A short sale can be a very intense and perplexing process. There are a lot of twists and turns and it is crucial you have a real estate agent who not only knows the formula, but can direct you through gathering the information essential to provide your short sale lender. And most important of all, is accomplished in negotiations with the short sale lenders, and homebuyers alike. But there is no uncertainty that in most homeowners positions today, a short sale is far and away the better alternative vs. allowing the home go to foreclosure.
Home sellers should think about a Short Sale in Sacramento when the value of their home is LESS than the amount of their undischarged loans. For instance, if your home is worth $ 150,000 but you have a loan of $ 260,000 then a short sale is a alternative. Obviously, if you do not have to sell your home, you could wait out the market and hope for a turnabout in real estate values. Sometimes this isn’t an alternative due to other conditions such as job loss, divorce, etc.
However, if you do have to sell your home you basically have three options. First, you can bring cash to the table. In the example above you would sell your home for $ 150,000 and pay another $ 110,000 to the lender out of your pocket to pay off the loan on your property, not a likely scenario. Second, you could let the home go into foreclosure, or deed in lieu. The lender will go through the foreclosure process, force you out of your home and then auction it off to the highest bidder at a foreclosure or Trustee’s auction. The third option is to pursue a short sale. You contact the lender, and you list the property with a REALTOR explain the circumstances and your REALTOR will negotiate with the bank and convince them to take less than full value of their loan. We will then give you constant updates on the process and answer any questions you may have along the way. We have been successful in getting the lenders in reporting the debt as paid in full to the credit agencies.
In the instance above you may tell them you have a buyer for $ 150,000 and it’s very improbable there will be another buyer at a higher price. If they will accept $ 150,000 for their $ 260,000 loan then you’ll be able to continue with the short sale. Some of the times the lender will conceive a short sale before you even have a buyer and you can market your property accordingly, and if you find a buyer, take their offer to the lender as consideration. The short sale lender could or could not accept the offer depending on if the offer is at full market value, in this case $ 150,000. This is another necessary part of the REALTORS obligations to you as a short sale seller. And incidentally, the best part is the lender is bearing the commissions, it cost you as a short sale seller absolutely nothing.
Although most lenders will not be exhilarated at the prospect of a short sale they are acutely mindful that a foreclosure is generally a faraway more time consuming and costly option. In a real estate market where housing values are declining it is in the best interests of the short sale lender to liquidate their problem loans as rapidly as possible.
With a short sale, a property can be sold and the loan taken off their books reasonably quickly. If they pursue a foreclosure they run a risk of the process taking a significant amount of time during which the value of the property is devaluing. Also, buyers will be inclined to write “low ball” offers when they are aware that a bank or lending institution owns the property. The property could also be left vacant which can result in vandalism and deterioration. Some owners may even gut the home just prior to the foreclosure sale as a way to ‘get back’ at the lender. This is illegal but all the same it happens on occasion. So, you can see why a lender may want to go the short sale route and get the loan off of their books with nominal hassle.
Short selling* is not necessarily complicated but does require some work on your part and your short sale agent’s part if one is involved.
Determine the true value of your property. Many times a short sale agent can provide a market analysis or CMA and give you a good idea of the value of your property. If the market is moving downward keep in mind that your home’s value may be moving descending as well and estimated valuations may be valid for only a short time.
You also need to have your REALTOR or short sale agent calculate your estimated closing costs. Items such as a title report, escrow fee, appraisal fee, attorney fees, agent commissions, unpaid property taxes etc. could amount to a significant amount of money. Although this is not out of your pocket as a short selling seller. These amounts come out of what comprises the net proceeds after the sale takes place. It costs you as a short sale seller zero.
You’ll need to know the principal balance on your property. Include all loans on the property in your calculation.
Calculate your equity. Normally the value of your home is more than the total of the loans and closing costs. If your closing cost estimate plus your loan amounts are higher than the value of your property then a short sale is a possibility.
Your short sale agent will need to get in contact with your short sale lender and explain your position, but you will need to give them authorization to do so. Typically lenders have a loss mitigation dept. that your short sale agent can contact. Lenders are under no obligation to accept a short sale but many times it is in their best interests to do so. Some short sale lenders will not even consider a short sale until you have missed a payment or two. Some will not consent to short sales at all. You will need to know where your lender stands with regard to short sales so contact them as quickly as possible. A REALTOR can aid you in this process as well.
Consider your potential tax obligations! Many times there can be a substantial tax obligation after a short sale has occurred. Be sure to consult with an accountant or tax attorney to figure out how much money you could owe the IRS if you proceed with a short sale. Although there has been laws passed both on the federal and state levels assisting homeowners facing losing their homes.
It is very important to select a REALTOR or Short Sale Agent who knows how to market the property effectively so you can get a full market value offer. The bank will be appraising the property as well, so a full price offer has a better chance of being acceptable by your short sale lender.
Altogether the documentation needed to begin a short sale is typically called a “Short Sale Package” and is ordinarily submitted by the homeowner in the property with the guidance of your Short Sale Agent.
The short sale package typically includes the following items:
Sample Short Sale Package (items could change depending on the short sale lender):
Cover Letter Authorization to Release Information – This gives your agent authorization to speak to your lender Sellers Hardship Letter – Samples of hardship letters will be provided Seller’s Financial information – Any 401K accounts, stock holdings etc. 2 years of Tax returns – Just the first two pages 2 months pay stubs 2 months bank statements Supporting Hardship Info – HOA liens, medical/disability statements etc. Repair Estimate for the property Comparable sales for the property – This will be provided by your REALTOR Contract – Once an offer is received it will be presented and negotiated by your REALTOR Net Sheet – This will be provided by your REALTOR in conjunction with the title company First mortgage holder may ask for a payoff amount from the 2nd Second mortgage holder may ask for a payoff amount from the 1st Lender may ask for an Initial Title Report FHA and VA may have their own forms and special requirements as well
We’ll assist you in accumulating all of the documentation and resolve any questions you may have along the way.
During the process of receiving an offer on the property, your REALTOR will work with a title company to generate what is called a HUD 1 or seller’s net sheet. This document will take all terms of the offer into consideration and arrive at a “net due to seller” at the closing of the sale. This net due to seller is what the bank, your lender will receive after the sale. In a short sale the REALTORS commission and all other seller expenses are taken out of the net due to seller. So it cost you as a short sale seller NOTHING!!
Sometimes the lenders will have a shortage of what the offer is to net after the sale and what they are willing to accept in order to proceed. Sometimes they will ask that the homeowner contribute to the sale, or bring cash to the table. That is where I as a REALTOR step in and negotiate with the lender. There are “creative” ways to negotiate such a request. Sometimes the buyer will contribute more to the transaction, sometimes the REALTORS may have to contribute some. Sometimes we are able to negotiate these sorts of requests by the lender completely to nothing, depending on the hardship that presents itself.
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