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I remember the first time I typed into Google anything real estate related. Fresh off finishing the book “Rich Dad, Poor Dad” by Robert Kiwosaki, I figured I would just find a cheap property pretty easily.
I decided that I was going to get rich quickly by flipping houses in my hometown of Fairfax City.
Out came the computer, and then I typed in something along the lines of “foreclosures in Northern VA”. I definitely found some homes…but what I realized was that the process of foreclosure is way more involved than you may initially believe.
My google searching did not yield me a property, which is too bad, because I made that search in 2011 and little did I know it was about to be a long run of value appreciation for real estate in Northern VA and all over the greater DC area.
However, it did pique my interest in real estate. I was later successfully involved in foreclosure transactions with multiple clients.
I have also had some foreclosure and short sale deals that did close, and I learned probably even more from these about the foreclosure process. Eventually, I did make a jump into investments.
This guide is for anyone who wants to know more about the short sale and foreclosure process. Whether you are looking to buy investment properties in Northern VA or are personally facing a possible foreclosure, this guide can help you.
You can find current foreclosure and short sale properties for sale right below. Have at it!
Short Sales Available Now in Northern VA
The best way to find short sales are those listed on the market. The listings below are currently on the market, so feel free to browse through them, and if you have a question you can ask me in the info page.
Foreclosures List in Northern VA
If you would like a foreclosure home list, reach out to me. I will send you a list of pre-foreclosures and foreclosed homes (REOs) in any area of Northern VA. This includes homes with notices of default, upcoming auctions, and bank-owned properties. Just fill out the form below.
Many bank-owned properties eventually become available on the market.
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Foreclosure Process in Virginia
“Foreclosure” is a broad term to refer to the process in Virginia of the lender taking back a home when the owner is not paying the loan. There are a few phases of foreclosure. Let’s look into them further:
1. Notice of Default
If you stop paying the mortgage, you are in violation of the deed of trust that you signed at the closing.
The deed of trust spells out the terms of the loan and the terms of repayment, as well as what happens if you do not pay.
A “default,” in contract speak, is when a party does not do what they are obligated to do. In this case, you can default because the mortgage was not paid back as promised in the deed of trust.
When this happens, the lender serves a notice of default to the homeowner through the trustee of the deed of trust.
This is the first step in the formal foreclosure process. It also allows for investors to take note of homes that may possibly become foreclosures.
With Owner Equity
If the owner has equity in the property, it is extremely common that they will be motivated to sell at this point in order to pay off what they owe and move on with their equity.
Another common scenario is that the owner will talk with the bank to pay the owed amount and get back into good standing,; this would be curing the default.
Underwater On The Mortgage
The final payoff of the mortgage is what remains on the mortgage after considering legal fees, late fees, and other fees.
If this payoff is less than what is owed on the mortgage, then that owner is underwater — a simple way of saying they are headed towards more trouble.
These properties are much more likely to go through to the final stages of foreclosure since there are less options with no equity in the property.
There are a couple of ways to stop foreclosure. First, the owner could do a short sale, which I discuss further below. Basically, you sell the property, and the bank accepts less than what is owed.
Other ways include paying the debt so it is current, or restructuring the loan. Depending on the market and legislation, there are sometimes programs that owners can take advantage of to get their loan restructured.
These loan modifications were common after the financial crisis of 2007, for instance.
Notice of defaults are filed and public record, so if you receive one you can expect to be educated by many real estate agents on the short sale process with mailings and other contacts.
2. Notice of Sale
Eventually a delinquent borrower will receive a notice of sale. In Virginia, the sales take place at the various jurisdiction courthouse steps.
You will get the time, date, and location of where the auction will take place.
Oftentimes, the sale is stopped by a short sale or other arrangement between seller and lender.
If the property does go to the courthouse auction, it will either get sold to an investor or the bank will take back the home.
3. Bank Owned
The opening bid is often set to the total amount due to the lender. If a foreclosure auction does not result in a sale to a third party, the lender will then own the property.
Homes that are owned by the bank are known as “Real Estate-owned” (REOs).
These properties are often managed by third parties known as REO asset managers. They maintain the properties and will eventually arrange for the properties to be listed in the MLS.
Depending on who you ask, they will give you a different definition of foreclosures in Northern VA.
Homes that have been served a notice of default, homes in the process of a short sale, homes scheduled for auction, and REOs will all be considered when someone discusses foreclosure properties.
