When a homeowner owes more on their mortgage than what they could sell the house for in today’s market, a short sale could be a viable solution. Below is more information to help you through the short sale process.

What You Need To Know If You Are Selling

If you live in Puget Sound, you have probably heard of short sales. You may have heard about them from your friends down the street, the news media, your neighbor or even one of your family members. We will go through important information that you need to know before you consider a short sale.

What are the advantages of a short sale?

A short sale will be less damaging to your credit score than a foreclosure. Just try to have a normal life with a foreclosure on your record...it's almost impossible to rent, finance a car, apply for future job applications.... Simply put, you will be paying through the nose next time you want to finance a car. Sure they will give you a loan to buy one but, you will be paying astronomical payments.

Patience is Key!

A short sale is when the homeowner owes more to his/her lender than the market value of the property. . For example, imagine you owe your lender $300,000 on your home, but comparable properties in your neighborhood have been selling for only $250,000. In order to sell your house at the current market price, you would have to ask your lender if they will accept less on the note that you owe. If the lender agrees to take less than what you owe, this is a short sale.

There are as many different policies governing short sales procedures, as there are lenders. Each lender has its own criteria for accepting a short sale. Simply owing more than what your house is worth does not mean it will be approved for a short sale. Short sales can take as little as a month to be approved. But the approval process varies widely from lender to lender, and can take several months in some cases.

Different factors come to bear on the length of time it takes for the approval process:

First, some lenders outsource their short sales to a company that is proficient in negotiating short sales. In these situations the lender simply tells that company what they’re willing to accept on a short sale. If you have mortgage insurance on your loan, the mortgage insurance company must also approve the short sale. What happens in this situation, the mortgage insurance company will pay the lender the difference between what you owe on the mortgage, and the sale amount. In rare instances the mortgage insurance company will require the seller to pay some of the loss back to the mortgage insurance company. This is when skilled and experienced negotiation makes all of the difference. When you make your mortgage payment, the company that receives your payment might hold the note, or it might be a servicer for the lender. If they are a servicer, the short sale process will take longer because additional entities must approve the short sale. For example, if the lender is an investor, the investor must approve the short sale.

If you have a first mortgage and a second mortgage with different lenders your short sale approval process will certainly be more complicated as we will need the approval of both lenders. Every sale we have negotiated with a second lender has closed and the sellers have owed NOTHING.

Why would a lender want to do a short sale in the first place?

Sometimes the loss that the lender takes on a short sale is less than if they foreclosed on the property. Foreclosing is an expensive and time-consuming process. Many times the lender feels it is better for their bottom line to accept a short sale. Not every homeowner is qualified to do a short sale. And, not every real estate agent is qualified to negotiate a short sale. Please read on to see how a qualified real estate agent can help you through the process of short selling.


Hardship

Owing more on your house than what a buyer is willing to pay does not mean that you are going to be able to sell your house for less than what you owe your lender.

You must pass the Hardship Test. There must be a good and provable reason why you are not able to keep your home. Ask yourself these questions to see if you will pass the hardship test.

Since you bought the house, have you lost your job?

Did you have a bad accident or illness in which you got injured and could not work?

Do have large medical bills that you incurred after you purchased the home?

Have you been relocated to another city or state?

Has your interest rate gone up so much that it is now a hardship for you to pay your mortgage?

What is NOT a hardship? If you have taken the equity out of your house for cash, and are now in debt, or if you bought your house on the tip of the market and now it is worth less than what you paid for it, those are not examples of hardship and not reasons to sell your house as a short sale


The Asset Test

Do you have assets that you can liquidate?

Do you have money in CD’s or Savings Accounts?

Do you have stocks or bonds?

Do you have equity in other properties?

If you have these types of assets your lender is more likely to be amenable to a short sale if you are able to off-set the loss by contributing other assets at the closing. You may be able to negotiate the loss with your lender. This takes some serious thought and should not be taken lightly. Be sure to seek legal council in these circumstances.

Now that you have passed the qualifying tests We are ready to put your package together.

The first thing you need to do is call your lender to tell them you are putting your house up for sale, and to make sure that your lender is still the note holder or servicer. An authorization form will be provided to you. This allows us to contact your lenders and talk freely about the process of the short sale as well as the short sale package that we will eventually submit on your behalf.

The following is a list of documents you may be required to submit in your short sale package. Please assemble all of these documents. Lenders typically do not respond to incomplete packages. We always check the package to make sure nothing is missing. Your authorization letter as stated above.

