through a real estate short sale. In this practical guide, I'll provide step-by-step instructions for modification or selling your home for less than you owe the bank(s ).
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Figures cited vary from 8 percent under to almost 20 percent under.
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Opinions vary on this topic, although most experts favor disclosing that a property is a short sale in the comments section of the MLS listing. Others suggest waiting to disclose the need for lender approval of the sale until a buyer is ready to make an offer. She also had a special sign rider for the yard sign made indicating a property is a short sale.
In such cases, the former owners will still be liable for the mortgage payments, even though they no longer own the house.
Although response times vary from lender to lender, it can take two weeks or as long as 60 days to receive an approval of a short sale from a lender. Properties with securitized loans which are the majority these days may require a longer time to get an approval of a short sale because of the possible need for approval from the entity holding the pool of securities, says Churchill. Keep in mind that the purchase contract on a short-sale property is a legally binding agreement once the earnest money has been deposited.
Without language in the contract stating that the lenders must approve the offer and release all liens on the property, the seller may face a legal problem for failing to execute the contract if the short sale is not approved, says Hollingsworth.
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Getting a lender to approve a short sale is primarily a question of economics. A buyer that is willing to close in 30 days and who can make a substantial down payment may make the deal more attractive than a buyer who wants 95 percent financing, notes Michael Termine, GRI, CRB, associate broker, Prudential Rand Realty, New York City.
All buyers should be preapproved for a mortgage before submitting the offer.
However, to avoid unnecessary costs, buyers should wait on having a home inspection and an appraisal for the loan until after the bank has accepted the short sale proposition, say Cole-Murphy. Genuine hardship, such as a lost job or high medical bills from an illness may also have an influence, says Covello. You can look for another buyer or even try resubmitting the same contract.
You also need to prepare your seller in advance for the possibility of foreclosure if a short sale fails, says Parmelly. A short sale might be rejected if the loan is less than a year old. Many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation as a condition to a short sale. In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due. In such states, the lender cannot pursue a deficiency judgment against a seller for any deficiencies after a property is foreclosed.
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Because of this distinction, sellers who are already in default on a mortgage and do not have the resources to pay off a separate promissory note after a short sale might be better off letting the lender foreclose, he says. If you are working in a state in which mortgage loans are nonrecourse, be sure and alert your seller-clients to this distinction.
Encourage your client to try and sign a lease on an apartment before credit is further damaged, suggests Roberta Murphy, an associate broker with Windermere Exclusive Properties, San Diego. One often overlooked aspect of short sales is that a seller must count any amount forgiven by the lender as income and pay taxes on that income, even if no actual money was received.
The IRS requires lenders to submit a Form stating the forgiven amount. Sellers who meet the Internal Revenue Service definition of insolvency either in bankruptcy or with debts exceeding assets will not have to pay taxes on the forgiven amount. Banks are going to want you to discount your commission. Rates offered can vary, but are typically 1 percent to 2 percent below averages in the market, say interviewees.
However, says Hollingsworth, more lenders now seem willing to pay a full commission on sales. When you offer cooperative compensation through the MLS, be sure you also advise potential cooperating brokers that the gross commission established in your listing agreement is subject to court or lender approval and could potentially be reduced.
Word of mouth remains the biggest source of new business, experts say, but you can also promote your services to individuals attending credit counseling classes now required prior to filing bankruptcy , to people who receive state notices of loan defaults, and to home owners named on lists of ARMs that will be resetting in the next few months. To find buyer clients, creativity is a plus.
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With many more adjustable rate mortgages ready to reset to higher loan amounts in the next couple of years, short sales represent a growing sector of the market. You can reach her at mevans realtors. View the discussion thread. Skip to main content. IE users, please download Firefox , Chrome , or Edge. You are here Home Sales and Marketing Feature.
What is a short sale? Who do I and the seller need to talk to about the problem? What information will the bank need to decide whether to accept a short sale? What are the options besides a short sale?
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How should I price a short sale property? What and how should I disclose about the short-sale property to prospective buyers?
How to Succeed at Short Sales | Realtor Magazine
How long does it take to complete a short sale? What can the seller and I do to make a short sale more attractive to a lender? If you have questions or feel you may qualify for a short sale, please contact me for a free consultation. Understanding your options now could mean all the difference in the world. What Is My Home Worth? Our FREE service provides you with your home's current market value and suggested selling price. But to be technical, here's a more official definition: A short sale occurs when a negotiation is entered into with the homeowner's mortgage company or companies to accept less than the full balance of the loan at closing.
A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage. For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances: Financial Hardship — There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall — In other words: Insolvency — The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage. Neighborhoods Contact New Construction.