If you are like many home owners in the U.S., your home has
lost thousands of dollars in value and with it, some of your equity. Well, what
if you want or need to sell your home and you now owe more than what a sale
would net you or the bank? The answer to this is to attempt a short sale.
In short, no pun
intended, a short sale occurs when an owner sells a property and the net
proceeds of the sale do not satisfy the note on the property. I would say that
short sales make up roughly 40% of the home sales in Harford County during the
past 12 months. How do you complete a short sale? What is the short sale
process? These are very common questions and can have both direct and simple
answers, but sometimes can have very difficult and drawn out resolutions. There
are several lenders in the U.S. who have borrowers asking for short sales and
each lender can have a slightly different process.
So what is the
process? Well, the first step of any home owner looking at the potential of
needing a short sale approval is to contact a licensed and experience short
sale real estate agent. An agent experienced with successfully completing short
sales is your most important resource. Look for either a Short sale and
Foreclosure Resource (SFR) agent or a Certified Distressed Property Expert (CDPE).
I recommend the later certification because it is a more thorough and intensive
certification process and offers an ongoing resource to the agent, which can
aid the agent in staying up to date with the changing guidelines. Make sure the
agent you choose is has completed several short sales and you will not be this
agent's guinea pig seller.
The agent you
choose will interview you and determine your chances of qualifying for a short
sale and will also show you information which will allow you both to determine the
market value of your home. During this process, ignore the difference in your
homes current value and your loan balance. The disparity of these numbers does
not impact the approach to selling your home. Your Realtor will also ask you
questions about you reason for selling. This part of the process is usually
difficult for you, the home owner, because you may be asked to rehash the
events leading to your financial hardship. Even though this may or may not be
difficult for you, it is one of the more important steps because the agent
needs to insure that there is a good reason or a need to attempt a short sale.
Banks typically require some type of hardship in order to agree to allow a
short sale. This hardship may be a loss of employment, under employment, medical
emergencies or complications resulting in loss of job or delinquency. A
relocation, which if not agreed to, may result in loss of job or maybe the
impending layoff from your job. You do not have to be behind on payments or
have a current financial hardship, but the proof of a future hardship can be
sufficient.
There are several
situations where a short sale is allowed and the banks will certainly consider
any unique situation that you may not think qualify, so don't hesitate to
contact a Realtor and investigate your options.
The second step to
getting a short sale approved is to list and market your home. Your agent will
recommend the list price to you. This price will typically be slightly lower
than the actual market value. The reason for this is that there has to be a
concession made for the "defect" in your property, or more
accurately, the "defect" in the process for a buyer to purchase your
property. The short sale process can be a very long and drawn out process. With
this in mind, you have to entice buyers to commit to such a long and
emotionally draining purchase. I have had the privilege of participating in
short sales that were completed in 30 days or less. I have also been cursed
with transactions that have taken over 12 months to complete! Although the time
it takes to complete a short sale can vary greatly, the average time is 90-120
days.
The third step, in
the process of selling your home utilizing the short sale option, is to accept
a buyer's offer. This is, to me, the easiest of all of the steps involved. Keep
in mind when reviewing offers, that you want to insure that the buyer is aware
of the fact that you are applying for a short sale. Your agent should be able
to point out any aspects of the offer that may not allow for a short sale. The
buyer should be made aware that the lender may or may not approve the proposed
sale price and all the other financial aspects of the buyers offer. I have seen
banks remove any seller contributions towards buyer's closing costs, ask for an
increase in the sales price and even reduce the real estate commission. Just
make all parties involved aware that the bank has the final say, and to be
patient and be flexible. Along with getting a signed contract and estimated
HUD-1 document, the bank will require some or all of the following documents
from you, the seller:
-Last two (2)
years federal tax returns
-Two (2)
most recent bank statements
-Two (2)
most recent payroll stubs
-A complete
financial statement outlining your monthly expenses
-A signed
and dated hardship statement/letter
An experienced short sale real estate agent can easily
assist you in composing the financial statement and hardship letter. These
items are non-negotiable. Every bank requires these docs and some require more.
This is the most important part of the process. Neglecting to submit one or
several of these documents can lead to delays and ultimately to a buyer walking
away or a bank closing a file.
The final step in
completing a short sale is to complete the purchase side of the deal. The buyer
will follow through with their promise to apply and complete their financing,
conduct their inspections, if any, and have a title company research the
history of the property and order a survey. This step usually consumes the
final 30-40 days of the transaction, which is typical.
All in all, a short
sale is not a difficult thing to complete as long as all parties are educated
on the process, informed of any changes and updates and cooperate with all
parties involved to work to a resolution to any hiccups that may occur.
If you think a short sale is right for you, give me a call and I will be happy to walk you through the process and answer any questions you may have.
Tim Montoya
443-463-3592 mobile
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