Short Sales

With the number of short sales steadily increasing in housing markets over the past few years, there's a chance you'll encounter this type of sale in your home search. Or, you may be one of the many homeowners considering the short sale option for your home. Short sales are now common in many markets.

At one time, short sales were viewed as too complex and burdensome to deal with from a buyer's perspective but this isn't necessarily the case today.

With the help of an educated and experienced real estate Broker, a short sale is not only manageable, but can result in a great deal on the home of your dreams. For a seller who's facing foreclosure, a short sale can be the best outcome in a difficult situation.

This material covers the basics. Although if you're going down this route as a buyer or seller, it's absolutely critical to work with a Broker who understands short sales.

What is a Short Sale?

A short sale is a real estate transaction when the bank or lender agrees to let the homeowners sell their home for less than their loan balance. In some cases, the sellers don't need to pay back the difference between what they owe and the proceeds of the sale.

Recent changes in the industry have streamlined the short sale process, making this kind of transaction a popular alternative for both buyers and sellers. Additionally, banks are much more interested in facilitating short sales and avoiding foreclosures that result in placing the properties back on their books.

Who Benefits in a short sale?

In many cases, short sales present a proverbial "win-win" situation. Here's how:

• Sellers avoid foreclosure and protect their credit from the harder hit of foreclosure.
• Buyers receive a good price on the home.
• Lenders avoid a costly foreclosure. The potential loss from a foreclosure is typically higher than a loss from a short sale.

How it Works

Say you owe $200,000 on your home and can no longer make the mortgage payments. One option is to refinance your home and secure a lower payment based on a longer term or better interest rates. But if your property has lost value due to local market conditions (say it would sell for only $150,000), refinancing isn't feasible. If the bank agrees to a sale at $150,000, it's called a short sale.

Although short sales have become more common in recent years, banks don't always grant them. In general, they approve short sales in the following situations:

• Seller has a hardship (such as divorce, bankruptcy, unemployment, job relocation).
• Seller owes more on the mortgage than the home's current market value. 
• Mortgage is in or near default status. 
• Seller has no assets. 
• However, different banks and lenders have different requirements. Therefore sellers should discuss the short sale option with their lender. 
• Short sales can present a great deal for buyers. The process is a bit more complicated than a normal home purchase, and it will take patience and help from an experienced Broker.

What to Expect When Buying:

Short sales often look like other listings in the MLS, except they may have a lower asking price than comparable properties.

The term "short sale" is a bit of a misnomer, though, as this type of transaction can take much longer to complete than a standard home sale.

The buying process is similar to a standard purchase. You still apply for financing the same way, for instance, and order inspections the same way. Complications in the selling process aren't uncommon, and you'll need patience and a solid real estate Broker to deal with them.

The good news, though, is that times have changed. Many banks have streamlined their processes for short sales, making it much simpler and less time consuming for buyers and sellers. Market data shows that the time it takes to close a short sale has steadily decreased over the past few years.

Why You Need an Experienced Agent

For many reasons, choosing a real estate Broker who has experience with short sales makes a tremendous difference. An experienced Broker may already have the right contacts within the lender's local office, and most likely has already helped buyers through the process.

Possible short sale obstacles a Broker can help you navigate:

• Second mortgages: These can pose problems because a second lender may not agree to the terms set between the primary lender and the seller. 

• Mortgage insurance: If the seller has mortgage insurance on their loan, the mortgage insurance company will need to approve the short sale. 

• Other liens on the property: A lien is a claim by an outside person or company on a property for money owed. Liens pose obstacles whether the transaction is a short sale or not, and will have to be addressed before the property can be transferred to a new owner. 

• Government-backed loans: If the home seller's loan was a government-backed loan, such as an FHA loan, this can cause delays and hurdles because the government will need to be involved in approvals.

• HOAs: HOAs can present complications because the lender might not pay fees associated with the HOA transfer from the seller to the new owner. Your real estate Broker can help put a plan in place for paying HOA transfer fees, document costs, and any unpaid dues.

Working with a Broker who understands the short sale process saves you stress and time spent dealing with obstacles that often come up along the way.

Tips for Choosing a Top-Notch Broker

Using a Broker is important in any real estate transaction, and even more so in a short sale. A skilled Broker will be able to prepare for obstacles and move through them as quickly as possible.

When choosing a Broker, it's important to:

1. Look for training and education specific to short sales, such as Certified Distressed Property Expert (CDPE), Short Sales & Foreclosure Resource (SFR) or Five Star credentials.
2. Look for experience helping buyers purchase short sales in your area.

It's equally important to be comfortable with your Broker and use all the same tips noted in the Tips on Choosing and Working with a Realtor.

Ultimately, your Broker can mean the difference between a successful short sale and a huge, frustrating disappointment.

The Short Sale Buyer's Checklist

• Hire a Broker with experience closing short sales.
• Get pre-qualified for a mortgage.
• Get a home inspection but understand that most lenders will sell only "as-is." The inspection can help you decide whether the short sale price is reasonable, given the cost of repairs needed.
• Understand who is paying the Broker's commission and whether you have to make up any differences to your Broker.
• Submit documentation to the lender.
• Have plenty of patience, but balance it with persistence. Keep in mind that banks have grown much better at processing short sales, which is good news for you.

What to Expect When Short Selling

A short sale often presents a good option for homeowners who are in danger of foreclosure or in default because of documented financial hardship.

The benefits of a short sale include:

• A less severe hit to your credit history than what you'd experience with a foreclosure.
• You continue to live in your house until the sale takes place.
• In some cases, banks are offering homeowners cash incentives to do a short sale (to help with sales and moving expenses).

Because your credit history won't take as long to recover with a short sale as it would with a foreclosure – an average of two years versus seven years – the short sale option is great for sellers who want to own a home again in the near future.

Has Your Bank Already Contacted You?

Some banks have launched programs to pre-qualify homeowners for short sales. Through their records and housing data, they identify borrowers on their books who are in negative-equity situations. In this case, some are reaching out to borrowers in an attempt to further streamline the short sale process.

This makes it much easier for you, the seller, to proceed with a short sale.

New Federal Guidelines shorten wait time

In the past, the notoriously long waiting game for short sales deterred many buyers from attempting them.

But times have changed. Many banks have streamlined the process and removed the barriers that have hamstrung short sales in the past. Some are even pre-qualifying borrowers to get the ball rolling faster.

In addition, federal guidelines have helped shorten the wait for mortgages owned by Fannie Mae and Freddie Mac. These are great changes for buyers and sellers, because it means there are regulations in place to help shorten the process.

A short sale may be a great option for you. The key is to find an experienced Broker who can help you pursue the purchase or sale with confidence.

For Professional Service Every Time...

 Michael Lange
Broker/Realtor^®

    

 

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