Short Sales

Economic conditions have caused the rise in short sale properties.  This has changed the way we buy and sell real estate.  Short sales can be a win-win for all parties.  If successful, Sellers avoid foreclosure, mortgage companies (servicers) reduce losses and Buyers gain homes at one of the best times in history to purchase.   

Most people considering a short sale have encountered some form of life changing event or have an investment that for some reason, isn't panning out.  Keeping it seems to be out of reach. 

Why Short Sales are on the Rise?

Our economic crisis, current unemployment levels, and drops in home prices in communities across the nation, make now a prime time for a high number of short sales. A year or two ago, short sales were a bit unpopular. Agents and Buyers steered clear and competing for a short sale was uncommon. But, when inventory is less abundant, Buyers find themselves competing for short sales. Since a short sale generally costs the lender less than a foreclosure, it can be a good option for lenders to minimize losses. 

A short sale can also be the good option for a homeowners who are “upside down” on mortgages and need to sell now.  A short sale does negatively affect the owner's credit, but it's reported to be less than a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially. 

 

An Overview of the New HAFA Short Sale Program

• Servicer (Third Party/Bank) determines market value and a minimum acceptable price.
• Short Sale Agreement is established
• The deal is approved, declined or countered. 
• If approved, the short sale moves foward to closing

Some Down Sides to Short Sales 

Below you'll find more information on short sales, their challenges, the government's efforts to address these challenges, and tools to help you navigate the short sale process:

1.  Limited experience

Many REALTORS® are new to the short sales process; some avoid them all together if they can.  This creates a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are understaffed and still not adequately trained, making negotiating a short sale particularly difficult. Banks lso have a large back load of short sales. Loss mitigation departments tend to be understaffed, considering the level of demand and continually work to get a hold of the process. Those Realtors that take a more passive approach to short sales; waiting for banks to contact them with progress reports tend to have limited success. When considering short sale realtors, ask a few important questions: a) How many short sale contracts have you closed? b) What percentage of your short sale ratified contracts have actually closed? c) What's your average length of time to close a short sale?

1.  Absence of a uniform process and application 

In the past, both short-sales documents and processes are lender-specific, making it very difficult and time-consuming for Realtors to become knowledgeable and efficient in facilitating these transactions. Recent changes in the short sale process by the federal government are designed to define and shorten the process. This will take some time. But the process is still far less clear than the standard sales process. 

3.  Multiple lenders 

When more than one lender is involved, the negotiations can be more challenging. Second lien holders sometimes delay the transaction to exert the largest possible payment, to recover more funds in exchange for releasing their lien.  

4.  Too many interpretations of the same information 

When speaking to short sale/loss mitigation departments, the bank employees sometimes read the same information differently. They also sometimes don't understand the process as well as they could. Learning to navigate through the many different individuals to find the common theme takes an experienced Short Sale Realtor on your team.

A Note for Sellers

If you think a short sale may be an option for you, make sure you consult with three professionals. 

1. An Experienced "Short Sale Realtor" - This is not to be confused with an experienced Realtor.  Short sales are a unique type of transaction.  You really need a realtor who knows and has been successful selling short sales.

2. A Tax Accountant - Find out what the tax implications are.  This is a quick consult that could make a big difference in what you decide.  One hour of your time is all it takes.  The cost is minimal, but the implications could be significant. Your realtor cannot advise you on your tax implications. 

3. An Attorney - Understand what the legal implications are after you pursue this agreement with the bank so you can walk away in the best possible position.  Your realtor cannot advise you on these matters.