All are distressed; they all are at different steps of the same process of a lender taking back a home that was collateral for a mortgage.
Short Sale Process
A short sale is sold by an owner who is behind on their payments. The process usually starts with a real estate agent.
Short Sale Negotiator and Short Sale Packet
When done right, a short sale negotiator is involved and a packet is prepared to present to the lender. This packet contains financial information from the seller as well as information about the property’s value.
Sellers will also sign an authorization giving the negotiator the authority to talk with the lender’s representatives on your behalf.
Listing in the MLS
Timing can differ depending on the agent, but often while the packet is being prepared, the home is listed in the MLS as a short sale, pending third party approval (the lender).
In order to expose the short sale to the maximum interested parties, most lenders require the property to be in the MLS for a certain time frame before reviewing offers.
Contract Between Buyer and Seller
Once an offer is accepted by the seller, it is just the beginning.
In Northern VA, short sales have addendums that spell out how long the buyer will wait for approval, timing of inspections and appraisals (before or after the approval), and a settlement date adjustment.
Submission of the Contract
The paperwork — including the contract, short sale packet and any other forms required — is submitted by the negotiator to request the acceptance of the lowered price.
The bank will usually want a valuation from an appraiser or real estate agent to make sure they are getting a good price for the property as well. This is independent of the new buyer’s appraisal.
Waiting for Response
Short sales are infamous for taking a long time, which is especially true if there are multiple loans against the property that need to be approved. I have had this take as little as 30 days and as long as 4 months to get a response from a bank; 2-6 months is the consensus average waiting time among agents.
The bank will either approve the short sale at the contract price, give a counter of a higher approved price, or sometimes even reject outright and choose to go to foreclosure.
Benefits of a Short Sale
If short sales are such a headache, why would a seller, lender, and you as a buyer want to go through with one? Why not just let the foreclosure happen?
For the seller, a short sale can sometimes help them stay in the home longer so they’re able plan their next move, if necessary.
A short sale can also be a little bit better than a foreclosure in the future when they apply for credit.
How much better is up for debate, but after research it is agreed that there is some benefit to having a short sale on your credit report vs. a foreclosure.
The lender is all business, saving their time and money; with that in mind, they choose to avoid foreclosure.
Going through the foreclosure process, holding real estate assets, and selling the assets takes time and money.
You, the investor, will want a discount off the market value. This is possible with a short sale depending on the mortgage holder. There are less buyers for a short sale because they can be so burdensome to get to closing.
Short sales on average will be in poorer condition than a standard sale.
The hassle of a short sale is actually your gain. Since most homebuyers avoid them, if you have patience, you can get a good deal.
Tips for Buying a Short Sale in Northern VA
•Use an agent who has experience with short sales. The properties most likely will be listed in the MLS since most of the lenders require this.
•Use a title company that has a good negotiator. Some title companies do lots of short sales and can make the process simpler and as quick as possible.
•Have patience. Sometimes you will wait months only to get the offer rejected and given a higher price. Should you pursue short sales, it is a waiting game, and it might take a couple contracts to acquire a property.
•Keep your goals in mind and make business decisions. Know the deal you are looking for and be prepared to walk away from a high bank counter.
•Look for “approved at this price”. Some listings are approved by the bank but do not close for one reason or another. The bank will likely approve these deals quickly since they already have approved the price.
Tips for Buying Foreclosures in Northern VA
•Look for deals where sellers have equity. These sellers will be motivated to sell and do not need to go through the short sale process.
•Check out the courthouse auctions. These sometimes result in sales of good deals. Drive by the house property first to see if you can get an idea of condition. Buying sight unseen is not for the faint of heart and recommended only for experienced investors.
•Do your homework and stay consistent. Find a list of properties that have been served a notice of default that you may be interested in. Do as much due diligence as possible and track the property as it goes through the phases of foreclosure.
•Get a list of REOs from an agent. Most banks list them with agents in the MLS; this could change, but not likely as they want the most possible exposure.
Foreclosures take a lot of patience and homework. If I can help you with questions or a list of REOs and short sales, reach out to me.
In a market with lots of homebuyers and home prices rising, there are generally less foreclosures. On the flip side, in a slower real estate market, more homes are in the process of getting of foreclosed, meaning more deals can be found.
No matter the state of the market, distressed properties can present opportunities. Let’s talk about your investment goals.
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