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What is Foreclosure?

The mortgage holder can usually initiate foreclosure at a time specified in the mortgage documents, typically some period of time after a default condition occurs. Within the United States and many other countries, several types of foreclosure exist. Two of them – namely, by judicial sale and by power of sale – are widely used, but other modes of foreclosure are also possible in a few states.

Foreclosure by judicial sale, more commonly known as Judicial Foreclosure, is available in every state and required in many, involves the sale of the mortgaged property under the supervision of a court, with the proceeds going first to satisfy the mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds are left. As with all other legal actions, all parties must be notified of the foreclosure, but notification requirements vary significantly from state to state. A judicial decision is announced after pleadings at a (usually short) hearing in a state or local court.

Foreclosure by power of sale, which is also allowed by many states if a power of sale clause is included in the mortgage or if a Deed of trust was used instead of a mortgage. In some states so-called mortgages are actually deeds of trust. This process involves the sale of the property by the mortgage holder without court supervision. It is generally more expedient than foreclosure by judicial sale. As in judicial sale, the mortgage holder and other lien holders are respectively first and second claimants to the proceeds from the sale.

What is a Short Sale?

In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack of), by determining the probable selling price from a Broker Price Opinion BPO (also known as a Broker Opinion of Value (BOV)) or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset, businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.


Short Sales - True or False?


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1) "The seller must stop making payments on their loan." Not necessarily. We have negotiated dozens of short sales where the seller has not missed any payments, and was not in default. This is very important if you want to retain a better credit standing and avoid negative bankruptcy charges on your consumer credit report.

2) "The seller is in foreclosure." Not necessarily. It is possible to have missed payments and not be in full-blown foreclosure. The sooner a homeowner seeks the advice of a professional Realtor® the better it is to avoid foreclosure proceedings and negotiate a possible shot sale.

3) "Buyers will not want to make offers on short sale property." Not true. Occasionally buyer's agents are reluctant to represent offers on short sale property. Often times, listing agents will take on short sale listings when in reality they have no knowledge base or skill set to successfully negotiate the lower payoff. A shrewd agent will call the listing agent and make sure they are competent to complete the process, and then submit an offer.

4) "Financial hardship is the only reason a lender will accept a lower payoff." Not true. There are many potential reasons a lender will allow a lower payoff. One such example is that the seller must relocate for some reason, such as to care for a sick relative, or due to employment requirements. Especially now some banks are cash-strapped and they are willing to accept a loss to get money back into the treasury (this goes predominantly for smaller banks and loan servicing facilities. Big-name-banks are different and most have already recovered and are strengthening their positions in the market)

5) "A short sale where there is a first mortgage and a second mortgage will not be approved." Not true. While this scenario requires diligent negotiation, many 2nd mortgage holders will accept as little as $1,000.00 in lieu of a full payoff.

6) "A short sale means that the escrow period will be short." Generally no! Depending on how much negotiation can be completed in advance, a typical timeline for lender approval can be as little as 2 weeks or as long as 2, even 3 months. Once the lender approves the lower payoff, escrow is opened and the transaction timelines proceed from that date.

7) "Short sales are a bargain!" Banks do not give property away. They base approval on recent sales comparables, and actually retain the services of a local agent to perform a BPO (aka, Broker Price Opinion: The BPO includes estimate of repairs to obtain fair market value, neighborhood information, and value estimate (90, 120, 180 day marketing time for "as is" and "as repaired" values) and all comparable sales). We are such a local brokerage that is hired by bank to provide BPOs. While we do believe in general it is possible to get a lender approval for a property several percentage points under its market value, it really depends on the property and or condominium community. We have closed in the month of October a Pre-Approved Short Sale in North Miami Beach, where the mortgage was over $333,000.00 and the final sales was approved by the bank for $171,000.00.

8) “The $700 bailout plan will help me to keep my house and banks are not going to foreclose on my property as they will receive funds from the Treasury.” Not true. This is dangerous thinking. The contrary is true. Most homeowners who cannot afford to make mortgage payments may lose their homes as banks become stronger and less willing to negotiate.

9) "The seller of the property can make money from the short sale." Not true. The lender will REQUIRE that the seller nets $0 from the sale.


