<- A Short Sale AdLast week, I shared in detail concerning ‘What’s a ‘Short Sale’? (Also known as ‘Short Pay’, more appropriately, is when a property being offered for sale is worth less than the mortgage in value, and based on the assumption and attempt that the bank will accept less than what is owed on it when it is sold to a new buyer. Simply put, the money will become ‘short’ when it’s sold. Now bear in mind, this is money short, not time. Usually a ‘Short Sale’ can take up to months and months to complete.) I explored this ‘hot’ topic in the real estate market today with the homeowners’ perspective, especially those who may be up against uncertainties in the future.
Why ‘Short Sale’ is so common today?
On Tuesday, an Asset Manager (the person in charge of Foreclosures) of a prominent bank came and spoke at our company’s monthly meeting. According to him, not long ago (when the market was doing well), the largest mortgage lender in the country had only 54 foreclosures in total. End of last month, it took back 3200 properties. In California, there are 37,000 foreclosures, and gaining momentum. A homeowner hasn’t been able to make payment on his home for many months. He came to me for help, and he barely received his ‘Notice of Intent to Foreclose’. This tells me that there are so many more homeowners in distress, and more foreclosures are not on the radar yet. Usually a ‘Short Sale’ offers a way out for property owners who are faced with any of the following situations
- Unable to make mortgage payments (due to loss of job/income, spouse, illness, bankruptcy, etc.)
- Home declined in value, now worth less than the loan on it and owner is attempting to ‘walk away’
- Mortgage payments adjust to a much higher rate (this is especially true among the sub-prime borrowers)
- Unable to sell the house for the amount to pay off the loan, and to satisfy the lenders and other creditors
- Stop lender from calling, and avoid getting into foreclosure and/or eviction
- Minimize damage to the owner’s credit history
- Get out of debt obligation, and begin a fresh start
A Word to Owners Facing Difficulties:
As a real estate consultant, many people came to me for advice. They know they will get honest, objective answers. I will make every effort to help provide a solution in any situation without being judgmental, high-pressure or manipulation. And to be fair, way too many homeowners have been the victims. They were caught in a situation ill prepared during the last ‘boom’ market (especially those who bought in recent years). Many had bought under pressure, without fully understanding the loan that was offered, and the recent ‘credit crunch’ that caught everybody by surprise.
So, if you or anybody you know who is behind on their payments, or may have difficulties making payments in the future for any of the reasons stated above, they may want to seriously consider ‘Short Sale’ as a way out of it. In any default situation, time is very critical. Property owners who are facing financial difficulties are strongly advised not to ignore the situation. Avoid dealing with it will only make the matter worse, and provide less options later on.
Important Things To Do:
Anyone considering doing a ‘Short Sale’ should pay special attention to the following:
- Immediately seek professional assistance. Very few Realtors have experience in ‘Short Sale’. Be sure to work with one who has the knowledge, negotiation skills, and one who is willing, and cares enough (that’s right) to take on this task.
- First try to see if the lender can restructure the loan (to a lower rate, forego a few monthly payments, renegotiate the terms, delay foreclosure, etc.) This is also called Loan Modification.
- Gather all documentation regarding financial hardships, unforeseen circumstances, loan adjustments, etc. And be prepared to write an emotional appeal called the ‘Hardship Letter’.
- Consult a reliable financial advisor on how to best handle the difficult situation, seek other alternatives, sources of funds/income, and avoid unnecessary, excessive purchases.
- Prepare to put the property on the market ASAP. In this market condition, my opinion—the sooner an offer is received, the better the owner’s position will be, and easier for the agent to negotiate with the lender or bank.
- Remember there should be no cost for a ‘Short Sale’ service that you receive. There are other companies who offer this service.
It’s very important for owners facing difficult times to beware of con-artists, and especially people asking for ‘fees’ up-front. NEVER, NEVER, NEVER sign anything without knowing its full ramifications, and be sure to consult with a reliable professional first. We have heard many tragic stories about property owners in distress sign their deeds away. Watch out for those who promise to ‘take care of everything’. Really, in ‘Short Sale’ nobody knows what will be ‘taken care of’ until everything is completed. Owners Beware: Be careful, get educated, be proactive, and work only with a trustworthy and qualified professional.
At RE/MAX Premier Properties, I’m privileged to be partnering with other professionals (like experienced Escrow Officers, Title Companies, Loan Officers, other agents, etc.) to help owners navigate through the very complicated and painstaking process of ‘Short Sale’. There are so much more pertaining to this. I have prepared a Free Report called ‘How to Protect Yourself and doing a Successful ‘Short Sale’. In this Free Report, you will learn about:
- What other options besides a ‘Short Sale’?
- How to price for a ‘Short Sale’ property?
- How long does it a take to complete a ‘Short Sale’?
- What are required by the banks (or lenders)?
- What are the financial and credit consequences?
- Is there tax liability from a ‘Short Sale’?
Important things to Remember for Buyers
In a ‘Short Sale’, a property is offered at substantially below the market value. There are plenty of opportunities for buyers to purchase at a ‘Bargain’. But, keep in mind: ‘Short Sale’ is ‘Short Pay’, not taking shortcut of shorter time. It often involves a whole lot more works (especially the Realtors), and expects to take a much, much longer time to complete. Also, be prepared that the sale may not complete at all. I have known so many ‘Short Sale’ transactions still in limbo, and some lenders simply choose to foreclose instead of going through with the ‘Short Sale’ (especially when the mortgage insurance offers them more). And, since in ‘Short Sale’ a property with multiple loans required that all lenders agree with the terms, price, etc—this is a major cause for a ‘Short Sale’ to come up short.
In making an offer on a ‘Short Sale’, keep in mind and be prepared to:
-Work only with an experience Realtor, one who is willing to go the extra, extra mile for you. Believe me, in doing ‘Short Sale’, a Realtor is not guaranteed of the compensation. I know some Realtors don’t get paid at all when the lender decided the loss was too much to afford to pay any commission.
- It takes a long time for escrow to close. Be patient, always be in touch with the Realtor, and keep the communication open with the lender. So many buyers are frustrated, and expecting ‘Short Sale’ to be closed ‘shortly’. Nothing can be further from than that.
- In many ‘Short Sale’ situations, buyers need to come up with extra cash to ‘satisfy’ the lender involved. Be prepared to cough up extra ‘dough’ if you are getting a good deal.
- Many ‘Short Sale’ have multiple offers on it. Pay extra attention and carefully learn about the property, its value, and only work with a Realtor who is trustworthy and will serve your interest. (Sad to say, the market has changed, many people need business, and not everybody is getting a ‘good deal’ necessarily.)
I’ll send a copy of the Free Report to you or to any property owners facing uncertainties ahead. Or anyone you know wanting to learn more about ‘Short Sale’ can call a Free Recorded Message at 888.556.6118 Ext. 911. Or just email me at ShortSale@WatsonGan.com or call 626.660.1178.
