tell you about this because our clients are interested in buying well-priced property in Miami and Miami Beach. Sometimes they see a property in the Multiple Listing data on the Internet and they contact us to see the property because it is such a low price...and guess what...it's a short sale offering...like I discussed above...which will eventually be a bank owned, foreclosed, REO property and a good deal...eventually.

As of this morning there were 2,311 pre-foreclosure, short-sale condo listings in Miami-Dade county Multiple Listing Service and just 325 bank-owned properties. Which would you rather buy?

For a complete list of well priced, bank-owned condos or properties in Miami and Miami Beach, CLICK HERE or call 1-800-433-5960 or "Contact Us" today at Miami Condo Lifestyle by clicking here.