Short Sale

  SHORT SALES ON TODAY'S MARKET

    Short sales exist when lenders allow homeowners to sell their           houses on less than they owe on their mortgages. 

    Banks are finding they’ll take a smaller loss by allowing short sales     a 30 % loss, compared to a 50 percent hit through foreclosure.         In addition, borrowers take a smaller hit on their credit scores.         This is very important, if you are about to lose your home. A short     sale will result in a 100-point drop – half of what you might suffer     if you lose your home to foreclosure. With this smaller hit you will       be able to recoup faster, get back financially on tract and start         building your credit back sooner that if you have a foreclosure.

    For a long time, loan modifications were the primary strategy of         the  day for financially distressed homeowners. However, the           results for  loan modifications have been anemic at best. Is               in stressed California residential real estate environment, where         many mortgage loan  borrowers owe more on their homes than         their properties are worth  and some have opted to simply walk         away from their homes and  mail  in their keys, so-called short           sales have become favored transactions.

    In April 2010, the federal government will offer financial incentives     to push short sales through a program called Home Affordable           Foreclosure Alternatives.

    The program is designed to spur home sales, and it specifically         imposes new requirements on lien holders, requiring certain debt       forgiveness, an abbreviated time frame to respond to short sale         offers, and provides government payments to homeowners (for         moving and/or relocation expenses), servicers, and lien holders.

    Myrna Valenzuela has fifteen years experience as a Real Estate         Agent, she specializes in short sale transactions. Myrna gathers         the Bank’s required paper work from distressed home owner and         prepares the file for the Bank acceptance of the short sale.

    In today’s Real Estate Market short sales is the trend to follow.         But more than a trend this is a forced necessity. 

     What really is, in plain and simple English, a Short Sale?

    A real estate short-Sale is a form of agreement between the seller    of a home in the beginning stages of foreclosure and their lender,      allowing the home to be sold for less than the existing loan balance    outstanding.

  The mortgage would accept less than the loan amount in order to     avoid a foreclosure proceeding. This short sale would result in a       substantially discounted purchase price for the buyer of the home.

The buyer could then proceed with the purchase of the home much the same as in any conventional real estate transaction.

So just to start, the home owner is looking for a less damaging relief from his debt and a buyer can purchase a home at a possible discounted price.

Because not all real estate professionals are aware of the mechanics of short sale transactions, the following overview is offered as a quick primer.

Homeowners who are "underwater" or “upside down” with respect to their mortgage loans, seek to sell their homes "short" to avoid the threat of foreclosure action and to lessen the credit damage that would accompany a foreclosure. Because of the "shortage", the transaction may involve "debt forgiveness" by the Lender. But this is often preferable to the Lender compared to a foreclosure – which has costs and risks for the Lender in terms of lost payments, eviction, property maintenance, insurance, taxes, fees, and the like -- or a loan modification, with the associated lack of certainty. Also, a short sale gets the non-performing mortgage loan asset off of the Lender’s financial books.

Since it was mentioned. A short sale is a transaction in which the lender, or lenders, agrees to accept less than the mortgage amount owed by the current homeowner. In some cases, the lender forgives the difference, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.

A short sale occurs when your lender agrees. “ agrees” to accept a lower price on your home than the current mortgage balance, provided you meet the lender's requirements and have a qualified buyer.

Your lender is the key to a successful short sale transaction and it will need to feel confident in the new buyer. While recent cash incentives for you and your lender make short sales more enticing these days, incentives alone won't get the job done.

We came across several files that homeowners and I had worked together, where hardship was the issue for the distressed homeowner. When the homeowner qualified for the purchase of the home with the so called stated income and today they can not prove they were making the income declared when they purchased the home and now they are applying for the short sale. There are many of those cases and we can do nothing to help them. However, there are many that are not that type of case.

And for those a short sale can be a win-win scenario -- the bank reduces a portion of "bad debt," avoids foreclosure costs and keeps the home occupied, while you shed a housing payment you can't afford.

If done right, the short sale is a winning proposition for all, including the lender because the costs involved are certainly lower than that of foreclosing don't come up short, prove your case.

To prove your case, you will need to spend some time on a cover letter explaining your hardship and provide full financial disclosure. The original purchase contract; a balance sheet of your income and expenses; asset statements, proof of income; bank statements; two years of tax returns; and a professional like Myrna from the Team of Terra Estates Realty who knows the ropes.

Right the preparation of the documents that will prove your case is absolutely critical in the acceptance of your short sale. Simply stating, 'My house is worth less than the loan and I don’t want to pay any more,' will not be acceptable. Lenders would rather foreclose than develop a reputation as an easy target.

Along with the required documentation, you stand the best chance of getting through the two- to seven-month short sale ordeal if the home is marketable; the second mortgage holder (if there is one) gets a cut or otherwise goes along with the deal; the same lender holds all mortgages; and there is enough time before foreclosure (at least about 4 months).

A major reason why a short sale fails is the length of time it takes to get the lender’s approval. Long delays frequently cause the buyer to drop out of escrow and buy another home. However, this trend is starting to change, and we are starting to feel this change.