Should A Homeowner Attempt A Short Sale?

First, understand what a short sale really means.

A short sale means that you are asking the lender to accept less than their payoff in order to facilitate a sale of a home. This is done to avoid foreclosure. In this situation the home owner owes more for the home than what the home is worth. In this situation the homeowner MUST sell. Of course, if the home was worth more than is owed there wouldn't be a problem.

Homeowners, the worst mistake you can make is to bury your head in the sand, hoping the problem will go away.

First, realize that foreclosing is a rather expensive proposition for the lender. That isn't the lender's core business. They are in the business of making loans. They don't want the house back.

Before a lender approves a short sale they have to determine two things.

1. Can the owner afford to continue making payments? If, yes there is no reason for lenders to lose money.

2. If they approve the short sale will they wind up in the same position if they foreclose and then sell the property.

3. It is important to note this statement. THE SELLER MUST NOT RECEIVE ANY SALE PROCEEDS FOR THEMSELVES.

It is important to note if there a junior lien holder? If so the chance for a large discount is possible because if the property is foreclosed on the junior note holder they get nothing.

Your head head is probably full of questions. Any property owner considering a short sale should seek competent advice from an attorney and Realtor.

Short sales are relatively new arrangement and not part of a Realtor's basic training, however, there are many that have handled short sales prior to your situation. Call around and ask if they have handled short sales. It is interesting to note that lenders will pay reasonable selling commission so Realtors have an incentive to get involved.

The basic requirement for a short sale are a Listing Agreement with a Relator and a Sales Contract form a buyer which are submitted to the lender along with a Hardship Letter from property owner explaining why they cannot continue to pay the mortgage. Be sure in include documents supporting this claim. This would include tax returns and bank statements. Photos of the home and comparable home prices in the neighborhood will also help. Remember the lender could be in another state and not familiar with local conditions.

If the submitted package is complete the lender will order a Broker's Price Opinion (BPO). This is the key that will unlock the process and allow it to go forward. If that opinion is too high the lender will not accept a low offer. Your Realtor must meet with the agent doing the BPO and offer supporting information why the offer should be accepted for the amount indicated. Lenders will often accept an offer 10% lower than the BPO.

The sales contract should state clearly that the offer is contingent on the Lender accepting the purchase price in full. Also it must include that the Seller is forgiven the deficiency on the mortgage. Remember that the Seller does receive a 1099 on the forgiven part of the mortgage and that there are some provisions in the tax code for offsetting income due to insolvency.

This is probably your single largest asset. Do you really want to do a short sale on your own?? This process is jammed pack with pitfalls and should be handled by an experienced person.

To get Free Foreclosure Analysis Click Here...

Short Sale - 8 Common Questions

If you are a homeowner (considering doing a short sale), be sure to find a REALTOR in your area who is knowledgeable and has experience doing them. If you are a REALTOR, you should strongly consider adding short sales to your repertoire.

Here are some of the top questions clients have asked about short sales.

1. What is a Short Sale?

In the world of Real Estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually 'forgives' all or a large portion of the difference.

2. Who benefits from the Short Sale?

Short sales are a win-win situation. Lenders, Homeowners and REALTORS all benefit from the successful short sale. Mortgagors get the majority of their money back, Homeowners get the relief they need and are able to sell their property and avoid foreclosure, and REALTORS can facilitate the transaction and receive compensation (commission) from the sale of the property.

3. Why would banks forgive the difference?

To mitigate their losses, banks can accept a settlement of less than what is owed on the property. When faced with the option of getting the property 'back' through foreclosure, a short sale often makes a much wiser business decision for the bank.

4. This sounds too good to be true!?

Not really. Things that are 'too good to be true' usually don't make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.

5. Can FHA, Conventional or VA loans receive a short sale?

Yes! I have successfully negotiated short sales for each of these loan types.

6. What is Negative Equity?

Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased.

Even if a person owes exactly what their home is worth they would still be considered 'upside down' since there are no resulting proceeds to pay the fees associated with selling the property (REALTOR fees, taxes, title, and other seller closing costs).

7. Why does my property have negative equity? Here are a few common reasons:

• Person bought at the height of the market and the market has now declined or they paid more than the property was worth.
• The area has become less desirable for any number of reasons, so property values have declined.
• Person purchased the home with little or no money down and wants to sell within a few years of purchase... and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing.
• Person refinanced the home (with a high appraisal value) and now has little or no equity.
• Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value.
• The market is soft because there is too much builder inventory (new homes) or too many existing homes on the market (resulting in a buyer's market).

8. How long does a short sale take?

Short sale approval can take 45-60 days, with some lenders taking 90 days or more. During that time, all foreclosure activity, if any is typically placed on hold.