Real Estate Short Sale Guide

Banks are being flooded with short sale requests since many homeowners have fallen victim to the downward spiral of the real estate market.  If a homeowner is facing foreclosure they must call the bank to get assistance on a loan modification.  If a loan modification is unavailable or doesn’t work, then the next step is to request a real estate short sale.  In a short sale, the property is to be sold for less than what is owed on the loan.  It is usually their best option so avoid entering a foreclosure with the homeowner, which can be quite a costly process for them.

Here are a few suggestions:

• Make sure to get a knowledgable real estate agent that is educated about the short sale process.
• Price the home to sell in today’s market
• Talk to your lender early.  It is important since in the future it will prove that you attempted to work with the bank on avoiding foreclosure.
• Complete all the required documents properly and orderly.  Meet all the deadlines and keep copies.
• Your real estate agent is to contact the bank once the short sale request has been delivered to the bank with any offers.  The agent will try to get a time line from the bank on the steps left.
• The banks are known for throwing last minute requests into a deal.  You and your real estate agent will need to gather your negotiation skills so that the bank doesn’t try to strong arm you into accepting something not in your best interest.
• Make sure to get legal or CPA assistance, since there will be tax implications with short sales.  A real estate agent may be familiar with it, but it is best to speak with a professional in that field.
• It is a long process, but try to keep your head up and sanity together.  Your agent should be able to guide you through the long and tedious process and make it worthwhile to you and your family.

Buying a short sale or foreclosure can be tricky.  For short sales, you need to be aware of a few things before deciding to buy a short sale.

• You cannot be in a hurry – The process is quite slow.  It can take a month or 3 months.  Sometimes it can take longer.  Don’t try to hire a mover, end your lease or lock your rate until you have confirmation that the offer is approved by the bank.  If the seller accepts your offer, that is not the same as the bank finalizing the offer.  It must be approved by the bank.
• You are buying the home “as is” - In rare cases the lender may pay for repairs, but frequently the lender will not and usually the seller is in a hardship so they will be unable to pay for anything.  You should perform your inspections to see what condition the home is in.
• You cannot flip the house – Short sales are very great deals in most cases but you will not get a price low enough to get a good short term profit.
• Status updates take longer – All parties have to wait on the lender, who will more often than not move at a snail pace.
• The listing agent should be a short sale specialist, if not the situation can be troublesome – Short sales are even hard for the most experienced of real estate agents, so it is quite important to get a real estate agent that knows what they are doing.  It may save you some frustration.
• Funny enough, you will need to close quickly – Once the lender has approved the sale, things move rather quickly.  They will want to close between 15 to 30 days.   Get ready to move quickly!

The Fannie Mae is testing a program to pre-approve short sales in a couple of areas: Phoenix and Orlando, which are the two hardest hit cities.  The goal by Fannie Mae is to expedite the short sale process.

The short sale process can allow homeowners an option out of a mortgage they can no longer afford.  The short sale deal must be approved by the lender, and usually the remaining debt is forgiven by the lender.

Foreclosures have soared in many parts of the country.  Due to the length of time to complete a short sale and the number of short sales out there, it has caused somewhat of a slow down with some banks.

Fannie Mae’s new short sale program focuses on homes listed to sell for less than the mortgage balance and are being serviced by Countrywide Financial Mortgage.

If the program works, it will be expanded to other part of the country.

Doing short sales are quite hard, but can get even harder when there are 2 loans involved. You know need 2 lenders to cooperate, not just one. Double trouble.

The 2nd mortgage lender will always be in the 2nd position, even though the 2nd loan is a home equity loan. The lender who is in the first position will receive the funds collected from the foreclosure proceedings when the Notice of Default is filed.

In many parts of the country, the 2nd lender must make up back payments to the first lender to pay the 1st lender’s cost to file the Notice of Default and associated expenses and then file its own Notice. If the 2nd lender does not do this, they could get wiped from the foreclosure proceedings and receive nothing (especially if there is little money to go around in the first place).

When the 2nd lender receives a notice which states the 1st has foreclosed, many 2nd lenders do not initiate their own foreclosure proceedings since there may not be enough equity leftover to make the cost of foreclosures profitable.

When a short sale is used to avoid foreclosure, the seller would have signed a listing agreement with a real estate agent.

To reduce closing costs, lenders will usually refuse to pay the following:

• Home Warranty Plans
• Pest Inspections
• Roof Certifications
• Sewer Inspections
• Repairs
• Buyer’s Closing Costs (Credits)

Now, the 1st lender will offer the 2nd lender a small amount to go forward with the short sale transaction, sometimes by offering as little as $1,000 to a loan balance of $55,000.  If the lender refuses, they could end up getting nothing in the end – it’s a risk.  But many 1st lenders are happy to receive at least 90% of the loan, leaving the 2nd a bit more money…sometimes $4,000 or $8,000.  The 2nd lender must agree to release the loan, if not the short sale will be denied and the first lender will probably put the property into foreclosure eliminating the 2nd loan.