A short sale is a negotiation done with the lender(s) of record (prior to a foreclosure) when the value of a given property is below the loan amount and the property owner cannot pay his obligations thus facing imminent foreclosure. If the property is sold at market value there will not be enough money to pay the loan amount nor the closing costs in most instances. At this stage a bank may be willing to discount the amount of the loan that is owed so that the home owner can sell the property at a lower price rather than to go through a foreclosure. For a buyer this is a good opportunity to pick up their dream home at below market price.
To buy under a 'short sale' agreement with the lender of record for a property in distress a buyer needs to be fully pre-approved for a loan and ready to close on the property immediately. The offered amount has to make sense to the lender or else the property will end up being foreclosed upon and buyer loses any chance of getting it at all in pre-foreclosure. Since all offers at this point are subject to the bank's Loss Mitigation Department's approval buyer may not actually receive a counter from the bank if offer makes no sense to them. Therefore, it is important to try your best offer the first time out or some one else will and scoop the deal right from under you before you get another chance.
Buyers looking to purchase under a 'short sale' need to know that a bank may take anywhere between 45-60 days to finalize a short sale approval. Some times, especially if the offer is too low it could sit at the bank's asset manager's desk without a response for weeks. For this reason you need a truly experienced Realtor to handle the short sale negotiation who is knowledgeable of banks short sale protocol in order to obtain a respond as soon as possible. The procedure to present the offer is critical and must be done meeting certain criteria otherwise the bank will delay a response or will simply ignore the offer.
** If you do not have the time to wait for a short sale approval (40-90 days- sometimes may be sooner though) and you must be in a home by a specific date you could be losing valuable time waiting around for a bank's approval, especially if your offer was too low. In that case you are better off finding another home. An experienced agent who has actually done short sales and closed them can shorten that time by taking certain steps which eliminates errors in the package which is to be presented to the lender for approval of the short sale offer.
A 'SHORT SALE' IN NO WAY IS A MEANS BY WHICH SELLER CAN DEFRAUD THE BANK OR BUYER CAN EXPECT TO LEGALLY ROB IT EITHER. IT IS A COMPROMISE WHERE THE PROPERTY, THE QUALIFIED HOME OWNER AND A SAVVY BUYER STRIKE A BALANCE IN A SALE PRICE THAT JUSTIFYS TO THE LENDER NOT TO FORECLOSE AND WHERE THE BUYER GENERALLY GETS A GOOD HOUSE AT A VERY GOOD PRICE!
A HOME-OWNER TRYING TO DUMP A PROPERTY BECAUSE IT IS NO LONGER A VIABLE ASSET, ALTHOUGH HE/SHE HAS OTHER ASSETS AND COULD CARRY THE PROPERTY, WILL MOST DEFINETELY BE DISQUALIFIED BY THE LENDER FROM ATTEMPTING A SHORT. HE/SHE COULD BE COMMITING FRAUD IF THE LENDER WAS INTENTIONALLY MISSLEAD INTO ACCEPTING A SHORT SALE WHEN OTHERWISE THE OWNER COULD HAVE KEPT THE HOME SINCE NO REAL HARDSHIP EXISTED.
BANKS ARE NOT INCLINED TO ACCEPT ABSURD OFFERS EITHER NOT MATTER WHAT A BUYER MAY HAVE HEARD FROM REAL ESTATE AGENTS OR THE MEDIA.. A 'SHORT SALE' IS NOT AN AUCTION SALE AT THE STEPS OF A COURT HOUSE BUT A WAY TO MITIGATE THE LOSS FOR THE BANK WHICH IN TURN RESULTS IN A GOOD DEAL FOR THE RIGHT BUYER!
