A Short Sale results when the homeowner sells their property, the net proceeds are insufficient to payoff the mortgage balance, yet the mortgage company agrees to accept less than the mortgage payoff amount in order to close the sale. All Short Sales are subject to mortgage company approval and require an extensive amount of work to reach a successful outcome.
There are no guarantees a Short Sale will be approved or ever close, but when the process has been professionally handled by a Realtor familiar with short sale transactions, preferably a CDPE (Certified Distressed Property Expert), the odds of success are greatly enhanced.
A short sale is NOT the same as a foreclosure! There are major differences between the two. A foreclosure should be avoided at all costs, as it does serious, long-term damage to a person’s credit.
In addition to avoiding possible foreclosure, homeowners who have a successful short sale negotiated on their behalf are forgiven large sums of money; oftentimes without a deficiency judgment or requirement to repay!
Short Sale Complexity
Short sale transactions are highly complex. Real estate agents are expected to follow a myriad of specific guidelines incorporated by the mortgage company, as well as by the investor(s) of the mortgage notes. Each mortgage company is different and has their own rules, which of course adds complication and challenges ones understanding of the process. A particular mortgage note could be owned by several investors in different parts of the world, thus requiring multiple negotiations with respect to what each investor will accept as a loan payoff. When a seller has a second or third mortgage on their house, the level of complexity increases almost exponentially and the likelihood of a successful short sale diminishes.
These complex negotiations with the investor(s) and the mortgage companies do not commence until after the real estate agent has negotiated a sale with a buyer for the seller’s house. Finding the buyer is the easy part (relatively speaking). Following the lender and investor guidelines, then successfully negotiating the short sale with multiple parties and closing the deal is the tough part. The average real estate agent has not been trained in the complexities of a short sale and is the reason they close on such a low percentage of attempted short sales.
Sellers experiencing any type of hardship today (i.e. loss of job, death in family, reduction of income, divorce, separation, illness, transfer, too many bills) may qualify for a short sale of their home, even if they are current on their mortgage payments.
The latest Obama plan designed to help homeowners stay in their homes by modifying their mortgages and avoiding foreclosure has made some progress over the past two months. The program is called “Making Home Affordable” and has a price tag of $75 billion.
While some 50,000 homeowners have been offered lower-cost mortgages through the program, lenders have not been able to implement the proposed benefits to homeowners as hoped for. The main reason for this is that the demand for loan modifications has lenders swamped and not fully trained to process the applications. As a result, there is growing concern as to whether the plan will be able to reach its goal of helping 4 million distressed homeowners.
Theoretically the plan makes great sense, but practically speaking it has been very difficult to implement. This is leaving numerous homeowners frustrated. Some homeowners have described the process as, “A comedy of errors.”
Basically speaking, the loan modification program will pay lenders to reduce borrower’s payments by lowering their interest rates and extending the term of the mortgage. Nearly 55,000 homeowners have been offered loan modifications to date and an additional 20,000 have already accepted the new terms of a modified loan.
In some locations around the country, court orders have been obtained to stop the foreclosure process; hoping that the additional time will allow more loan modifications to be processed.
The U.S. Treasury Department is also working on plans that will inject another $10 billion towards an insurance plan that will protect lenders from losses tied to falling home prices. Additionally, the Treasury Department will soon unveil plans to offer lenders incentives to participate in “short sales” of homes; a means of working with owners who choose to sell their homes when they are underwater on the mortgage. Approximately 75 percent of the major lenders have agreed to participate in these proposed governmental programs.
The results of the “Making Home Affordable” program, while a far cry from what is needed, contrasts sharply with the miserably failed “Hope for Homeowners” governmental program that was launched last October, whereby only a single homeowners was helped.
Another program offered last year by the government called “FHASecure”, had only helped 4000 targeted sub-prime borrowers before the program was allowed to expire at the end of 2008.
