Stop Foreclosure
The Anatomy of a Short Sale
Not every owner of distressed property is a candidate for a short sale and therefore they cannot all be saved from foreclosure. In this article we will examine the circumstances that may qualify a homeowner for participation in a short sale.
Is There a Valid Hardship?
What exactly constitutes a valid hardship? Loss of Equity due to a declining market is not considered to be a valid hardship. Lenders will however consider and possibly entertain a short sale for homeowners who have experience one or more of the following:
• Job Loss
• Business Failure
• Illness and Medical Costs
• Divorce or Death of a Spouse
• Natural Disasters
Is There Sufficient Time to Accomplish a Short Sale?
A short sale, as we defined earlier, is a situation in which the seller (1) owes more on the loan than the sale of the property will likely produce and (2) is unable to bring funds to closing to satisfy the deficiency. The timeframe for completing a short sale in Georgia can be very limited due to Georgia being a Non-Judicial Foreclosure state. Once a homeowner realizes that there is a problem they should consult with a real estate professional knowledgeable in the short sale process. There can be a matter of only a month or two in order to complete a short sale. Both the homeowner and the REALTOR should have conversation with the lender, confirming each conversation in writing, and establish a time line that the lender will allow for the transaction to be completed. Short Sale transactions are not for the faint of heart. They are often very difficult and time consuming therefore they should be handled by a REALTOR experienced with short sales and distressed properties.
Roles of Finance, Tax and Legal Professionals
One constant message in this series has been to keep finance, tax and legal professionals involved in the process. Realizing that homeowners who are approaching mortgage default may argue that they cannot afford to pay these professionals, I understand. I would like to point out however that some attorneys that work with owners of distressed property take into consideration the current financial reality and allow ways to navigate the process with little or no upfront fees. There are several websites that can direct distressed owners to free counseling.
Determining What Is Owed on the Property
In order present a true picture to the lender it is imperative that we determine exactly what is owed on the distressed property. Let’s look at the items that will have to be satisfied in order to have a successful closing:
• Principal Balance and Interest
• Real Estate Taxes
• Second Mortgage or HELOC (Home Equity Line of Credit)
• Home Owners Association Dues
• IRS Tax Liens
• Mechanics Liens
Property Condition
Understanding that there has been difficulty in staying current on the mortgage, it is likely that maintenance of the property has been neglected. We should examine the home and evaluate what will be needed in order to have the opportunity to successfully close the transaction. This doesn’t mean that repairs must be made, however we should take them into account so that we can again build our case for the lender.
How to Price a Short Sale Property Listing
As the listing agent for a short sale, my goal is to price the property in a manner that the seller, the homeowner, will receive and offer that has a realistic chance of closing. There are instances where the listing agent prices the property where the seller needs the price to be, which may be too high. Another fault is when the property is priced at an unbelievable low price which entices buyers to submit an offer only to have it rejected by the seller’s lender, who must ultimately approve the contract.
There is no set formula for pricing a short sale, however in order to reach a successful closing the proper price should be somewhere on the low end of fair market value. Freddie Mac has stated that their target sales price is 88% of the Broker Price Opinion (BPO). We would have to think that the guidelines would be similar for FHA and Fannie Mae.
What Do We Need From Distressed Property Owners?
In order to complete a successful short sale we must first start with a solid beginning. The homeowner must provide the REALTOR with an Authorization to Release Financial Information for each lien. The seller should have already contacted the Loss Mitigation Department of their lender. As your REALTOR, I will also be contacting them. This must be done for each of the lien holders. There are multiple questions that I will be asking the lender’s representative so that we can make the process as smooth as possible. Just as with non short sale listings the seller should fill out a Sellers Property Disclosure Statement and let potential purchasers know everything about the home.
Negotiating a Short Sale Contract
The contract for a short sale is entered into between the buyer and the seller, not the buyer and the lender. The seller’s lender only approves the contract. Taking this into account we will negotiate the contract in the same manner that we would negotiate a non short sale offer. Once we have an accepted contract between the buyer and the seller, we will not submit any additional contracts to the lender. If we obtain additional contracts we will negotiate them as backup contracts and treat them as such. We should however anticipate several questions from an experienced buyer’s agent prior to the submission of an offer:
• Is the short sale package ready for submission to the lender?
• How many liens are on the property?
• If more than one lien what are they?
• What is the plan to satisfy all the lien holders?
As you can see we need to have a solid plan in place in order to answer these questions as well as others that may arise. We accomplish this by have an open line of communication with all lien holders as well as each other.
Do you know someone in need of this level of service? As a Short Sale and Foreclosure Resource, I am here to help. Don’t hesitate to contact me as we need to get the ball rolling if we are going to stop foreclosure.
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