FOR SELLERS
FORECLOSURE Vs. 'SHORT SALE'
Before a notice of default is filed which could lead to a foreclosure there is a step which if done correctly can technically save the home owner a lot of trouble and in some instances even the impact on the credit. This step that you can take before foreclosure is called a 'Short Sale' in the lingo of real estate mortgages. If you cannot meet your obligations and decide to sell your home to avoid foreclosure, the way to handle a 'short sale' depends upon whether or not you have equity in your home. You have equity in your home if there will be enough money to pay off your mortgage in full after all the expenses are paid when you sell. If not, you must then apply for a short payoff at your lender to avoid foreclosure and a bigger damage to your credit. When a property is foreclosed the lender reports it to the credit bureaus and you better believe this is the last thing you want if you ever need to purchase another home again in the future. A 'short sale', on the other hand, is reported as SETTLED DEBT, and is much less harmful to your credit
CAUTION:Foreclosures show up as FORECLOSURE, and can stay on your record for seven years. Anytime you apply for a new loan or have your credit run, the foreclosure will show up and is usually a required disclosure you must make on most credit and job applications. A short sale is listed as SETTLED DEBT, and is much less harmful to your credit. Please consult a credit company for more information on this matter. In a short sale, it is possible the bank could 1099 you for the difference in what you sell your property for and what you owed. This means the IRS could consider the difference as income, and you could be taxed on that income. The bank might also ask you to pay a portion of the difference back in the form of an unsecured note, which is similar to an I.O.U. In a foreclosure, the property is sold at an auction. A bank could lose a larger amount of their investment and the owner of the property could end up with a bigger liability if the bank asks for a deficiency judgment against the owner. A Deficiency Judgment is a claim against the debtor BY THE LENDER when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgage(s), accrued interest, legal fees, etc. - (Some states MAY limit or restrict deficiencies). An 'exculpatory clause' does not allow the lender to obtain a deficiency judgment at foreclosure. This is known as non-recourse financing. For a further explanation of these terms please contact an attorney as we are not allowed to give legal or tax advise at all. A successful short sale should eliminate a deficiency judgment, minimize your tax liability, and keep the foreclosure off your credit.
THINGS YOU SHOULD KNOW REGARDING A SHORT SALE
(We will discuss these questions in depth with our clients)
CAN YOU QUALIFY FOR A SHORT SALE?
Depends on the lender and how you handle the matter from the very beginning. You'd think banks want to avoid foreclosing on a property at all costs and prefer getting as much of their loan paid back as possible. You bet they do! - A foreclosure, unfortunately for the bank, does not guarantee they will get their money back in full. In fact, more often than not, the bank takes a real beating financially by foreclosing on a loan. Therefore, their loss mitigation policy may allow for a possible 'short pay' arrangement rather than a foreclosure if they see that it will benefit them at all. However, you must contact them immediately once you see that the property is upside down and you really cannot make the payments because of real financial hardship.
IF PROPERTY IS ALREADY IN FORECLOSURE THE BANK MAY STILL APPROVE A SHORT SALE, HOWEVER, TIME IS CRITICAL AND YOU MUST MOVE FAST.. Use an expertr agent only!
WHEN DO YOU CONTACT THE BANK TO REQUEST A SHORT SALE?
Assuming you are a likely candidate for a short sale negotiation with the lender you need to contact them the minute you realize you can no longer continue making the payments on the loan and you will be in default. HOWEVER, it is essential that you know what to do as if it is done incorrectly the lender may disqualify you, even at the last minute, and you end up in foreclosure after all. They have a strict criteria as for whom they allow the 'short sale' which is based on the review of your hardship situation and other mitigating factors regarding the property, its value and the market conditions. Therefore, it is better to let some one, like a Realtor with experience in short sales and in dealing with banks, assist you with all the paperwork and the different steps that will give the lender a clear picture why they should wait for you to sell the house and for them to receive a lot less money than what you owe them.
HOW ABOUT OTHER COMPANIES ADVERTISING TO HELP THE OWNER IN TROUBLE?
Most want to charge you a fee up front and some are noT local. And even if they are in the area they do not know your specific market for the home which is of most importance to the lender. They want to minimize the loss and that is not likely if you hire an outsider to negotiate with the bank or obtain an offer that in the end makes no sense to the lender. An experienced Realtor is the best bet and one the lender wants to speak to when it does seem that a short sale is possible. Be careful to allow a mortgage company to handle the short sale. They know how to make loans and protect themselves but very little about protecting a home owner. Besides, lenders are a bit uptight, to say the least, with those they now see and blame (justifiably or not) for the mortgage meltdown we are experiencing across the USA.
CAN YOU DO THE SHORT SALE BY YOURSELF?
Why would you take a chance dealing direct with lenders when you have no money left in the deal for you? Besides, you need the expertise to market the property and obtain a 'qualified' offer before most banks will even speak to you about a short sale. By the most part, the lender needs to know and quickly determine if they will benefit from the short sale. Their primary motivation is to save as much of their original investment as possible. Besides, you may have to deal with a bank's attorney which complicates matters if you have no experience speaking to lawyers especially regarding a short sale. Only an experienced Realtor can give you and the lender the proper care to carry out the transaction with the least of trouble and losses to both.
