I’ve been asked so many times over the past several months if there are any advantages to successfully accomplishing a “Short” sale versus just letting the Foreclosure process run its course.  So I’ve decided to write this post highlighting the major differences between a Short Sale and a Foreclosure, and how will it will probably affect a seller/property owner?

This is an all too common question being asked today for property owners in Greater Miami and Miami Beach, be it an owner of a Miami Beach single family home or condo.  In my experience, most owners or property investors who purchased after 2003, and whose total housing expenses exceed 31% of gross income are dealing with this issue.  To keep things as simple and brief as possible, I am not going to go into the details of these transactions; rather I’m going to give my way of explaining these terms when someone asks me this very question.  At Fortune International, we have an experienced and dedicated team of agents, lawyers, and paralegals, and administrative assistants that have had success negotiating zero deficiency judgements for short sales worth millions of dollars.  It’s not an easy process, and requires dedicated and persistent follow up with lenders, lawyers, bank negotiators, condo associations, and various other debt holders.

- A short sale is when a homeowner is trying to sell for less than the amount owed on the loan, this type of transaction requires bank approval and there are certain guidelines and pre-requisites a bank will ask for prior to s short sale approval.

- A foreclosure is when the lender takes over the property.  A court ordered sale is required prior to the foreclosure and at this sale if no buyer comes forward who is willing to pay the minimum bid for the property, then the lender takes possession and the property is foreclosed on.

The following breakdown is courtesy of Oliver Ruiz, General Manager of Fortune International and President of the Miami Board of Realtors:

Fannie Mae Mortgage Eligibility (Primary Residence):

• A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.
• A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after 2 years

Fannie Mae Mortgage Eligibility (Non-Primary Residence)

• An Investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years
• An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after 2 years.

Future Loan with any Mortgage Company:

• On any future loan application, a prospective borrower will have to answer YES to question C in Section VII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof of the last 7 years?”  This will affect future rates.
• There is no similar declaration or question regarding a short sale.

Impact to Credit Score:

• Score may be lowered anywhere from 250 to over 300 points due to a foreclosure.  Typically will affect score for over 3 years.
• Only late payments on mortgage will be reported as paid or negotiated.  This will lower the score as little as 50 points, if all other payments are being made.  A short sale’s affect can be 12 to 18 months on an individual credit score.

Credit History:

• Foreclosure will remain as a public record on a person’s credit history for 10 years or more.
• Short sale is not reported on a credit history.  There is no specific reporting item for “short sale.”

Security Clearances:

• Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony.  If a client has a foreclosure and is a police officer, in the military, in the CIS, Security, or any other position that requires a security clearance will be revoked and position could be terminated.
• Short Sale, on its own, does not challenge most security clearances.

Current Employment:

• Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure, in some cases, can be grounds for immediate reassignment or termination.
• Short Sale is not reported on a credit report and is, therefore, not a challenge to employment.

Future Employment:

• Many employers are requiring credit checks on all job applicants.  A foreclosure is one of the most detrimental credit items an applicant can have and in most cases, will challenge employment.
• Short sale is not reported on a credit report and is therefore not a challenge to employment.

Deficiency Judgment:

• In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment.
• In some successful short sales, it is possible to convince the lender to give up the right pursue deficiency judgment against the homeowner.

Deficiency Judgment (amount):

• In a foreclosure, the home will have to go through an REO process if it does not sell at auction.  In most cases, this will result in a lower sales price and longer time to sell in a declining market. This will result in higher possible deficiency judgment.
• In a properly managed short sale, the home is sold at a price that should be close to market value and, in almost all cases, will be better than an Foreclosure sale resulting in a lower deficiency.

A few of the properties that we have successfully completed “short” sales: (Click on the pictures to see more information about the building)

Browse Miami Beach Real Estate

My team and I recently had an interesting experience which I’d like to share with our readers. Last week, we placed an offer on a condominium offered as a short sale at the Murano Grande in Miami Beach.  We only went through the effort of contacting one of our most loyal and best buyers after receiving a solicitation on behalf of a distressed owner who I happen to know (this South Beach condo is listed with a family friend).  Unfortunately, shortly after submitting a contract significantly ABOVE the list price, we discovered that the price on the Multiple Lisitng Service was raised several times, and that the commission to cooperating Broker was changed to one percent (with total commission payable of six percent).

Here’s the problem – our ready, willing and able CASH Buyer was completely turned off by the lack of coherent pricing. Also, all short sales and bank foreclosures which we have dealt with in the recent past (and we’ve closed on many) stipulate commission splits of 50/50 between the buying and selling brokers.  We subsequently found out that the listing agent for the condo convinced the current owner to accept a finance contingency contract (his own buyer) at a significantly lower price.  Not only was this agent acting unethically with us, but the worst part is that the owner (and the lenders) have no idea of the games that this particular agent is playing in a desperate attempt to earn some extra commission income.

