In part one I discussed some of the generalities facing home owners in distressed situations (facing foreclosure for instance). What the benefits of a potential short sale could be to surrounding neighborhoods and even to the local economy. I also disclosed that I am now willing to undertake the practice of short sales in my business, so if you are facing foreclosure or you know of others that might be, please give them my name and contact information. I would love to help if at all possible.
Short Sale: Some Expectations
First thing, what are some of the components needed for a successful short sale transaction?? Well a seller for one, self explanatory but the ability to market the property at current local market values (think lower in terms of price than when purchased) is a great first step to attracting a buyer.
Of course that leads us to the need of a buyer for a short sale transaction. Buyers do exist but many have not come out to purchase because of many reasons. My feeling for that mainly has to do with the listing prices I continue to see that are much higher than what the sales market is willing to bare. Properties priced according to market are selling currently at a greater clip than they were last year. Buyers do exist. You can appeal to them by having a marketable property priced accordingly. A short sale offers this potential.
The next item on this list is optional... I'm talking the services of a Realtor. Might sound counter productive to my efforts of marketing my own services but I'm keeping it real, so to speak. It is possible for an owner in distress to take on the task of negotiating with their mortgage holder for allowance of a short sale, market the property to attract buyers, review all the necessary documentation -- cross T's and dot I's -- every single one of them, negotiate with potential buyers, and close the transaction. You can do it. There, I said it. I do encourage property owners in distress to contact an attorney, financial advisor, and/or a Realtor though. There, I said it.
Now a property owner needs not only a buyer, but a buyer with a lender willing to close on a short sale transaction that may or may not be fully pre-negotiated with the sellers mortgage holder... unless the buyer is a cash buyer. Disclose, disclose, disclose. Short sales are notorious for taking more than a couple of months to close and a buyer might lose out on a locked interest rate or be subject to further underwriting once the seller has everything ready to go. Think unforeseen complications.
So what else here?? Oh yeah... a willing mortgage holder on the property. Can't do a short sale unless that outfit is notified and willing. Might need the willingness of a 2nd mortgage holder as well, if there is one.
And every party listed above needs a positive reason to move forward with such a transaction, a motivation. What is in it for all of the above?? Hopefully all points point towards a winning position for all, given the unfortunate circumstances.
Next up we'll take a look at a partial list of things on a 'to do' list that the mortgage holder will want and need to consider moving forward with a short sale.
The distressed property owners loan package from when they purchased the property is needed. The mortgage holder will want to review the settlement sheet, the Truth In Lending Act (TILA) loan disclosures, Private Mortgage Insurance (PMI) payments, and rights of rescission... and so will the seller and any agent that the seller may hire.
Distressed property owners will also need to know their property, meaning what is the current market value of the home?? Mortgage holders might take a broker price opinion (think comparative price analysis from a Realtor say) or an appraisal.
Mortgage holders will also want to know the seller and if the motivations are proper. Some common elements that speak to that include; a hardship letter about the distressed property owners situation (job loss, resetting payment, etc.), loan package workups for both the buyer (if already in an agreement) and the seller, income statements for at least the last six months, bank statments for the last six months, expenses (itemized and listed), debts (anything including mortgages, cars, ATV's, and other big ticket items that scheduled payments are owed on), and of course credit card balances and payments. And if you're saying -- 'screw all that, I'll just file for BK' -- keep in mind that your BK attorney will want all this information as well.
Now for some potential problems, yeah I know, but in these sorts of transactions there are potential problems.
First off there is plenty of information say like on the Internet (hmm... you are reading this on the Internet) and so much information that one may encounter information overload that becomes confusing or simply just misinformation as it may pertain to a property owners own situation. I'm not saying to not do some investigation or your own homework by whatever resource you choose, but I am saying that you will likely want to actually speak with someone that will look into your own situation and will agree to represent your best interests... whatever those interests may end up being agreed upon. This stuff is highly personal to the individual and no two situations are identical.
Also, the clock is ticking -- always -- for a distressed property owner. Ticking closer and closer to foreclosure if the terms of the mortgage can't be met. The short sale route of sales involves a huge time investment, mostly involving negotiations with the mortgage holder. Most people are not trained or have enough expertise to deal with the various needs that a short sale needs entails. Think lots of spinning wheels moving forward at a snails pace. If you are up against a clock this is the part of process that will give you the most stress.
And I'm sure that you've heard the scenario... a person got a mortgage with a $200,000 principle back a few years ago but the current market value is $130,000. The mortgage holder agrees to let the distressed owner out of the remaining obligation ($70,000) via a short sale and now comes the tax form known as a 1099. Well yes, maybe no, and actually it depends (doing my best lawyer imitation there). Reasons like tax implications are a real good reason a distressed property owner will likely need the services of a professional in either legal, financial, and/or real estate related fields.
The last problem that I'll touch on is maybe the distressed property owners mortgage holder isn't motivated because they will just settle on the PMI pay off and let the property head into foreclosure. Good for them perhaps, but not so good for the distressed property owner.
Alright, one more issue or potential problem... have you been following along with what our federal government is promising this week (as compared to last week)?? Do you know if that makes your situation better or not?? Yeah... I don't know either. But at this point I'm not all that confident with what the Congress promises... they don't even read the bills they pass.
For all of the above there are reasons as to why I've decided in the past NOT to represent clients in short sale situations... and now is the reason why I've decide to actually offer my services to clients wishing to try a short sale (very Carl Jung'ingan 'the duality of man' sort of thing I suppose). Of course, I have come to realize that in this current market basically two kinds of homes are selling... foreclosures and short sales (using a broad brush to make that statement), so by representing clients in a short sale I will likely do more business at this time. I'm not hiding that fact and it is a motivation. But increased business or not, I feel it is my duty as a Realtor to help people that choose the services I can provide.
Months ago I might have chosen to represent banks and lenders in listing their foreclosure fleet of homes, but I didn't. I choose to help buying clients that were looking for that kind of property instead of dealing with lenders and banks as primary clients. I had bank clients years ago and found that sort of business less than satisfying. Banks don't smile, but traditional (or human) buyers and sellers do... and while smiles don't pay my bills there is a payoff to me for the smiles I get when I help people. The kind of payoff that money doesn't buy, it is what I've come to love about the business I'm in. I want to help. The chance to avoid foreclosure or bankruptcy has potential to create some smiles even in these unfortunate economic times.
So please, if you are a distressed property owner or know of someone that is facing a foreclosure type of situation please use my contact information to set up an appointment.
Look for the next post in this series... should be the final (and hopefully shorter).