Short Sales; Understanding the Basics

Short sales are fast becoming both an integral and significant part of the market so the rest of you agents should read this article very carefully, turn the page back and keep it handy as a ready reference as you go off into "short sale land. Short sales are attractive to investors, because lenders often agree to take less than what is owed on the property. Short sales are more complicated than a traditional transaction and often take longer to complete. Short sales are really the "lesser of two evils" for both the seller and the lender. Short sales are no longer 1099 as taxable for the short sale loss which had been considered income on the difference on primary residences and it is retroactive to all of 2007 short sales transactions.

An Alternative to Foreclosure

Foreclosure rates have increased just over 200% in 2007 from 2006 yet during the same time period the volume of loans taken back by the lender at the foreclosure sale has increased from $500 million to $3. Foreclosures are expensive for lenders and its something they would rather not deal with. Foreclosures cost Lenders easily $30,000 to $40,000, including the missed mortgage payments, fix-up costs for neglected property, legal and filing fees, and various carrying costs. Foreclosure of your home results in a considerable ding to your credit and you may have serious repercussions for years.

Lenders

Lenders that were eager to lend money in appreciating markets sometimes allowed borrowers to over-mortgage the home, meaning the borrower's loan balance exceeded the value of the property. Lenders hate to take over homes, especially in a declining market, so you shouldn’t underestimate the willingness of a bank to make concessions. Lenders understand the cost of doing business, as most consumers do not. Lenders may tell you they will negotiate a short sale, but they're not doing any negotiating or having detailed conversations about what they will or will not accept until there is a contract in place. That means you shouldn’t be afraid to write an offer. Warning; Most lenders will require evidence the house has been actively marketed in the MLS for at least 90days with no reasonable offers having been refused.

Lenders avoid the hassle and expense of seizing a home and putting it up for auction. Lenders with a 2nd and 3rd mortgage position would rather have something than nothing. Lenders know that repossessing the home (probably with a declining value) will cost them tens of thousands of dollars to maintain, refurbish, market and sell, with no guarantees that it will recoup the same amount as from a short sale. Lenders normally want an offer with the short sale packet, so you really do not know if the lender will even accept a short sale without an offer .

Lenders accept short sales when the home is worth the short-sale price, which means market value. Lenders ask buyers to purchase the home in its present condition. Lenders typically will refuse to pay for:. Lenders generally have lawyers at their disposal, and ordinary buyers do not. Lenders will pay a reasonable commission, usually 5%, and even a Loss Mitigation fee of $1,500 to whoever completes the required paperwork, so Realtors have an incentive to get involved in Short Sale situations. Lenders don't like to accept less than they are owed, to put it mildly. Lenders are people, too, and they, after all, may have other resources to tough it through.

Seller Beware

Homeowners who owe the bank more than the house is currently worth try to convince the lender to accept less than the loan value to avoid the costs of foreclosing on the property. Homeowners who cannot afford an increase in their mortgage payment or have had a reduction in income and this is leading to a huge increase in the number of foreclosures. Homeowners in a short sale situation are often in financial distress. They could talk with their existing lenders to re-configure the terms of the loan. Homeowners, you will be asked to prove financial distress. Homeowners, you will be asked to pay back the shortage. Homeowners: Go see your favorite tax attorney or CPA for tax advice if you are in a short sale scenario. Homeowners do not need to be in foreclosure for a lender to accept a short sale. Homeowners who are successful in negotiating a short sale avoid getting slapped with a seven-year black mark foreclosure causes on their credit. Homeowners walk away from short sales with nothing, and often less than that. Homeowners facing distressed situations need the most knowledgeable and most qualified assistance out there, not the agents who brands themselves as the “short sale expert”, and doesn’t know what they are doing, or worse, doesn’t care as long as they close the transaction Homeowners do not receive a 1099 when their home goes into foreclosure. Homeowners, the worst mistake you can make is to go into denial and stay in your “happy place” and not make those hard decisions. Homeowners, you can be easily taken advantage of by these folks.

Short Sales are not a part of real estate basic training but there are a number of educational seminars a Realtor can take to get up to speed. Short Sales Are Complicated and not as easy as everyone here makes them sound. Short Sales are long, hard, and frustrating. Short sales are making a comeback as a way out for cash-strapped homeowners who can't keep up on their mortgage payments. Short Sales are allowing sellers to bow out gracefully after being put in a no win situation. Short sales are only the best option for would-be buyers if they have the time to be flexible with the process.