I firmly believe, especially in this market, that it’s an agent’s duty to do everything possible to sell a property for as high a price as possible to a QUALIFIED buyer.  Any agent (or Brokerage firm) that is not willing to work for the best interest of their client should no longer be in the business.  The old adage applies – “Let the Buyer (and Seller) beware.”

Latest Closed Sale from TheKleerTeam (Buyer Representation):

Continuum condo - North Tower #1404

Continuum North Tower presents over 15 styles of residences, with this unique split two bedroom floorplan offering views of Fisher Island, the Atlantic Ocean, and Government Cut. Residences feature private balconies with glass railings, floor to ceiling sliding glass doors with tempered, tinted glass designed to meet hurricane standards of the South Florida.

Closed Sales Price: $1,250,000 (7/1/09)
Original “For Sale” Price : $1,425,000
Bedrooms: 2
Bathrooms: 2.5
Sold Price per S.F.: $838/S.F.
Reduced from Original Price: 12% (106 days on market)

I keep receiving many inquires and requests from Buyers (both from USA and International clients) about the possibility of purchasing a foreclosed, or bank owned, single family home in Miami Beach.  There continues to be a significant gap between the sought-after upper-end luxury market and the less desirable, and generally non-waterfront properties.  Most importantly, we’re seeing a significant increase in buyer activity on the market due to the unfreezing of the credit markets for qualified buyers.

To illustrate the price (and demand) gap between turnkey waterfront homes and the still hard to sell mid-to-lower range single family homes, I’d like to highlight a few recently closed sales of bank owned homes around Miami Beach. These are not short sales, only those classified as REO sales (Bank owned and approved).

North Bay Road- Bank Approved Sale

Miami Beach North Bay Road Home

Bank Owned home, located on prestigious North Bay Road with nearby mansions and waterfront estates. Corner lot surrounded by privacy hedge. Open floor plan, designer stainless steel kitchen, terrazzo, limestone floors, formal dining room, family room, breakfast room, alarm system, sprinkler system.

:  Great Location
:  Small corner lot, house needed some work due to recent neglect

Sold Price: $520,000
Original “For Sale” Price : $1,350,000 (2007)
Bedrooms: 4
Bathrooms: 3
House S.F.: 2,474
Land S.F.: 6,978
Sold Date: March 6, 2009
Original Asking vs Sold Price: 39%

Alton Road- Significantly Reduced Turnkey Waterfront Home

Alton Road Luxury Home

A 1930′s  Mediterranean large home with guest house.  Renovation was completed in 2006 with luxury touches throughout  The additional amenities of this beautiful estate include: polished  marble floors, a custom masonry  fireplace, gas appliances,movie theater out door fountains with 5 bed and 4 and 1/2 baths.
: Complete renovation & charm

: Located on busy Alton Road & limited appeal

Sold Price: $520,000
Original “For Sale” Price : $2,200,000 (2006)
Bedrooms: 5
Bathrooms: 4
House S.F.: 3,223
Land S.F.: 7,320
Sold Date: April 22, 2009
Original Asking vs Sold Price: 24%

Biscayne Point- Gated Community Land Value Teardown Sale

Foreclosure Waterfront Home

Bayfront vacant home that was sold “as is” by the lenders, gated community with wide bay views.  Minutes from the Ocean, rare Bayfront lot with 75′ of waterfront.

: Waterfront lot with Wide Bay Views, Gated Community in Miami Beach
: Complete rehab / teardown house

Sold Price: $500,000
Original “For Sale” Price : $1,200,000 (2004)
Bedrooms: 3
Bathrooms: 2
House S.F.: 1,816
Land S.F.: 7,500
Sold Date: March 12, 2009
Original Asking vs Sold Price: 42%

Finally, to illustrate the dramatic difference with turnkey waterfront homes, I’d like to highlight another recent sale on Miami Beach’s North Bay Road, where the home was on the market for just TWELVE DAYS:

North Bay Road- Wide Bay Home

Luxury North Bay Road Home

This was one of the best waterfront deals on Miami Beach.  Wide bay views with 77 FT on the water and a 254 FT deep oversized lot.  This home is sparkling clean and livable “as is”.

