Short Sale: 101

The latest edition of the CAR’s bi-monthly magazine, California Real Estate, is focused entirely on understanding the short sale process.  One article in particular, “Anatomy of a Short Sale,” did an excellent job of breaking it down.  

“With nearly 1 out of every 3 homeowners nationwide owning homes that are worth less than their mortgages, the number of short sales tatewide is expected to increase as owners and banks seek a solution to the underwater market dilemma.”

Navigating a short sale  can be daunting and time-consuming process.  As a seller, the right agent–one with exceptional negotiation skills, who is overly-attentive to paperwork, and whose patience never seems to end–can make a WORLD of difference.

Experts in the short sale process advise that it would be wise for sellers to seek a Realtor with short sale training, “on the issues, options, and solutions involved in handling these transactions, which are changing from minute to minute in today’s economy.”

Step 1: Is a short sale right for you?

The 1st step in the process is determining whether or not a short sale is even the best option available.  Sellers should speak with a CPA or attorney BEFORE listing their home with an agent to determine the right course of action for their particular situation.

Step 2: Who is the lender?

The process for a conventional short sale will be different at every bank, while FHA loans will use the same guidelines every time.  Negotiating a short sale with Wells Fargo will be different from Bank of America, or Citibank.

“Sellers may also qualify for the Home Affordable Foreclosure Alternatives (HAFA) program, a government-sponsored program that sets certain standards for the short sale process and provides financial incentives to lenders that participate. Requirements, however, are numerous. If a seller does not qualify for the HAFA program, short sale terms can still be negotiated with the lender outside of HAFA.”

Step 3:  Offer and Approval

In a short sale situation, the short sale involves the seller’s lender approving a loan payoff that is less than the balance owed.  Once the seller is presented with an offer that they subsequently accept, the offer and other paperwork–i.e. documentation of the seller’s financial hardship, status of their finances–are submitted to the lender to review.

“Unfortunately, that first offer is usually a teaser…The agent is forced to do this in order to find out what offer the bank will accept. If the bank counters with a price that’s higher than the buyer can afford, the agent will have to go through the process again, resubmitting all the paperwork with a new offer.”

As a Seller:

It is up to your agent to make sure that the bank receives all of your documents for submission.  Time is of the essence, and delaying at any point could seriously impact your short sale eligibility.  Ultimately, the sooner that you contact agents regarding a short sale situation, the better your position will be.

As a Buyer:

Waiting for a decision from the bank on a short sale can take a lot of time.  It’s not uncommon for buyers to continue seeing other properties even after the contract has been entered into.  In the interest of protecting the buyer,  the standard short sale contract will have a 45-day commitment clause, which allows the buyer to walk if, after 45 days, they see other opportunities.

You can find this month’s edition of California Real Estate in full here.

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