With millions of home mortgages in some form of distress, the greatest concern seems to be over the homeowners who are underwater; a situation where the borrower owes more on their mortgage than what the home is worth. Currently there is a governmental program targeted to help these borrowers by allowing them to refinance their home if they have little or no equity, providing they have a loan backed by Fannie Mae or Freddie Mac. Thousands have already refinanced under this program, but since the program is limited to borrowers who owe no more than 105 percent of the value of their home and since values have continued to decline, fewer borrowers are able to qualify for this program as time goes on. As of May 2009, it is estimated that 1 million homeowners with Fannie or Freddie backed loans are too far underwater to qualify for the program.
All the governmental programs to date are designed to lower monthly payments, but not loan balances. Home values are expected their continued decline for the balance of 2009, pushing more homeowners underwater and putting more at risk of foreclosure.
If you or someone you know is challenged with their current mortgage payment(s), or is jeopardy of a possible foreclosure, contact me at my office (952) 431-3900 to confidentially discuss options and possible solutions including loan modification and/or short sale. You are not alone.
Numerous homeowners are finding it difficult to afford their house payments today for any number of reasons. Some are faced with job losses, others with medical emergencies and many are simply affected by the economic downturn of the global recession. The financial strain is being felt by just about everyone in society.
As a result of these financial times, many homeowners are thinking about selling their home and downsizing in order to create a more affordable lifestyle. The drop in real estate values however has made it impossible for many would-be sellers to be able to sell their home because they now find themselves upside down with negative equity.
Negative Equity
Negative equity results when the value of a piece of real estate is less than the amount of the mortgage(s) owed against that piece of real estate. Homeowners who bought their homes recently (i.e. 2003 to 2007) have been hit the hardest, since they purchased near the top of the market. In addition, homeowners that refinanced during this same period of time and borrowed the maximum of what their home appraised for are now finding themselves in the same negative equity position.
Options
If you are a homeowner with negative equity, or are financially challenged and need to lower your monthly housing obligation, there are options available to you now.
Loan Modification
Loan Modification is one such option; an option that could allow you to remain in your current home, but with a lower monthly cost. There are strict requirements to receive a loan modification, but if met, you could receive a modification of your current interest rate, monthly payment and possibly the unpaid balance of your mortgage.
Short Sale
A Short Sale of your home is another option. Put simply, in a short sale, the seller lists their home for sale with a real estate broker. When an offer is received and negotiated to the satisfaction of the seller, it is then forwarded on to the mortgage company for approval. If the short sale is approved, the mortgage company will accept less at closing than what the homeowner owes them on the mortgage.
Will I Qualify for either a Loan Modification or Short Sale?
If you are experiencing a legitimate hardship, it is very likely you will qualify for one or both of these options. Surprisingly however, many homeowners will fail to benefit from one of these options because the mortgage company’s guidelines are not followed or understood by the real estate representative(s) handling the transaction. The process of getting a loan modification or short sale accepted is complicated at best and roughly 20% of the requests are accepted by the mortgage company.
A homeowner seeking to obtain a loan modification or a short sale should seek out a CDPE (Certified Distressed Property Expert), as well as an attorney that is familiar with these processes. As of April 2009, there were less than 4000 Realtors in the United States (among 1.1 million) that had been trained and had received a CDPE designation. Real estate agents who had earned their CDPE designation were getting an amazing 80% of their short sales approved by the mortgage company.
If you are behind or upside down on your mortgage, can no longer afford the current house payments, or are experiencing a hardship and would like to get out from under the mortgage, we can help. You are not alone. There are options that would include a possible loan modification or short sale.
We can help most families avoid foreclosure and save their credit! We have helped many families in similar situations. View our testimonies and then contact our office today at (952) 431-3900 for a confidential discussion.
Numerous homeowners are finding it difficult to afford their house payments today for any number of reasons. Some are faced with job losses, others with medical emergencies and many are simply affected by the economic downturn of the global recession. The financial strain is being felt by just about everyone in society.
