DATELINE SANTA FE

Short Sales

Selling Short

While foreclosures seems to be on the decline, many experts agree that short sales are on the rise and will be with us for another two to four years. A short sale is a transaction in which the selling price of the property is not enough to satisfy the mortgages held against it. Approximately one out of every five transactions is a short sale and as the economy continues to flounder and home prices struggle, more and more may find this avenue the only way out of hard times. If you are struggling economically and have wondered about this option, here is what you need to know.

You do not need to be behind in your mortgage payments to do a short sale. In fact, it would be better for your credit score to avoid the derogatory ratings created by the default prior to foreclosure. A short sale will affect your credit but not as badly as a foreclosure. The banks will require documentation from you to justify the short sale process. You will need a “hardship letter” that explains succinctly your economic circumstances. You will need to provide two years of tax returns, 3 months of checking account statements, your last 2 months of paycheck stubs, and a financial worksheet. Most banks will not try to pursue the difference if they realize that you just don’t have the money.

Short sales do take time to facilitate but the systems have improved. Two years ago, these sales took easily over six months to close. Nowadays, closings have occurred in as little as 45 days. Obviously, working with a broker who is familiar with the process helps a great deal. Having all your paperwork in order will also speed up the process. Larger banks often use an intermediary called Equator. This company is web based and allows your Realtor to upload and manage all files relating to your transaction in one cohesive place. They in turn negotiate with the bank who in turn must negotiate with Fannie Mae, Freddie Mac, or investor groups since few banks actually hold the notes on the loans they service.

If you have two or more mortgages on your property, the duration of the process will take longer. You will need the 2nd lien holder to accept far less than what is owed to release the secondary lien. In many circumstances, it is this 2nd lien holder who makes things tough when asked to give up their say, $50,000 second mortgage for $2,000. In a foreclosure, the primary lien holder can wash away a second so that is the worst-case scenario for them. Still, it is dealing with those tricky seconds that make the short sales difficult.

If you are considering a short sale, hire a Realtor familiar with the process because it is detailed and requires skill. Next, get all your financial paperwork ready to be submitted to the bank. Once a reasonable offer comes in and paperwork has been submitted, the bank will order a property valuation. If the offer is above 91%, of the current evaluation, in most cases the banks will allow the transaction to continue. Based on your financials, they may stipulate you bring some cash to closing. This could range from $1500 to $10,000 dollars. Be sure your purchase contract has language for you to back out of a transaction if the bank requires cash at closing or a promissory note for the difference if you are unable to accept those terms.

Remember, these transactions must be arm’s length meaning that a family member, neighbor, or friend is not allowed to purchase your home. In many cases, these sales are a necessary way out for folks who are experiencing economic hardship. Buyers can take advantage of homes sold for less than market value with patience and persistence. While these transactions are difficult, they can be a win-win for all parties involved.

September 23, 2011 Posted by Carson & Carson | Realtor 121 | distressed sales, foreclosures, Santa Fe, short sales | Leave a Comment