If you are in need to arrange for a Short Sale, our understanding agents will be knowledgeable, professional, helpful and courteous to lead you through the process and negotiate the best possible solution for you.

If you are an investor, we have approved Short Sale Opportunities and Pre-Foreclosure Listings. Please do not fall for those offering so called outdated “Foreclosure Lists”. Keep in mind anything that makes a foreclosure list is perhaps not considered “investment worthy” by the pros and will eventually go to a hyped-up auction. Realtors and Real Estate Investors have access to data that is being provided to us on a daily basis, where we can see who did not make a mortgage payment and or who was late. We have engaged a professional marketing company that immediately offers our services to such homeowners and over 70% take advantage of our expertise and engage us to negotiate a short sale agreement with their lender.


In Miami, please call Brosda & Bentley Realtors’ HOTLINE: (786) 406-1757 for a free consultation.


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Questions & Answers

i am looking for a foreclosed property in aventura fl. where can i get a list of bank owned properties.?

Katerina Brosda answered:
Hi Saul,

Great that you are looking into investment properties in Miami (Aventura); there are certainly a lot of opportunities offered out there and the experts agree that it might be a great time to invest now. Sometimes it can be an ideal way to capture a home at a great value, even below appraised market value. For many real estate investors, though, there is a common misconception, primarily the result of misunderstood and falsified media or miscommunicated Internet anecdotes. It is very important to understand when is the best time to purchase a distressed property - in most cases, the real opportunity may exist before the home even reaches foreclosure status also known as ‘Short Sales Opportunity’.

For the majority of professional real estate investors, the common consensus is that pre-foreclosure (short sale) is the ideal time to buy an investment property and not when the property is bank-repossessed. Because mortgage companies and lenders are not in the home ownership business, the lender will often work with the anticipated investor in an effort to keep the home away from foreclosure. Once the bank has repossessed a property the game changes. Trust me, banks know exactly what a property is worth and they will not give it to you for ‘pennies on the dollar’. Why do you presume so many households are currently struggling with banks to cut a better deal for themselves, to lower monthly mortgage payments and they were and are not successful? Banks carry the property as an asset and not as so often falsely presumed a “liability” (unless you are dealing with a mortgage servicer, they indeed want to get rid of any property they repossess as quickly as possible, but such properties are very often in a very desolate condition). Especially now, when banks know that they can hold on to these assets for a little longer and probably get fair-market value from the Treasury or affiliated (assigned) investment companies in the next few months spending half of our $700 billion tax dollars to recapitalize.

Consider this: With a pre-foreclosure home purchase (short sale), you will have the opportunity to inspect the property prior to purchase, unlike purchasing the home in a foreclosure proceeding or auction in which no inspection is permitted or at least is very, very limited. In most cases foreclosure sales are ‘as is’ sales and the bank is not liable to repair or release you from any contract you may have signed with it. I have seen numerous speculators buy these foreclosed properties for “pennies on the dollar” and then found out that it was virtually impossible to obtain homeowner’s insurance for the investment they just made.

When you buy pre-foreclosure properties (short sales) the regularly scheduled professional home inspection will ensure that you’ll know and understand what repairs must be made prior to and after purchase and that your investment will be insurable.

The way we work with our client-investors is that we inquire about exactly what they are looking for, how much cash they are capable and willing to put down and then we start scouting the exact location(s) (neighborhoods) clients prescribe. Keep in mind that you are not the only one out there looking to get a great deal; there are professional Realtors who made this their main business and there are certainly professional investors (individuals and investment funds), subscribing to the same services and techniques as Realtors do and have access to –data identifying months in advance who had difficulties in making monthly payments (or is making late payments).

Giving you a list of foreclosed properties many times means “this is what others considered not investment worthy” that’s why it is still out there and it will eventually go to a hyped-up auction. There are once in a while great, overlooked foreclosed opportunities, but they are fairly rare.

For more information, please feel free to call us and our highly specialized team will assist you to find the right property for you.

Brosda & Bentley Realtors
Aventura (Miami) 
              (786) 406-1757 - Thu Oct 16 2008, 17:04