WHO PAYS FOR THE COMMISSION and CLOSING COSTS?
It is included with the contract presented to the bank and paid out of the proceeds to the lender at the closing which in the majority of the cases leaves no money left over for the homeowner. If you were to have any equity in the property but not enough for the closing, either the bank accepts a short pay and pays for most of the closing expenses, including commissions, or asks home owner to come to the table with extra funds. This is why lenders want to know what is your financial situation prior to accepting or negotiating a short sale.HOW LONG DOES IT TAKE
TO DO A SHORT SALE?
It depends on certain variables such as how many loans are against the property and how late are you with your payments. It also depends on how complete was the package sent to lender and if their pipe line is moving fast or not. It does take a few weeks as you need approval not only from the bank's loss mitigation department but in some cases also the approval of insurer of the loan. If done right it may take about the same or a bit longer than a regular sale unless there is more than one mortgage against the property or the lender has a serious back log on their desk. Every lender is different and when the investor is Fannie Mae or Freddie Mac you may experience even longer times.WILL YOU HAVE A TAX CONCEQUENCE AFTER THE 'SHORT SALE'?
The short sale or forgiveness of debt by the lender may have a tax liability to you, especially if the property is not your primary residence. You need to consult an accountant regarding this matter.
CAN ANY REAL ESTATE AGENT HELP ME WITH A SHORT SALE?
Only if agent has had experience with short sales in the past, otherwise it will delay things or at worst it could cause the bank to decline the short sale approval on the basis of erroneous, incomplete, untimely or right down fraudulent information. Since Florida did not have a serious down turn in the real estate market for over a decade hardly any agents here ever did a short sale. Therefore, most have no experience whatever in short sales, dealing with buyers for a short sale negotiation, marketing the property correctly to attract not just an offer but one that will make sense to the lender and ultimately in dealing directly with the lender in a professional competent manner. The last thing a lender wants is to have to deal with incomplete packages, absurd offers, unqualified buyers, misrepresentation of the owners true hardship and unprofessional Realtors to top it off.
The great majority of real estate agents in Florida are relatively new to the business or are part-timers. Most obtained their license in the past 5-7 years when every one and their cat got a real estate license attracted by the easy money. The term 'short sale' was foreign to them and only now they hear it for the first time! Too many are calling themselves experts at short sales. How can they be experts if it is only now that we see the need to do short sales in Florida? You can go to a seminar and hear the basics from some title company or scam artist, however, experience in 'short sales' only comes with, you guessed it, ... 'experience'.
YOUR AGENT NEEDS TO KNOW HOW TO SPEAK TO BANKS IN ORDER TO SHOW THAT THE PROPERTY AND THE YOUR SITUATION JUSTIFY A SHORT SALE PLUS HAVE A CLEAR VISION OF HOW TO HANDLE THE MARKETING TO OBTAIN AN OFFER ON THE PROPERTY THAT WILL MEET LENDER'S DEMANDS.
FOR REALTORS
With the market today the way that it is a lot of buyers will be attracted to properties offered under a short sale negotiation with a lender. The problem is, however, that if you deal with a listing agent who has no clue regarding short sales you risk wasting your time and maybe losing your buyer in the end. Two things you need to know up front. Is the owner of the property truly a likely candidate for a short sale? or is he thinking that he can just dump the property onto the lender and run away. Second, is the offer being sent to the lender a reasonable offer under the circumstances? And if it is, will the lender be able to see it that way. Lenders can smell out if an offer is for an 'end user' or for a speculator who wants to 'steal' property and then flip it. This means, you better not bother with ridiculous low offers under a short sale negotiation as the loss mitigation department people at banks are not stupid at all.Call us if you have a truly qualified end user buyer who can wait up to 60 days and is looking to purchase a good property at a discount over present market values. We are true area professionals with over 20 years of experience in real estate and have negotiated different types of short sales with lenders in the past. We understand the market we are in better than most agents out there as it is a mirror market of what we lived in Southern California during that state's real estate melt-down of the late 1990s. You will be dealing with a professional Realtor who knows the word integrity and who knows how to best present your offer to the lender. This is very important so that you get a positive response in a reasonable time. A word of caution, please. Be careful not to create false expectations in you buyer regarding price. Lenders for the properties in desirable areas such as Weston are less likely to accept a low ball offer than if property is in less of a desirable neighborhood. It is all a matter of math. Good areas will have higher bidders when it comes to foreclosed or 'short sale' property.
