A former client wants me to sell their home in San Diego. They owe the bank about $100K more than the mortgage, thus a short-sale. I am involved in another niche, and have not been doing many short sales, but from my experience with the ones I have been involved with (Buyer side), I don't want anything to do with it. They asked for my advice and I really came up blank. How do I counsel these clients to do the right thing? Wouldn't it be best for them to do a "Deed in Lieu"? Of course I would like to make a commission out of this, but my first goal is to help my clients out of this mess.
Some banks may even refuse to do a short sale, mortgage money is tight or not available and the new Administration may have some legislation to help ailing homeowners in the not too distant future (**fingers crossed**).
Where do I start? They are looking to me for all the answers, since I have solved many issues for them in the past.
Real Estate Problem Solver and Tenant Specialist. Selling your tenant occupied home/condo can be problematic. I can simplify the sale and avoid pitfalls.
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Deborah well first off I applaud you for having your heart in the right place. Helping them out will reap untold rewards later for you. I guess my first question is are they already behind on their mortgage. The banks will not even think about doing a short sale unless they are not already in a hardship position. Also if you look at the IRS site you might have to check but, if I remember correctly (it has been earlier this year since I had a short sale listing). There is a form I believe 942 that is a tax forgiveness form for hardship cases where they can get the extra income (the 1099 given to the sellers after a short sale) forgiven. The program was only supposed to last for 3 years and if I am not mistaken I think it ends next year or maybe even this year.
The best thing that you can do (and avoid a potential claim against you and your broker's E&O insurance) is to refer your friend to someone who is knowledgeable about short sales and the San Diego market. You've recognized that you are not comfortable with this type of transaction, so best you can hope for is to get a referral fee out of it. Weichert's got an office in San Diego, I'd be happy to share with you the contact information of someone who can help your friend.
Deborah,
Can you give us a little more background on the client? Are they forced to sell, is there a provable hardship for the client, or do they just want out?
There are four options in a situation like this, asides from the possibility of turning this into a long term rental. Two are what are called "Cure" solution and two are "non-cure" solutions. A deed in lieu is a non-cure, and is worse than a short sale. These non-cure solutions should only be entertained when a client is forced to leave their home due to an actual real hardship, which must be proven to the bank.
If the client is simply struggling to make their payments, or is behind due to hardship and wants to keep their home, they should be looking at a loan modification or repayment plan.
If you want a few brief, free trainings visit www.smartermi.com. Genworth has a series of webinars designed to inform you on the process and practices of each of these options.
Good luck!
I agree with the 'refer it out' ideas...You don't become personally involved that way and you can hand it off to someone familiar with the process.
Deborah,
If you really don't want to do a listing for a short sale, then don't. If things go poorly, you will constantly regret not floowing your gut. If it's something that you want to give a try, I would ask an experienced co-worker in short sales to help you through it and pay them a referral fee. That way, you really learn the ropes hands on but with guidance.
Short sales are lengthy! I just completed my first short sale. From conversations I have had with other Realtos doing short sales, The mortgage company involved has alot to do with how smoothly the transaction will go. My transaction, which I had both sides, took four months from time of written offer to closing. Which isn't bad, but it was a cash deal. Really, in my opinion, a no brainer for the mortgage co. The worst part about it was not being able to have direct discussion with the negotiator for the lender. Every time I called thier "update" line, the person on the other end had generic answers. It was four months of sending the same information over and over again. But I documented well and really got pushy at the end. Having both sides made it easier too. The seller became a very good friend through the process and the buyers were very patient, The seller helped in the process too, by providing all information promptly and following up the the lender. Each short sale is different. But the drain it put on my energy level was abundant. I don't think I would ever want to do another one. Refer it out unless you know your friends are in it for the long haul.
Thanks so much everyone, you guys ROCK! You have given me enough info. to move forward.
I don't really have the time or inclination to learn more about short sales. My current niche is more lucrative and is keeping me very busy. But my question had more to do with what I have been hearing: that banks can refuse to do a "short-sale" even if owner proves hardship.If I have the Listing and bank refuses to see hardship and says no short sale, then what? As much as my heart is in the right place & my clients' needs supersede my commission needs, I don't relish working for FREE.
Re: modification, it is very difficult to get a loan modified. I have been trying since July to get a loan modified and finally got a forbearance, but that is simply a grace period.
To my knowledge my clients are paying the mortgage, so they are not technically in hardship.The home is currently rented to tenants (although the rent falls short $1200/month). They live in the Bay Area and the home is in North Park (San Diego). They are struggling to pay the mortgage and just want out.
My colleague was a former loan officer and does short-sales, so I am sure she would take it. But I was just wondering if this was the best option right now.
Great luck with whatever you decide.
Thanks for the clarification. If you cannot prove hardship to the lender you will not get the short sale accepted. The loan must at least be in some capacity late, if they are making the payment the lender will not entertain a short sale.
Banks can refuse to accept the short sale, it is always their choice. Another way to help get it done, assuming there is hardship is to get a loss mitigation department from an MI company (assuming there is MI on the loan) to assist you.
If you ever do get a short sale accepted, assuming you decide to "go there" with your business, make sure it is subject to no recourse of default judgment from the bank on your clients behalf, otherwise they can still be held legally liable for the difference on the sale and what is owed.
Thanks Laura & Joe for your last coments.
I was able to respond to my client with all her options from everyone's advice.