A hardship letter explaining your situation. This letter needs to explain why you are selling your property as a short sale.

A completed financial statement, a form we will provide. You will need to document your assets, debts, and expenses on this form.

The two most recent pay stubs for all the signers on the mortgage.

The last two years of tax returns for all the signers on the mortgage.

A copy of your listing agreement. We will provide.

While assembling these documents, we can get started on the proper marketing of your home.

Upon execution of an offer to purchase from a qualified buyer, we will complete the rest of the package, which includes: A fully executed offer of sale and purchase agreement.

The prequalification letter for the new buyer.

A HUD1 settlement statement from the escrow company with all the fees listed correctly. The lender will need to approve the expenses prior approving the sale.

Listing history of your home. This shows the lender that your home was exposed to the entire buying market.

Many buyers’ agents have never completed a short sale, and sometimes do not understand their intricacies.

Before the offer is ever written, we provide the buyer with an overview of the process. This has helped immensely on all of our transactions.

An important thing to understand about a short sale is that the seller of the property, you, still own the property, still hold the title to the property, and still decide what offers will be accepted. The bank does NOT own the property. A foreclosure proceeding may have started, but until the property is sold, the owner of record is the person in control of the property.

It is prudent to remember that the selling agent’s only responsibility is to the buyer. Too many cases the buyer will tie up a property with a poorly written contract. This can remove your property from exposure to other potential buyers and after 2 to 3 months the buyer walks away with no obligation to close the sale. The MLS forms are not designed to protect the owner of a property involved a short sale. You need competent representation when negotiating a ‘short sale” offer in order to stay clear of such pitfalls.


Short Sale Myths and Truths

There is a vast array of false information regarding short sales.

MYTH- The lenders are so desperate they will accept any offer on a short sale.

TRUTH- The lenders would rather negotiate a tenable solution with the homeowner. Each lender uses a formula to determine what losses they would incur on a short sale, and what actual net proceeds would be accepted at a short sale closing.

MYTH- The lenders are jumping up and down to get any low ball offer!

TRUTH- The lenders follow policy. The policy is that we submit the short sale package from the seller, along with the short sale offer and package from the buyer. The lender then orders a Broker’s Price Opinion (BPO). The BPO is generally determined by an agent hired by the lender and it is NOT an appraisal. The BPO is usually the recent selling price of a similar property. When the lender receives the BPO, they send us a statement telling us what they will need to net. The lender will often accept 5% to 15% below the BPO.

MYTH- All offers must be submitted to the lender.

TRUTH- Remember what we learned earlier. The Seller has the authority to choose the offer.

MYTH- Many agents are under the impression all unsigned offer should be submitted to the lender. This must have been a common practice for some agents.

TRUTH- The first thing the lender checks for is a fully executed purchase and sale authorizing the sale of the property by the seller. We could go on and on about all of the myths. Many professionals are struggling with short sales. We have spent countless hours learning the process as well as the experience of millions of dollars of closed short sale transactions.

Selecting a real estate agent with background and experience. This is probably the most important step by the seller:

The process of a short sale is complicated and time consuming. An agent that does not have the experience in negotiating and closing short sales can waste precious time and move you one step closer to foreclosure! A sign that an agent isn't the one to do a short sale is when they will ask you for the listing to be signed without any questions or verifications that you may qualify for a short sale. Few agents are qualified or have the experience to complete short sales. A knowledgeable and experienced real estate agent will ask the seller to furnish a number of documents and a series of qualifying questions.

A foreclosure is looming on your record.... You should make sure you have the right agent. REMEMBER... You are trying to SAVE YOUR HIDE! Demand good service.... Your family's future is at stake!


After the Offer

After the buyer has made an offer, and turned in all his/her supporting documents, we put together all the required seller documents for the short sale package. We make sure that every required document is completed correctly, and ensure that the loan number is on every document. Once the short sale package is delivered to the seller’s lender we call the lender to make sure that they have received the package. This one action requires patience! Some lenders are easy to get through and others are difficult.

Some agents outsource this process. Based on our experience, the agent should be involved in the entire process. We are the most invested in your success and know the market much better than a processing company. During the waiting process, the buyer should complete all of the inspections they deem necessary. The buyer should have their loan processed as far as possible.

Approval: Once the approval is received, the buyer then completes their appraisal, and escrow prepares to close. This process usually takes about fifteen to thirty days.

If you are listing your home as a short sale in Puget Sound, make sure you hire an agent who knows how to do short sales, and has the experience to get the job done.

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