We have been getting tons of emails and calls from local homeowners who need to sell their home but are finding out that they owe more than their home is currently worth and want to know what their options are. For owners who can’t afford to wait for the market to turn around, or those who can no longer afford to keep current on their mortgage payments, there are alternatives to bankruptcy or foreclosure proceedings and one of those options is a short sale.
A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid bankruptcy or foreclosure proceeding by convincing the bank to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed… Click here for a more in-depth explanation on the subject of Short Sales.
In most instances homeowners are pretty informed about the general values of homes in their neighborhood and have a pretty good idea of what their home might sell for. In other instances homeowners may be well aware that values are down far below what they owe and yet insist that their home is special and will sell for more. What homeowner’s fail to realize is that buyers shop by comparison and in this market there are likely numerous homes available for sale that are just as nice, if not nicer than their own but are offered by owner’s who desperately need to sell and who have priced their homes to reflect this, as well as homes offered for sale via short sale. These homes are priced very aggressively, often tens of thousands (or in the case of some high-end markets hundreds of thousands) less than comparable homes and yet they will be in direct competition with other local homes. Buyers will not pay more for a comparable home if they can find something similar for thousands less and for Sellers who need to sell, this is the problem.
In this article we will provide instructions for the successful application and execution of a short sale.
Step 1 – Locate a Specialist
The critical success factor in these transactions is finding an agent who is experienced and specializes in these types of sales, that is short sales. Thus the first step in arranging a short sale is to find a Realtor who specializes in these types of sales. While short sales have been a viable strategy for years, many agents never availed themselves of the educational opportunities to ensure that they possessed the know how, and skills required to arrange and negotiate a successful short sale.
Subsequently there are a lot of agents running around the Columbus Ohio Real Estate market calling themselves short sale experts who lack the expertise and experience to warrant the title and support these claims. Completing a couple of short sale transactions does not make one a specialist and to truly be an expert, agents have to have closed an array of transactions with a myriad of complicating factors, in a slew of different situations. They have to have closed short sales with every lender (as every lender has different guidelines), FHA backed, Freddie and Fannie, different property types, multiple lien holders, and a whole host of other qualifications. Short sale guidelines and lender protocols are constantly changing and to stay on top of this an agent must live and breathe short sales and this is the case for a true specialist.
So how do you go about locating one of these short sale specialist? Agents who specialize in these types of sales are easy to identify, as they are those who most frequently take these types of listings. If you’re interested in exploring the option of selling your home via short sale here in Columbus you’ll be happy to know that we are the local industry leader and Central Ohio’s premier short sale specialty group, and thus we’d invite you to give us a call. If you’re outside of the Columbus market and would like to locate a specialist you’ll want to search such websites as Realtor.com, Craigslist, and/or Trulia.com and identify those agents with the most short sale listings. Or you can send us an email, and we can direct you to a local specialist.
Agents who specialize in these types of sale will not only have an in-depth knowledge of the short sale process, but they will also have relationships with those individuals at the banks who negotiate these sales and thus a distinct advantage that will help you in achieving your goal of getting your home sold!
* Note THE BANK WILL PAY the Realtor fees and ALL COSTS ASSOCIATED with the sale of the property. YOU WILL NOT BE ENTITLED to any of THE PROCEEDS from the sale but the property will be sold at a loss and thus all proceeds would have been directed to the bank regardless.
Step 2 – Prepare the Short Sale Package
Preparation of the Short Sale Package and collection of the required documentation. Just as the you were required to apply and submit documents to obtain the loan, the bank is now going to require that you apply and submit proof that you can no longer longer afford the loan. They are also going to want an explanation of the circumstances including what happened to put you, the homeowner in the hardship that you are in, ultimately causing you not to be able to afford your payments. While these short sale packages vary between lenders you will be required to provide the following:
– Authorization Letter To Release Information to Your Realtor
– Listing Agreement
– Hardship Letter (including copies of all relevant documentation to substantiate your explanation)
– Complete Financial Statement (form provided by your lender or Realtor)
– Copies of last 2 pay stubs for all borrowers
– Copies of last 2 years Federal Income Tax Returns, including all schedules for all borrowers
– Copies of all bank statements for past 3 months for all borrowers
– Comparable Sales for the Property
– Purchase Contract
– Net to Seller
* Note Your Realtor can assist you in preparing your short sale package and it is in your best interest that they do so.