Sold Price: $3,200,000
Original “For Sale” Price : $3,900,000
Bedrooms: 4
Bathrooms: 5
House S.F.: 4,006
Land S.F.: 19,685
Sold Date:  March 11, 2009
Original Asking vs Sold Price: 82%

What I especially like about this latest bank approved condo is that it represents a genuine VALUE for the savvy real estate investor or potential owner/user. This price point represents a value that is FAR below replacement cost. The annual rental income on this premier luxury Miami Beach condo is approx. $4,500/month for short term rentals (High Season) and $3,200/month for annual rentals (Low Season).  The Bentley Bay offers incredible unobstructed views of both the downtown Miami skyline, Biscayne Bay, and the Ocean. This unit is one of the best condo deals in South Beach.

The Bentley Bay condo was completed in 2005 (with subsequent bank supervised rehab of balconies) and is a boutique building located just North of Fifth Street. Offering direct and easy access to all major expressways, it is considered the gateway to South Beach. The downside to the Bentley Bay- the relatively high maintenance fees (due to having two towers and relative small number of units), but I believe that the flexible rental policy and the premier waterfront location in the heart of South Beach make up for this. Also, the planned retail development by Crescent Heights on 6th Alton as well as the 5th and Alton Shopping Center will completely transform the neighborhood over the next few years.

Bank Approved Price: $500,000
Previous Sales Price (comp units): $1,150,000
Bedroom: 2
Bathroom: 2
Today’s Price/S.F.: $400/S.F.

My team and I are committed to providing strong value added service to our clients, which means delivering the best purchasing opportunities to today’s buyers of Miami Beach luxury condos. Contact us at 305-673-3809 for more information on this foreclosure condo.

The level of interest and calls from former (and many new) clients looking to purchase Foreclosure and Bank Controlled condos as well as Short Sales has significantly increased in the past few months.  The strongest downward price pressure is occurring due to distressed and short sales.  However, the high end of the luxury condo market, particularly for the five star buildings in the South Beach area (Icon, Murano Grande, Murano at Portofino, Continuum South Beach, Apogee and Portofino Tower) continue to experience strong demand and prices still command a strong premium in terms of overall $/S.F.

Purchasing a Bank-owned (usually referred to as REO) or short sale property is usually a lengthy and complicated process with no guarantee of success in actually getting free and clear title for the buyer.  The key is working with a real estate professional who knows the parties involved in the transaction (attorneys, banks, other realtors, and misc. creditors) so that the property can be successfully acquired by the interested buyer.  Due diligence, follow up with large volumes of paperwork, and often times complex negotiations with lenders is essential for ultimate success.

If you are a potential short seller, this is especially important to keep in mind in choosing a listing agent, as NOW is the time when savvy buyers are purchasing spectacular waterfront condos in the above mentioned buildings (as well as many others).

A quick look at a few more prominent closed sales (& short sales) in some of the premier condo buildings in the South of Fifth Street area of Miami Beach:

Continuum on South Beach – South Tower #2703

Continuum South Beach Unit 2703

Beautiful unit on a high floor. Great condition! Stunning views of the Bay, Government Cut, Ocean and Downtown Miami. Several upgrades throughout, including a modern Master Bathroom.
Original Asking Price:  $2,395,000
Sold: $1,375,000  ($778/SF)
Closing Date:  12/08/08
Price Drop (original asking vs. actual sales price):  42%

Continuum on South Beach- North Tower #2301

This massive two bedroom unit is in a corner location, with walls of glass looking out towards the beach, Government Cut and Downtown Miami.

Original Asking Price:  $1,850,000
Sold: $1,535,000  ($798/SF)
Closing Date:  02/18/09
Price Drop (original asking vs. actual sales price):  17%

Portofino Tower – #PH4306

Breathtaking views of the ocean from this 43rd floor Penthouse.  South Beach, Biscayne Bay and Downtown Miami views. 2 large terraces.

Original Asking Price:  $1,995,000
Sold: $1,600,000  ($678/SF)
Closing Date:  2/18/09
Price Drop (original asking vs. actual sales price):  25%

Murano Grande – #1606

Stunning 16th floor direct-bay unit at South Beach’s Murano Grande.  A middle bedroom was removed, making this one of the largest and most-spacious 2 bedroom units in the building.

Original Asking Price:  $1,449,000
Sold: $1,320,000  ($652/SF)
Closing Date:  1/28/09
Price Drop (original asking vs. actual sales price):  9%

Bentley Bay #412

DIRECT BAY VIEWS of Star Island & DOWNTOWN Miami with extra large Balcony.

Original Asking Price:  $539,000
Sold: $325,000  ($417/SF)
Closing Date:  1/28/09
Price Drop (original asking vs. actual sales price):  40%

Statistics from: The Southeast Florida Regional (SEFR) MLS