Short Sale Success

Some of the agents in our valley will remember the days of “short sales,” and when rampant foreclosures where common… do you remember the HUD keys?
Although we’re not back to those days, we are starting to see “short sales” and “pre-foreclosures” more common today than a year ago, and possibly this will continue to exist in our market for a while longer. But, we’re not going to discuss the why’s of the short sales. Our focus here will be more about the how’s… How to navigate the closing of a short sale successfully, ensuring both the buyer and the seller a quiet escrow!

So, if you’re new to the real estate profession, do you know what a “short-sale” is? Maybe you’ve been in your office, and you’ve been an agent for a few years, when you hear some other agents discussing short-sales… hmmmm…. We’ve all been in a place where we do not really want to let others know that we don’t know everything… or even some things! So, lets talk…

Most agents are familiar with a foreclosure and the timeline involved. There is a period of time prior to foreclosure that is referred to as a pre-foreclosure, when the homeowner is in default and due to circumstances determines to sell the home rather than hold on to it and risk foreclosure. In some instances, there may be equity at stake which will strongly motivate that seller to sell the home and maintain that equity and help them to recover financially. There are other times when the home owner is faced with what we commonly refer to as a “short-sale.” This situation is often less motivating for the seller, and carries some consequences for the seller, which requires or it is strongly recommended that they obtain advice from a qualified, experienced attorney… someone other than his realtor!

A bit of information that you might want to store away in your mind is: a short sale can further damage the home owner’s credit scores, often showing up as a “settlement” that indicates that they paid less than owed. They may also be faced with an IRS bill on the unpaid debt, which is generally considered income to the home owner. A skilled negotiator may be able to avoid these consequences or at least minimize them, so they may want to consider getting an experienced attorney’s help in this matter. No matter how skilled you may feel that you are at negotiating… do not advise your client or provide services that can be misconstrued as legal advice or services! In this situation, a negotiator is an attorney. You may and should strongly advise them to contact an attorney to help them limit any liability that they might encounter in this type of transaction! Being honest with them about the possible consequences will get you more kudos and referrals than withholding information and possibly facing a lawsuit of your own!

So… What is a short-sale? Well, by definition, the term “short-sale” is commonly associated with the stock market…
From Wikipedia, the free encyclopedia:
In finance, short selling or "shorting" is a way to profit from the decline in price of a security, such as stock or a bond.
And recently on a real estate board where the discussion of short sales was taking place a post was made wondering how a short sale applied to real estate… since their only understanding of a short sale was via the stock market… The response was this quick definition:
A Short Sale in the mortgage world amount to an accommodation on
the part of the lender in hopes of avoiding or mitigating an impending loss…

So… does that help? Maybe not, so possibly this definition will be more direct and clear the muddiness… in short a short-sale occurs when the seller of a property owes more than the property is able to be sold for. Usually, the price of the home appraises for less than the amount that is owed on the home. Often there is more than one lender involved, with the second, and sometimes a third position holder being short.

What motivates a lender to accept a short sale transaction? Well, typically, the lenders will only accept a short sale if
· you are at least one month behind on your mortgage payment
· have a ready and willing buyer
· are unable to debt service all of your existing liabilities
· your financial situation has changed and you are currently making less money than before.
· have depleted your savings.

When you become involved with a seller faced with a potential short sale… there are a few things that you must be aware of... the most important is that in order for a short sale to proceed, the lender will be involved and must approve the terms of the sale.
A few other things to consider, and recommended:

· Order a prelim report at the listing of the property
· Review tax liabilities – property taxes are often in default in a short sale situation.
· How many lien holders are on title?
· Is the sale complicated by a foreclosure or bankruptcy process?
· Direct the homeowner to discuss this transaction and possible negotiation of limiting their liability with a qualified attorney.

Often the lenders will require additional documentation from your seller to determine their qualification for a short sale. Some of the paper work that may be required is:
· Two years tax returns with w-2’s and any tax schedules
· Most recent two months of pay stubs
· Most recent two months of bank statements for all accounts, including retirement accounts, 401K
· Current mortgage payment coupons for existing mortgages
· Copy of original mortgage note and deed of trust.


While speaking with Senior Escrow Officer, Jessie White, at A.C.T. Escrow of Lancaster, she was helpful and offered the following advice: “Check with the lender prior to receiving an offer on a property faced with a short sale and determine their willingness to accept a short-sale condition. This will make the escrow process less cumbersome and time consuming if the lender is already apprised of the condition and has expressed a willingness to work with the seller.” Additionally, Jessie reminds us that the contract must contain an amendment that apprises/discloses to the buyer that the close of escrow is contingent upon the approval of the short sale by the lender.

In short… a short-sale is not a recommended transaction to be tackled by someone new to the industry or unfamiliar with the short-sale, pre-foreclosure process without the supervision or guidance of a more experienced agent, and broker! Remember, the outcome of any transaction always has an affect on your future business. The positive closing of an escrow, despite the reasons for the sale, will result in referrals to you… if you are uncertain of the procedures, be open, and honest… and either seek help for both or refer them to an agent that specializes in short sales!

http://www.short-sale.com/blog/
http://www.californiarealestatecenter.com/realestateshortsale.htm