Distressed properties

| Tuesday, January 11th, 2011 | 2 Comments »

You’ve heard about it in the news, you may have heard about it in your neighborhood, or it may even have happened to you. No, I’m not talking about the earthquake at Quest Field last Saturday (GO HAWKS!) but what I am talking about are distressed properties. In a nutshell, a distressed property is one that is worth less than the amount owed. Sometimes you may hear the terms “distressed homeowners” or “sellers with properties under distress.” It’s an unfortunate and very real part of the real estate market.

For buyers and sellers alike, it is important to understand what it all means and the options available for these distressed properties. (Insert part about Cara in the House not being a licensed attorney and all homeowners are advised to seek the advice of a qualified real estate attorney and tax professional to fully understand all the options available to them.) First off, let’s look at what sellers should know.

There are a variety of courses a seller can take when faced with an impending foreclosure; let’s talk about the ones you’ve probably heard of. One option is to try and do a mortgage modification (also referred to as a “loan mod”) in which case the lender works with you to adjust the terms of the loan to better suit your current financial situation. Unfortunately, this does not work for everyone as there are some pretty strict guidelines for qualifying. A “deed in lieu of foreclosure” is where the seller returns the property to the bank to avoid the foreclosure process. There are also specific guidelines for this process including (but not limited to) only having one mortgage on the property and not having a substantial gap between the market value of the home and what the mortgage balance is on the home. Bankruptcy is also an option which I do not intend to give any advice about (again insert disclaimer that I am not a licensed attorney and really don’t want to be held liable for any incorrect information). And then there are short sales, a term that has been tossed around the real estate world more often than a football during a WSU Cougar game (oops, sorry Coug fans). Short sales are when a seller and a lender agree to sell a home for a price that is less than what’s owed. There are a lot of steps for a seller to take to complete a short sale process including (but not limited to) providing a hardship letter explaining their financial situation as well as providing all documents pertaining to their finances. With all of these options, it is important for sellers to consult an attorney and a tax professional as there are credit implications involved (ie, substantial drop in credit scores).

For buyers, it is also recommended they consult these same professionals to fully understand what kind of distressed property they are putting on offer on and what it all entails. Another thing buyers should understand is that when they make an offer on a distressed property, there could be a lengthy wait time as well as the risk that the sale may not go through and the home may end up getting foreclosed upon. Sometimes, the “discounted” price of a distressed property may not be worth the hassle.

If you are a seller or a buyer who needs a real estate professional to help you with a distressed property, I would be happy to help. If you need a good real estate attorney, I can recommend one of those too. And if you want the Seahawks to win this weekend, let me hear you say SEA DAT, WE DAT!

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  1. Megan says:

    Thank you for writing this! Wish more people could explain it “plain” terms that I can understand more often!

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