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The Various Distressing Forms Of A Distressed Sale

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment, with leading experts lending their two cents. Additional questions welcomed at miami@curbed.com. Today: Standard sales, short sales, foreclosures, and probate sales, with commentary by Jonathan Miller on why short sales and foreclosures are still a big deal in the Miami market, and why they're kind of not.

Even with the resurrection of Miami's housing market, distressed sales resulting from that loud 'pop' of the real estate bubble a few years ago are still common in South Florida. This is especially common in the less 'glamorous' areas of South Florida that haven't seen as strong a rebound, and due to the backlog of foreclosures clogging up the courts, they will likely stay with us for a while. However, as we often point out, this amazingly hasn't stopped Miami's strong housing recovery. So, in our city of fancy new condos bought in cash, here's a primer on the basic types of sales, and what to expect from each.

Standard Sales: ?In your normal, standard sale, the seller still has equity in the property. Barring unusual circumstances, these transactions can proceed very quickly. Other advantages over short sales or foreclosures are the greater opportunities for price negotiation, and the expectation of cooperation from the seller on issues such as termite damage or other repair issues and closing costs.

Short Sales: ?Short sales occur when a homeowner owes more on his/her mortgage than a property is worth, and can no longer make payments. Rather than foreclose on the property, the homeowner asks to sell, and the lien-holders agree to allow the home to be sold for a reduced price and take a loss on the transaction. So, the sellers get released from their debt obligation while avoiding a credit-ruining foreclosure; the lien-holders get to recoup at least some of their losses; the buyers pick up a bargain; and everything's hunky-dory. In theory, that is. In practice, however, it's anyone's guess. See, unfortunately, there is nothing short about a short sale: Typically, mortgages on such properties are divided up between multiple lien-holders, and each bank or lender must approve every short sale offer, counteroffer, concession, et cetera. This process can drag on for months, with the distinct possibility of the sale falling through at any time for just about any reason. Oh, and even if your offer is accepted, the banks will usually require you to buy the home as-is and won't pay for any repairs

Bottom line, if you need to move soon, a short sale probably isn't advisable. But if you have the luxury of time and an inordinate amount of patience, who knows, maybe you'll turn out to be one of the lucky few that manages to score a short sale bargain.

Foreclosures?: Whereas with short sales, the homeowner handles the sale of the property, in a foreclosure, a bank seizes property after an owner has defaulted on his/her mortgage payments. The home is then put up for sale at public auction to an all-cash buyer. If the home doesn't sell at auction, it may be relisted for sale on the MLS by the primary lienholder. Foreclosures listed in the MLS are generally much quicker and easier to buy than short sales because you only need to secure approval from one lien holder, the bank, rather than track down a bunch. In the negative column, these properties tend to be in worse shape than short sales, and some require all-cash purchases.

Probate Sales?: Okay, these aren't actually classified as 'distressed' sales, but they do have their own peculiarities. Remember when Florida was called "God's waiting room?" Well, all those people who were waiting are now, like, dead, and their houses are on the market as probate (or trust) sales. These sales are often straightforward, not much different than a standard sale. But occasionally, the listing will note that a court confirmation hearing is required. At these hearings, open, competitive bidding takes place, and bids are considered "unconditional offers," independent of inspections, questions of financing, etc.

So, where does this leave us? Jonathan Miller, real estate analyst and Papal white smoke blower, has an update on the state of South Florida's foreclosures/short sales, and why they still really matter:

Over the past 2 years the Miami housing market has gone from a market with 60% distressed sales to 40% distressed sales. We define distressed sales as open market sales that are either foreclosures or short sales. During the past two years, banks learned to like short sales more than foreclosures, probably because they recapture a lot more equity at time of sale and don't provide the same potential value damage to the overall housing market where they have plenty of exposure. Within the Miami distressed sale universe, short sales went from 35% to 55% of all distressed sales over the past two years as foreclosures dropped. As a judicial state, the Florida foreclosure backlog is still significant and it will take years to clear out the excess foreclosure activity from the market. Whats quite amazing is the current recovery has very little to do with access to credit. In markets with high foreclosure rates like South Florida, credit tends to be at its tightest. However in Miami about 3/4 of all condo sales, whether they are distressed or non-distressed were paid for in cash.

Curbed L.A.'s article on the same topic was used for the sale category definitions
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