Patience, Patience, Patience....
Sellers:
"Short Payoffs or Short Sales" are becoming more prevalent in today's real estate market. What is a "short payoff or short sale?" It is when sellers ask the lender to accept less than what is owed because there is not enough equity left after closing costs on a market value sale. The lender does this in return for avoiding the complete foreclosure process.
It has been estimated that when a lending institution does implement foreclosure procedures (takes the foreclosure full term, obtains ownership of the property, prepares the property for the market, markets the property and sells it), it may net as little as forty percent of the original appraisal after all costs are considered.
In order to alleviate this problem for the lender and save the credit of our clients, we have implemented a program of negotiating with the lenders on a market-value sale. The customary practice is to list the property at a price that will generate a loss to the lender after closing costs. During this marketing period, the lending institution has little to do with the short sale. However, we do make sure that a file has been opened on the property and that the lender is at least aware of it and is willing to consider this prospect.
The lending institution is only interested in negotiating once an offer is received. By pricing this property at market value or a little bit less than market value, we should be able to obtain that offer and send it to the bank for their consideration.
Many things will be required from you at that time. First, a financial disclosure is required by the lender when considering your request for a short payoff. Obviously, this document should be truthful, but it is acceptable to include all of your discouraging economic news in this financial statement.
Secondly, we will need a letter of explanation telling why you are requesting this short payoff, which may include your reasons for moving, how long the property has been on the market, the failure stories you have had with previous real estate agents, and any other disturbing circumstances that have prevented you from selling the property.
A third item requested is an authorization, and it works on your behalf toward this short payoff, meaning the bank must know that you have authorized Schreck, Courtney, Escobar & Associates to negotiate the terms of the short payoff.
Finally, you are required to submit employment verification, pay stubs, or two years worth of federal tax returns and verifications of deposits or bank statements for the last three months.
These documents will be required only when we actually receive an offer, but it would help to gather them at the time of listing so that we can submit them immediately with the offer.
Buyers:
What is a Short Sale?
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it. Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer. If there are two loans, you could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent. An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Prepare the Seller for Lender Demands
A lender is not going to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven. In a short sale, the seller receives no money because the lender is losing money.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs. It is extremely important that a buyer obtain a home inspection and pay for other types of inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections. Do not waive your right to obtain these inspections and make your offer contingent on approving them.