Sell your home by a Short Sale
Before you consider selling your home as a short sale, there are many things you should know!
First of all, let me begin by telling you that I have been successfully been doing short sales since 1992, when the defense industry died in California. I jokingly say that I was doing short sales before the rest of the country even knew what they were... But that is not far from the truth!
The most important thing you can do BEFORE ever thinking of getting involved in short selling your home, is to have a Realtor who is VERY familiar with these transactions and has successfully completed numerous short sales! I find there are lots of agents out there that say they know about short sales, only to find out they do not have a clue once we get into the deal. Going to a "short sale seminar" does not an expert make!
You need a Realtor to explain the full ramifications of selling your home as a short sale, and there are many! You do not want to use this as your first option, but as your last option. Selling your home short WILL EFFECT YOUR CREDIT. It is not as bad as having a foreclosure on your record, but it will be a negative!
What exactly is a short sale?
Let's assume you owe $300K on your current loan. The market value of your home is $200K in this current market. You need to sell BUT you do not have $100K plus expenses of sale, to get out of your current loan. - A short sale is where you sell the home for the $200K current market value of the home and the lien holder (your lender) agrees to take the $200K from the sale of the home (minus expenses of sale) as full satisfaction for your loan, letting you off the hook for the difference! That is a short sale in a nut shell.
There are MANY other options available, called "work outs". Any Realtor worth their salt will encourage you to pursue these options first (even though we do not make a commission by doing so). I can say personally, it is better to assist people without pay than it is to profit without concern for your clients. Depending on your lender, there are several assistance programs in place that can help you stay in your home. Again, it takes a knowledgeable Realtor to know about these programs and who to contact. BEWARE if your agent does know know of any programs or offer assistance in this area.
Okay, I Can't Make The Payments Any Longer. I Owe More On My Home Than It's Worth. - What Can I Do?
If you are looking at loosing your home, this is the time to THINK about the 3 or so options. One is a short sale, another is renting the home, another is foreclosure and the last is deed in lieu of foreclosure. These are the most viable and commonly found options in this situation.
Let's look at Foreclosure
This is where the bank takes the home back and kicks you out! This is the WORST option for your credit of those above, and the worst for the bank. They have to go through the foreclosure process and have you evicted. This is quite expensive for the banks and they do not wish to have your home. Often homes sold through foreclosure end up netting the least amount for the bank, in the end. So MOST of the time, the bank rather pursue other means too.
Deed In Lieu of Foreclosure
This is where you sign the home back over to the bank without them having to go through the eviction process and foreclosure process. This saves the lien holders the money of getting you out, but it is still almost as bad for your credit as the foreclosure.
Now here is an option IF you want to keep the home AND you are in a financial position to make up the difference (if any) monthly between the rental income and your mortgage payments. Of course, this is not going to put a ding on your credit unless you are late or miss your mortgage payments. Lien holders do not accept your renters excuses. You also must be able to make payments during vacancy periods. Talk to your tax advisor on this option. You MAY be entitled to claim any losses as a business expense on your taxes. CHECK WITH YOUR TAX ADISOR.
Lastly, there is the option of a SHORT SALE.
Let me tell you right from the beginning, there is NOTHING short (time wise) about short sales. Often they may take in excess of 6 months to complete, from beginning to end. Also, no two short sale transactions are the same even if you are dealing with the same lender. Also, as a seller of a home that is a short sale, you need to release all of you emotional attachment to that home. You need to leave the pricing and everything else, to your Realtor and recognize you are loosing your home. Look at it as you are getting a free (as far as your mortgage goes) place to live until it sells.
Is Everyone Able To Be Approved For A Short Sale?
By NO means!!! Just because you may want to walk away from what you owe, does NOT mean the lender will necessarily agree to allowing you to do a short sale. Rules for short sales are changing all the time. You need an expert who KNOWS how to do them, has a proven history of success AND stays abreast of the new rules as they go in effect. Here are some guidelines that apply at this time...
1) In some cases, it must be your primary residence. They may consider a property that is NOT a primary residence if it was originally purchased as a primary residence. The bank will not bail you out of your bad investments (investment property). They MAY approve a short sale on investment property, but will most likely ask for a contribution from you (promissory note or cash contribution).
2) You must be able to prove that you can not afford the payments. You will be required to do even more financial paperwork than you did to purchase the home. You will need to provide financial statements, bank statements, etc. There is an entire financial packet you will need to complete and submit to the loss mitigation department to have your short sale considered. A hardship letter will also be required, stating what has changed since your purchase, to make it where you can not make your payments. The hardship reason MUST be a qualifying reason, and they change!
3) It used to be that a borrower had to be delinquent to qualify for a short sale. This is NO LONGER true. You can benefit from being current.
BY THE WAY, Just because you are behind on payments and the bank suggests you try to sell it by short sale before it goes into foreclosure, this is NOT approval for a short sale. This just means they will consider you for a short sale. They rather you do a short sale because the bank gets more money than if the home goes to foreclosure.
Will The Lender Continue Foreclosure Proceedings If My Home Is On The Market?
The short answer is yes! The foreclosure process can be delayed by the lender if they are in the process of working on an offer on your home, but if an offer is not accepted by the lender, eventually there will be a "foreclosure date" or a "Trustee Sale" date. At this point, the lender takes the home back and will have you evicted if you are still residing in the home.
If There Are Offers Made On The Home, Doesn't The Bank Have To Accept It?
Not at all. If the offer does not meet the net amount that the lender wants as satisfaction for the loan(s), they do not have to accept the deal. Even if the offer is a great deal for the bank and they are receiving FULL market value or above; I have seen banks turn down offers because they are not knowledgeable of the market and they can sometimes be disillusion. Then the lender ends up foreclosing and only getting a small fraction of what they would have gotten if they would have accepted the offer. This does not happen often, but it does happen! If this is the case, you can end up with a foreclosure on your credit report rather than a short sale. You need to be fully advised of that possibility.
All Lenders Are Not Created Equal !!
There are lenders that tend to be more cooperative and better to work with, than others. Some are on top of things and will at least give a response to an offer in a relatively timely manner... Others are pathetically slow and difficult to work with. There have been some companies that it has taken in excess of 90 days JUST TO GET A RESPONSE to an offer. The more loans you have on the property and the more lenders involved, the more difficult it is
AND expect more delays in the process.
Short Sales are THE most difficult and time consuming transactions out there, right now. Even the good ones are extremely time consuming for your Realtor. There is no other way to say it... They are a PAIN IN THE REAR! So be prepared! This will be a long process. Your Realtor will probably need a bottle of hair dye by the end. The compensation your Realtor receives from this deal will be the hardest earned money they have ever made, and it is poor compensation for all that is involved. The Realtor is compensated (paid) by YOUR short sale lien holder and often, the place they want to get some of your money back, is from the Realtor. They are far from painless transactions and there will be difficulties along the way, but your Realtor may be able to save you from being obligated for THOUSANDS of dollars. So be patient and appreciative. Your Realtor is helping YOU out of a bad situation.
It will go along way in successfully completing the short sale of your home.
To explore your options, contact:
Vicki L. Watson, PLLC
(520) 204-3474 - Cell
BEWARE OF ANYONE CHARGING YOU UPFONT MONEY TO DO A SHORT SALE!
These are SCAM ARTISTS. Do NOT ever under any circumstances pay ANYONE money up front to assist you with a Short Sale. Call a QUALIFIED, PROFESSIONAL REALTOR immediately.