Short Sales

Are you thinking about selling your home and are wondering what this “short sale” business is all about and if you might qualify? Are you thinking about buying a home and are wondering if you can get a good deal on a short sale?

Short sales have become a popular solution for struggling homeowners across the nation but are one of the least understood in the loss mitigation process. Short Sales can be a viable option for many homeowners and may be a better alternative than foreclosure. Buyers can certainly take advantage of these homes if they have a little patience.

What exactly is a short sale? A short sale is the sale of a property for less than the amount owed on it. The lender agrees to accept proceeds of the sale as full payment and will release the lien. Sometime the seller may be asked to contribute some amount toward the deficiency. Once in a while, the bank will also ask the buyer to contribute something.

If you are buying or selling a short sale, the most important thing to do is hire an expert. Short Sales are not for the weak of heart, but can be a stress free experience if you are working with a knowledgeable Certified Distressed Property Expert (CDPE). I can walk you through the process step by step and will be at your side through the whole journey from start to finish.

For Sellers:

Short Sale vs. Foreclosure

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only two years in comparison to a 5 year waiting period for a homeowner with a foreclosure on their record.

Your credit score could be lowered by as little as 50 points if you continue to make your mortgage payments and if all other payments are made during this period vs. a foreclosure which could lower your score as much as 250 points.

A short sale is not reported as such on a credit history. There is no specific reporting item for short sales. The loan is typically reported as “settled for less than the amount owed.” It is important to understand exactly how any remaining balance will be reported to the credit reporting companies and if the lender will sell the remaining debt to a collection agency.

In some instances, it is possible to negotiate with the lender to give up the right to pursue a future deficiency judgment against the homeowner. The government offers a program called HAFA which gives you this advantage. Not every short sale qualifies for this program.

In a properly managed short sale, your home is sold for close to market value which will bring the bank the highest amount which will help in negotiating any future deficiency judgment against you.

How do I qualify?

Each bank has its own standards so there is no formula that will work for every homeowner. There are steps you can take to be prepared to make your case to your bank and improve your chances of being accepted into a short sale program. Most people think you need to be behind on your payments to qualify for a short sale. This is not true. You do, however need a valid reason or hardship to be considered. Some possibilities include a financial hardship such as losing a job, getting divorced or a long-term illness. Sometimes you can qualify if your unpaid balance is more than you owe and you can prove a reason you need to sell. I will help you put together a hardship letter to submit to the bank.

What documents will I need?

The lender will require a review of a financial package which will include some of the following items: 2 months recent pay stubs, last two years tax returns, copies of all bank accounts, IRAS, 401K statements, property information for any other real estate you own, a financial worksheet to include all monthly expenses to include alimony and/or child support payments. During the short sale process, we are required to provide updated financial information every month until your property sells.

How long will it take?

This is the most loaded question you can ask; there is usually nothing short about a short sale. Generally, it can take 60 – 120 days from start to finish, although there are other factors that can affect this time frame. If there is more than one lien on the property we need to negotiate with both banks, which will take longer. Also, if the listing agent does not have the property set up properly for a short sale, this will automatically add about 60 days to the process. It is so important to work with an experienced short sale agent.

For Buyers:

How do I get started?

Hire an agent with short sale experience, preferably a Certified Distressed Property Expert (CDPE). This can be a lengthy process and missing one thing along the way will cost you time and money. As an experienced agent and CDPE, I will protect your interest while guiding you step-by-step through the process.

When do I need to get pre-approved?

You must submit a preapproval letter with your offer so it is imperative that you have your financing figured out prior to making an offer on a home. You will also need to put down an Earnest Money Deposit which will be held in escrow until closing so your money could be tied up for several months.
What about a home inspection and can the seller pay for my closing costs?

Understand the short sale process and know that although you are still entitled to a home inspection, the lender will not pay for customary items that a seller may normally pay including home protection plans or closing costs for the buyer. The buyer will be asked to purchase the property “as is,” which means no repairs. Most of the time, the listing agent will require you to conduct your inspection with 10 days of the seller accepting your offer. This does not mean the lender has approved the sale so you will be paying for the inspection prior to bank approval.

Is it a good deal?

Can you get a good deal on a short sale? Typically a short sale sells for close to current market value. Yes it is probably a good deal if you compare your offer price to the price the seller paid or currently owns. A few advantages to purchasing a short sale vs. a bank owned property is it is usually in much better condition since the sellers may still be living in it and maintaining it. Also, the seller has to pick one offer and accept it to move forward with a short sale unlike a bank owned property where the listing agent solicits “highest and best” multiple offers to present to the bank. This leads to a bidding scenario and many people end up paying a much higher price that the home was listed for.

How quickly can I get into my new home?

As a buyer, you must have some time flexibility and no contingencies to purchase a short sale. You cannot write an offer contingent on the sale or closing of another home because it will not be accepted. You cannot demand to close by a certain date; however, a seller does have to be out of the house by closing as the bank will not allow any seller to rent back the home they sell as a short sale – so you will always get keys at the closing table.

In summary….

Are you confused yet? The short sale process may seem complicated to any seller or buyer but we will be seeing more and more of these types of sales so the best thing is to embrace the concept and hire a great agent to help you through your journey.

I am an experienced CDPE and would love to be your guide and help you move on to the next chapter in your life. Call me today at (248) 345-6780.