It's all the talk among the real estate blogs. Have you heard?
I had not written a blog on real estate short sales
because there is so much out there already. I decided to get up early this morning and see if anybody had written anything that would explain this process to a lay-person (a lay-person in short sales is somebody who owns a home with lots of equity --- humor).
So what exactly is a short sale?
A real estate short sale
is when a home gets sold and the proceeds from the sale "fall short" of what the property owners owes on the mortgage(s) on the home. The bank(s) agrees prior to closing to accept a lesser amount than what it is owned. The bank will do this if it feels it will get more money through a short sale than through the timely and expensive cost of a foreclosure action. The property owner will often consider a real estate short sale when the owner receives assurance from the bank the loan will be deemed "paid in full." Sometimes though, the property owner's only option is the short sale, even if a deficiency judgement results in the process.
Some Short Sale Advice
If you own a home that is highly leveraged (read that to mean that you borrowed as much money on it as you could sometime in the past three years) and you need to move for one reason or another, you need to know that you basically have four options right now:
Because this is a blog about real estate short sales, we will assume that number 1. and number 2. are not options for you. In order to determine if a short sale is the right solution, the next step is to meet with a real estate professional that is an expert in real estate short sales.
- Don't move, stay in the property
- Lease the home out to a tenant
- Sell the home on the market
- Give the property back to the bank (surrender the property with a quit-claim or deed in lieu of foreclosure)
Interviewing the Real Estate Short Sale Expert
Once you have determined that you must sell your home and you are concerned about maintaining your credit rating, you must interview the best real estate company to successfully work through the real estate short sale. That's right, the correct company. The short sale process is easy to talk about, but the reality is that few companies give good short sale advice. Good companies successfully help the property owner through to the very end, with complete forgiveness on the loan. Here are some critical issues you should address in the interview:
- Do-Conduct the interview at the office of the real estate company. Tour the facilities and make sure you are introduced to the team that manages short sales.
- Do-Find out what banks with which they have successfully negotiated (they should mention contacts in the bank's Loss Mitigation Department).
- Do-Ask for specific sales (properties and names) that they have successfully concluded a real estate short sale.
- Do-Ask for the basis of their short sales training.
- Do Not - be concerned with how many homes they sold in your neighborhood (unless they were short sales).
- Do Not - be concerned with the car that they drive.
- Do Not - be concerned with how many homes they sold in the past (during the boom market with few or no short sales).
The Real Estate Short Sale Process
First and foremost, one must realize that real estate short sales take much longer than "normal" sales. This is because the bank requires a due-diligence period to ensure that it is not being taken advantage of and to ensure that it is getting the best return on its investment. I believe that this is fair. But there are things that your real estate company can do to make the short sale process go quicker, and that is where experience is the key.
A real estate company with real estate short sale experience will have a kit, a package, or at least a process to expedite the lenders decision-making ability. This package should include everything the lender will need to form its opinion on the real recovery value of the property. Additionally, the real estate company giving you short sale advice should be prepared to provide the following information to the lender at first contact (Be proactive, do not wait for the lender to ask):
Once the lender(s) has made a decision, just remember that there are often layers of decision makers at every bank. All agreements must be approved through the lenders legal department, and this too adds to the time it takes to close on a real estate short sale.
- Property Taxes - current status and annual amount
- Homeowners Association - Annual fees and contact information
- Lawn maintenance - current handler contact information and fee structure
- Code violations - current status and amount
- Pool maintenance - current status and monthly amount
- Utilities - current status and monthly amount
- Property Condition - current status and deferred maintenance needs
- True sale-able value - Provide comprehensive market analysis including homes on the market and homes that failed to sell
If you plan on selling through a real estate short sale
, just understand that it will take some work. In the long run, it will be worth the hassle as you will better protect your credit rating and you most likely won't have to repay as much of the money. The choice of real estate expert could be the difference between success and failure, so choose wisely on who should give you this short sale advice.
If you plan on buying through a real estate short sale
, remember that patience is a virtue. No matter what the home owner agrees upon in the sales contract, the bank will be the final decision maker in the process. The bank and the real estate professionals will determine how long the entire process takes, so choose your short sale advice (real estate company) carefully.