The Truth About Short Sales

With the rise in the foreclosure rate, short sales are becoming much more attractive to mortgage lien holders than they have been in the past. I have outlined what a short sale is in my article “Foreclosures are up – What to Do” so I won’t be repetitive in this article. In a nutshell, a short sale is when the lender agrees to take less than what is owed on the home as “payment in full.” A short sale is a win/win situation for everyone involved, here’s why:

To You the Seller – You will be able to avoid foreclosure and sell your home at no cost to you.

To the Mortgage Company – They are not in the real estate business, they are there to lend money, so they really don’t want your house. They are minimizing their losses therefore they want to help bridge the gap.

To the Buyer – They get a good investment on a home. These are not typically good deals for investors because of the loan and property ownership limits imposed by regulatory agencies such as FHLMC/FNMA.

With that being said, just because someone is a real estate agent does not mean they know how to successfully handle a short sale transaction, and this can be disastrous. A Realtor is required by the lender in handling a short sale, but the knowledge of the Realtor regarding short sales is critical and few actually know how to take it all the way through. You do not want someone “feeling” their way through. Make sure you retain a professional.

Following are 5 keys to a successful short sale:

Know the process involved in shorting a loan, not just part of it. Anything that is out of place can cause long delays and ultimately cause the deal to fall through, leaving you back where you started, only in worse shape and frustrated.

Know what the lenders require for different types of loans such as FHA or Conventional and put it in a format that will get their attention. Lenders receive thousands of requests for short sales, and if the packet is in any way incomplete, it goes into the big stack of files to be dealt with if there is enough time. Whereas, if the packet is complete and in their format, it goes into the small stack that gets dealt with quickly.

Know what the banks have to “net” on the sale. There is a way to know exactly what they will take or not take on the loss, not just sending them an offer and hope they take it. This may work on actual foreclosures, but not on short sales. There is a formula, and if your Realtor does not know it, your house will not be priced right and again, there will be much frustration.

Know what the banks will approve in the purchase offer. Will they pay closing costs, repairs, etc.? Again, if you submit something to them they will not allow, it goes back into the big stack. Have an established alliance with the loss/mitigation representatives. Knowing which representatives will get the deal done and not drag it out can be invaluable. These agents are often paid per file, so they obviously like the files that are a “slam-dunk” for them and will get them out faster.

One last thing you should know would be the three stages of the Pre-Foreclosure period. Default: this can be as little as a month, but typically 3 to 5 months. You will be getting letters saying “you are late, please pay.” Acceleration: this is usually a 20 -30 day stage, and you will get a letter called an intent to accelerate. This basically says to pay all your late pays or we will accelerate. Foreclosure: this is the final stage. It is 21 days long. The foreclosure can be stopped with a short sale, but the longer it goes, the less likely it is to happen.

In summary here are the things to know: Timing is critical; don’t procrastinate hoping things will change. You are not alone. Get someone with short sale training to help you. If you find yourself in this situation and have more questions, I will be glad to consult with you. If you abide by these rules, you stand a much better chance at a safe landing.