Step 3 – Contact the Lender
Contact the lender or lenders. Once the short sale package has been completed it will be submitted to the bank(s) for review. They will begin processing the file and soon after your Realtor should begin following up with them everyday to make sure the file is being processed in a timely fashion and the appropriate steps are being taken.
Your Realtor should also be able to assist you in decreasing or completely eliminating the calls from your lender.
Step 4 – The BPO
Verify the value of the property. Your broker will assist you by providing a CMA, or Comparative Market Analysis to determine the current market value of your property, however, the bank will do it’s own valuation of the property by ordering what’s known as a BPO, that is a Broker Price Opinion. In essence this is an appraisal and the bank may order the BPO through another local real estate agent or a local appraiser, or both as they may order more than one BPO. The bank’s BPO agent will need to gain access to the property to do an interior inspection of the home and thus notice will be given regarding the date and time of the BPO inspection(s).
Step 5 – List the Property
If you haven’t done so already you’ll want to begin the search for a buyer and the marketing of your home or property. In most instances the BPO value will not be in at this time and thus your Realtor will initially list the property at the market value he or she derived from the CMA. Once the BPO value is in, your Realtor will then discuss this with the bank and if necessary adjust the price accordingly. The objective will be to sell the house for as much as possible in as little time as possible and thus this stage of the sale requires a group effort. Homeowners who decide to remain in the home during the sales process will need to maintain the property, and keep the house clean and available for showings.
Step 6 – Submit the Offer & Close the Sale
Once a Buyer is located an offer will be submitted. The offer will need to be accompanied by a lender pre-approval letter and contingent upon, or subject to lender approval. The Seller will then sign the offer and submit it to the bank for review. This review process will vary but typically takes at least 15-30 days and just as is the case with the traditional home sale the bank can don one of three things once it’s reviewed the offer, it can; accept, counter, or reject your offer. In most instances the bank will accept or counter the offer. If they accept the sale will proceed and the deal will close once the necessary contingencies have been waived and the Buyer’s financing has been secured. If the bank counters which they will typically do so long as multiple offers were not received, you may then accept the banks offer or counter them back. If the offer is rejected, the Buyer can make another higher offer, this so long as there weren’t multiple offers and another offer has not already been accepted.
The homeowner will need to attend the closing to sign over their rights to the property. As previously mentioned the bank will cover the costs associated with the sale of the property and thus the homeowner need not bring any funds to the closing and rather will only need to bring his or her driver’s license or some other form of recognized identification.
Short Sale Consequences
A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place. Some of the consequences of a short sale vs. a foreclosure or Deed-in-Lieu are included below:
- Blemished Credit Report Sellers will take a bigger hit on their credit report if they go through foreclosure or give the lender a deed-in-lieu of foreclosure. The points lost on your FICO score may be as follows:
- Foreclosure or Deed-in-Lieu of Foreclosure Both of these solutions affect credit the same. A sellers can take a hit of 250 to 280 points. This means if a seller’s FICO score before foreclosure is 680, it could dip as low as 400.
- Short Sale The damage to a credit report from a short sale is much less drastic. The hit will be indicated as a pre-foreclosure in redemption status. Therefore, the loss of points will be more like 80 to 100.
Waiting Period Before Buying Another Home
- Foreclosure or Deed-in-Lieu of Foreclosure A seller who wants to buy a home after foreclosure can expect to have to wait about 36 months before being able to get a loan with a reasonable interest rate.
- Short Sale For a short sale, the seller should be able to buy another home with a reasonable interest rate after about 24 months.
* Always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give you legal advice.
Seek Help Early As soon as you recognize your problems, seek help immediately. The lender may negotiate a new loan with better terms if approached early enough. Obtain the advice of a tax accountant, and attorney or a real estate agent who is knowledgeable about short sales.
If you are a homeowner who feels they might qualify as a short sale candidate and are looking for an agent who specializes in these types of sales, or just need guidance, please give us a call at 614.332.6984 as we’d be happy to assist you in exploring this option and locating a buyer for your home!
If you are buyer, or an investor, interested in purchasing short sale or foreclosure properties, again please give us a call as we’d be happy to assist you as well!