Before we can define what a Certified Distressed Property Expert is, we need to define what a “distressed property” is. A property can become distressed for a variety of reasons, but the most common is a foreclosure. In reality, any situation that has caused a property owner to have difficulty making mortgage payments or even selling the property is said to be in a distressed state. Simply put, any property which has the potential for a foreclosure is termed to be “distressed”.
Now that we have defined a distressed property, what is a Certified Distressed Property Expert (CDPE)? This is not only a designation earned by a licensed Realtor, but it is also an acronym that signals to the public that the person displaying it has gone through extensive training to assist property owners who are in distress; with the goal of helping families avoid foreclosure. This can be done by negotiating mortgage terms, helping to negotiate a refinance or most commonly, by helping the property owner get out from under the financial burden by selling the property.
Today, far less than 1% of Realtors nationwide have the CDPE training, skill and knowledge to successfully negotiate a short sale. In fact, as of April 2009, there were less than 4000 Realtors in the U.S. out of 1.1 million that had obtained the CDPE certification to enhance their ability to successfully negotiate and close a short sale. To learn more about Short Sales, Avoiding Foreclosure, the skills of a CDPE and purchasing real estate at incredible prices today, visit www.QualifiedShortSales.com
If the value of a property – less the costs of selling the property – falls below what the homeowner owes the mortgage company, the property is said to be “short”. If the homeowner wishes to sell, but does not have the cash to cover this shortage at closing, then the property could still close providing the mortgage company, or companies, are willing to negotiate a “Short Sale”.
Short sale scenarios have become quite common today, but successful negotiations to close them have not. In fact, only 20% of the short sales submitted to lenders for approval (by Realtors) actually close, while those submitted by a Realtor holding the CDPE designation close over 80% of the time!
Short sale transactions are very time-consuming and challenging. They require extensive up-front preparation with the seller, myriads of paperwork, detailed analysis, diligent follow-up and effective negotiation. When successful, the rewards can be huge – to the seller, the buyer and the lender!
The Process in a Short Sale
The goal in a short sale is to accomplish a successful closing, while creating a win-win for all parties involved. This begins with an accurate assessment of the seller’s circumstances to determine whether a short sale is probable; and if it is, the property can then be placed on the market for sale.
The property should be listed at fair market value and adjusted as needed in order to attract an offer. Once the buyer is found and an offer successfully negotiated with the seller, the purchase agreement is forwarded to the lender along with a substantial amount of financial documentation that supports the seller’s hardship, as well as market data that supports the sales price of the property.
It is the Realtor’s job to present the detailed documentation to the lender, point out the advantages to the lender of accepting the short sale and facilitate additional negotiations on price and terms among the various parties until an agreement is reached. Effectively and accurately completing this process is absolutely critical. If any of these requirements are not met, or are incomplete, the file is generally not processed or is denied.
Oftentimes a seller has more than one mortgage against the property. When this is the case, the negotiations, complexity and documentation increases almost exponentially.
Not only does the lender(s) need to be persuaded to accept the short sale, but so does the investor(s) that invested in the mortgage note(s). A great real estate agent familiar with only sales and marketing, but not the complexity of a short sale transaction, is not likely to close a short sale on behalf of a homeowner seeking mortgage relief and avoidance of foreclosure.
In addition to the negotiations with the lender(s) and investor(s), skill and effective communication is required by the Realtor to keep the transaction together during the time it takes to complete these negotiations, as buyers get frustrated waiting for the lender(s) and/or investor(s) to provide a response to their offer on the property.
With numerous negotiations taking place simultaneously, it is easy to understand why so few short sales actually close.
Today, less than 1% of Realtors nationally possess the CDPE training, skill and knowledge to successfully negotiate a short sale. In fact, as of April 2009, less than 4000 Realtors out of the 1.1 million in the U.S. had obtained the CDPE certification to enhance their ability to successfully negotiate and close a short sale.
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Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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