The words “Short Sale” are on just about everyone’s lips these days but how can you make sure that you have a smooth Short Sale?
If you are a prospective seller or buyer what do you need to know in order to minimize frustration and maximize your odds of a successful result?
What are the prospective pitfalls and what are the warning signs that you are about to go from the frying pan into the fire?
Let’s start with what the prospective seller needs to know, I will cover the buyerâ€™s needs in the next installment…
If you are thinking of exploring a short sale as a solution to your financial predicament make sure that you have tried EVERYTHING else first. Start by calling your lender or lenders to see if you can work out some other alternative. Remember that the bank actually has as much, if not more to lose than you do. As a result, they may be able to offer options that could help and if you don’t ask you’ll never know.
A few points to remember:
1) If you own any other property, have any additional assets, savings or equity in the property then a short sale is probably not an option for you.
2) If you are still able to make your payments even if it is difficult, try to keep doing so. No reputable real estate professional would ever tell you to quit making your payments. Of course, that being said, it is very difficult if not impossible to successfully negotiate a short sale with the lender if the payments are current. The bank usually needs to see that you truly can’t keep up, and are actually behind in your payment commitment before they will consider allowing the sale.
3) NOBODY and I mean NOBODY can guarantee that a short sale can or will be allowed by the lender. All that a reputable Realtor (like me) can do is guarantee that I will help to price your home appropriately for the market and the area, aggressively and actively market your home to try to find a buyer and prepare a package for the lender that has every element that they will be looking for in order to encourage them to accept the short sale as a solution to everyone’s problem.
4) A Short Sale is not a “Get Out Of Jail Free” card. There are repercussions for this action. Your credit will be damaged and despite the new laws, there can still be tax implications.
Yes, a Short Sale is less damaging to your credit than a foreclosure and yes, you can recover from the damage in a much shorter period of time, but damage is damage. Think of the difference between the Short Sale and a Foreclosure like a sprain versus a break. Both hurt, and under normal circumstances neither one will kill you, but it sure doesn’t feel like that while it is happening.
If you don’t have any other option then contact a reputable Realtor (like me) with experience successfully negotiating short sales on both sides of the transaction to help you.
If you are able to proceed with a short sale, you can help speed the process along by making sure that everything the lender will need is available for them as soon as they need it, if not sooner.
The lender will need to see a hardship letter which explains in your own words why you fell behind in your payments, what you have tried to fix the problem and why you are ultimately resorting to this drastic step.
They will also want to see proof that what you are telling them about your financial situation is really true. Be prepared to show them current bank statements, pay stubs, a profit and loss statement from your business (if this applies), tax returns and any other financial information or statements that they desire.
Your agent should be able to demonstrate to the lender why the amount you owe for the home is now greater than the amount the home can be sold for.
When I am preparing a package for the lender I send them all of the same information that I prepare for a seller when I am helping them determine appropriate pricing for their home. I include comparable information reflecting current and recent sales (within the last three months), pricing for currently listed comparable properties and information about comparable properties whose listings have expired.
One of the things your Realtor needs to do for you when they are working to negotiate a short sale is to educate the lender about value where your home is located.
The negotiators are, on average, handling 200+ transactions at a time and can’t possibly know the market vagaries for each and every area.
For instance, here in Claremont depending upon how close your home is to the mountains, to Baseline or to the Village can severely affect the value of your home. The same house located below the 10 Freeway at the Montclair border is worth significantly less than it would be if it were on College one block from Yale and different again if it is located above Baseline. But, to the negotiator sitting in an office somewhere in New York, or to an out of area agent, Claremont is Claremont.
As a seller, try to remember that when you receive offers to purchase your home, especially if they are even lower than the price the home is listed for (because assuming that you hired me or someone like me, the listing price should be pretty right on the money), they are not meant to be insulting. The buyer’s are just trying to get the same good deal when they purchase their new home that you tried to get when you purchased yours.
It is possible to successfully navigate the stormy waters of the Short Sale as long as you have a good captain and a great crew along for the ride.
Take care and have a wonderful day!
I.V.P.G. - Inland Valley Professional Group Powered by Keller Williams in Claremont/Upland/Rancho Cucamonga, California
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