The Truth About Short Sales:
the Good, the Bad and the Ugly!
Short sales are here to stay for a number of years. Short sales comprise from 40 per cent to as much as 80 per cent of listings in some San Diego and Riverside County areas. Listings that are not bank owned or a short sale are so unusual that agents make a big deal of the fact they have a conventional listing by a regular private seller.
What is a Short Sale?
A short sale can occur when the seller owes more than his /her home is worth. The seller asks the lender to sell their home and take less money for the home than the loan amount and call the transaction “settled” on one’s credit. It will affect a person’s credit, but not as badly as a foreclosure, which stays on 2 credit report for 7 years. With a short sale, at least the borrower tried to settle the debt rather than just walk away.Short sales will continue to predominate in the market for a variety of reasons. Loans continue to adjust upward, and surveys show that more and more people are walking away from their homes. Such behavior is becoming more socially acceptable as the economy worsens and the practice becomes more common.
Selling Your Home As a Short Sale...
There are many advantages of selling your home as a short sale. If you bought at the top of the market in 2005 and 2006 or if you borrowed a lot of money on your home during that time period, you may be seriously “upside down,” owing more than your home is worth, and it may not be the best investment. You should talk to your tax advisor and your attorney to determine the consequences of short-selling from a legal and tax perspective before making such a move. At the current time, you can buy another home in three years after selling your home as a short sale, given that your credit and income are otherwise positive.The process for selling a home as a short sale is as follows: Find a competent realtor who has experience with the short-sale process. In order to get your short sale approved by the lender, you must have a valid offer on the home you are hoping to sell as a short sale.
Following are the reasons a lender might be willing to short sale...
• Your payments have gone up as a result of mortgage readjustment and you can no longer afford them.• You have lost your job or have reduced pay and can no longer afford the payments.
• You don’t have the liquid assets to make the payments. Retirement funds often don’t count, but any other savings or stocks or bonds that can be liquidated do count.
• You have health problems or family problems that prevent you from earning the income to pay your mortgage (such as having to take care of an elderly parent).
• Your debts have increased to an unmanageable level. You have used home equity lines of credit and credit cards to pay your mortgage payments, and you can no longer do so.
Under the following circumstances, however, you cannot get a short sale...
• You have the income or assets to pay your mortgage, but you are upset because your investment is “upside down,” meaning your home is worth less than the loan. If this is the case, you will have to let your home go into foreclosure if you want to let the investment go. Otherwise, you must continue to pay on your loan and wait for the property to appreciate back to its original value.If you want to sell your home as a short sale, you need to find an experienced realtor...
They will provide you with a Financial Statement form to complete as well as a form detailing the specifics of your mortgage. The lender will ask you for proof of all assets listed on your financial statement as well as other documentation about your home, your current pay stubs, your tax returns for the last two years, profit and loss statements and 1099 forms if you are self employed, and other documentation specific to the lender’s requirements. You must tell the truth about your assets or you might be guilty of “mortgage fraud,” which an attorney from the California Association of Realtors called a “big felony.”The realtor must provide the lender with complete documentation in a timely manner, and importantly, a good, competitive offer on your home. In addition, escrow will provide the lender an estimate of seller’s costs. Very importantly, the realtor needs to maintain frequent contact with the buyer’s agent, letting them know where the process stands in order to keep the buyer engaged.
We recently listed a spectacular home with a view of the bay downtown and did such a good job of marketing it that we received more than 33 offers. Our phone rang off the hook with agents inquiring about the home. We spoke to at least 300 agents, and returned every phone call. The buyer accepted the top offer, which we are submitting to the lender in a timely manner along with a “complete” package which meets the lender’s needs.
We will keep in touch with the buyer’s agent and the agents who submitted the best “back-up” offers. This is a lot of work, but doing real estate well in the current environment is a lot of work. If an agent isn’t willing to work, they won’t be successful in helping you.
If you are thinking of selling your home as a short sale, please call us and we will help you along every step of the way.
Click here to learn more about buying short sales.
