Wednesday, March 25, 2009

Short Sales: part one

I'm going to write about a subject that I have, up to this point, elected not to include in my business practice of real estate related services... 'short sales'.

The Wikipedia page begins the definition of a short sale as...

In real estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.


Sounds easy enough but I'm sure many real estate agents, buyers, and sellers could tell you something different... there is no 'easy' button in the vast majority of these situations. And just like no two 'normal' real estate transactions are the same, no two 'short sales' are the same.

My plan is to share some information here on this blog that may be of help. I'm also declaring that I will begin to offer my real estate related services to those that may look to the prospect of a short sale to sell their property. I'm changing my services because I've recently met a new resource that can help me as well as my clients that could be involved in a successful sales transaction of real property through means of a 'short sale'. I'll talk about that later on in this series of short sale posts.

The first part of this series will provide some information as to the potential benefits to the property owner in a distressed situation (facing foreclosure for instance).

Short sale... a possible solution:

There are no certainties in a real estate transaction... not even in the best of times. The potential for bad news and the 'deep-sixing' of a real estate sale can come at anytime for almost any reason. Short sales are no different in this manner and in fact have many more variables to consider and more pitfalls to avoid.

So why is a short sale a possible solution?? Because if everything is lined up just right, the opportunity to sell a home that is 'underwater' via its mortgage and remaining principle will allow the home to be purchased for current market value... the recipe for success for this market.

Home owners that face foreclosure or other elements of distress have some options. First they can try to get their current lender to modify the loan. I've heard wildly mixed results on modification... the good, the bad, and the ugly. Of course home owners can go for a what I would call a regular sale, sell the home at current market value and simply pay off the lender the amount for which a home owner in distress still owes. Keep in mind though that home values are off 42% from three years ago which could mean bringing lots of dough to the closing table. Some folks are waiting for the next new program that the government may offer (do you really want to rely on Barney Frank??). There is also the bankruptcy route, and I would ask you to contact an attorney for advice for that. While at the attorney's office you might want to see how possible it might be to sue the lender... again see your attorney. There is also the simple act of letting the home go into foreclosure, just lock up when you leave. Other variables probably exist but I've covered the main alternatives.

So this brings us back to short sales. Think bigger picture for a second, what is the good of a short sale say for the neighborhood and the local economy?? Well compare the situation of a short sale to a foreclosure, when a home is foreclosed on it may sit vacant for some months before it ever gets a 'for sale' sign on it. Potentially leaving the home unsecured and I'm not trying to scare anyone but I've heard things about empty homes becoming temporary homes to squatters, targets for vandalism and theft, and even dreaded illegal immigrant drop houses or meth lab locations. Not good for the neighborhood.

At the successful close of a transaction via short sale, a new owner with keen interest takes control of the premises. That could mean good things for the local economy. First this new owner would likely be a utility service paying customer, could need the services of a local contractor or sub contractor for improvements, might visit one of the local furniture and/or appliance stores for the new digs. The buyer might be a new resident to Kingman that found just the right property for the right price and now would be shopping local and adding to the economy in a positive way. Most of all the newly acquired property would be secured. All of the above is good for the surrounding neighborhood and local economy.

I realize that home owners in distress may not be thinking big picture and it is certainly understandable, but maybe you know someone in your neighborhood in distress (while you, yourself, are not) so you might want to encourage your neighbor, a friend, or relative to speak to someone that could help facilitate a possible solution that won't detract from the neighborhood or local economy (an advisor, an attorney, and/or maybe even a Realtor).

More in line with the term big picture for home owners in distress is the options they face. A short sale might just be the right course of action. Again, I can't state anything here with certainty for all situations, but a short sale in most cases can be better off for the distressed owner than the ramifications of being foreclosed on. Also, in many cases, a short sale can be more beneficial than filing for bankruptcy. Don't just take my word for that, see your attorney and/or financial advisor.

My role in a short sale is marketing the home and negotiating the agreement for purchase, in simple terms. This is my expertise. While I know other Realtors that have helped clients with short sales on their own and think that it is more than possible to do so, to this point I have not engaged in that practice. What has changed for me is that I have met another professional real estate practicioner that has plenty of experience and expertise in the short sale style of closing transactions. Initially, this resource will help me put together all of the information needed to begin the process of negotiating with the lender that holds the mortgage, while I will handle the marketing of the property and negotiating with prospective buyers.

There also is an elective service available to distressed owners that I can introduce to clients. What they do is negotiate with the lender to a point where I would be able to market the property as a 'PRE-NEGOTIATED SHORT SALE'. The advantage of this is prospective buyers (and their broker/agent) would know going into the negotiation that as soon as they can close escrow, they can take control of the property. No waiting perhaps many months for responses from the lender (which can happen for many reasons including not having all pertinent information disclosed to the lender... yep, missing one tiny bit of information... no action... very frustrating for potential buyers).

This is just part one of a series of posts designed to market my services in the realm of short sales and to offer information and things to consider to distressed property owners that they may not have been thinking about before. I'm here to help as best as I can and believe that finding some trusted resources with plenty of experience and expertise offers potential clients quality service they should expect. So check back for future posts on this subject. If you have questions now, feel free to email or call me. Thank you.

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