Short Sales

What is a Short Sale? A Short Sale is where the loan balance exceeds the market value of the home. Lenders, facing a surge in delinquencies, increasingly have been willing to accept short sales.

How Did This Happen? Homeowners faced with stalled appreciation, little or no equity, and sub-prime mortgages (ARMs) that are resetting to higher rates have combined into something of a “perfect storm.”

What You Should Know About Short Sales: Short Sales are not hugely different from a normal sale. There’s a higher volume of paperwork and lenders will impose aggressive schedules. The process for Short Sales differs depending on the lender, but here are some guidelines: For Homeowners: Examine your loan terms. Do you have second or third mortgages? Access your financial status to see if you qualify for relief. Some Lenders will accept job losses, illness, death, and divorce as hardships, but typically won’t offer relief for someone who’s gambled away their assets. If financial problems are temporary, lenders may consider reworking loans to allow a homeowner to catch up and keep the house.

For Realtors: When you list a property that fits these parameters ask for written permission to communicate with lenders on their behalf. Once a Notice of Default is filed, there’s little time (approximately 111 days from Notice of Default to Trustee’s Sale) to sell properties before lenders take them back. So, the earlier you get started in the process, the better your chances of selling a property at market value. Most lenders won’t consider a short sale until homeowners are behind in payments, though some are starting to in order to avoid having a Real Estate Owned (REO) property. Realtors need to Develop a Lender Package: Experts recommend contacting lenders and asking for a “Workout Package”, which outlines a given lender’s modus operandi. The aim here is to make a plea on behalf of your clients by illustrating their hardships. You’ll find that the paperwork is similar to qualifying clients for a mortgage. You will be showing how financially distraught or insolvent clients are (using documentation like W-2s, tax returns, bank statements, expenses, and so forth. If there are second and third mortgage holders, send the same package to them. Then come up with a BPO (Broker’s Price Opinion), an assessment of the property’s condition and worth, and outline current market conditions, including the number of sales vs. listings and the number of distressed properties on the market. You want to show lenders they’re financially better off today with a “Short Sale” than they are with an REO. When you prepare offers to lenders, be prepared for a “No” response. Here’s where negotiation skills are critical. You will have to arrive at a price and timetable that is agreeable to all parties. And, you will probably have to haggle over the commission. In the end, you’ll most likely find that most lenders are fair, and pay accordingly. (Since publishing this post some have suggested that not all lenders play fair, and do not always pay accordingly… so, be careful)

For Buyers: Stay tuned, stay informed, and I will be happy to answer any other questions you might have in this regard. Becoming A Master At Listing and Selling Bank Owned Properties can be purchased at: Amazon other related articles can be found at New York Times Home FinanceSome of the information for this post came from the California Association of Realtors California Real Estate Magazine