As the number of Americans facing economic hardship and foreclosure increases, so does the number of short sales listed on the Real Estate market. Basically defined, a short sale occurs when a lender agrees to the sale of a property at a price that is lower than the amount outstanding on the mortgage. Under normal circumstances, the Seller would be responsible for bringing cash to closing to cover the balance due to the lender. In a short sale situation, the Seller “zeroes out” and brings nothing to closing. The deficiency, or difference between the sold price and outstanding balance on the mortgage, is either waived or pursued through a judgment against the borrower.
While the nature of a short sale may sound simple, the actual process is labor intensive and many conditions must be met before a lender will approve the transaction. As a Certified Distressed Property Expert (CDPE), I receive a lot of inquiries about how short sales work, who qualifies for a short sale and what ultimately determines whether or not a short sale will succeed.
Statistically, of all short sales listed, only 15-25% will actually close. So, why do so many short sales fail? In my opinion, there are a few key factors that can make or break a short sale:
SELLER QUALIFICATION - Not every homeowner qualifies for a short sale. In order to qualify for a short sale, the property owner must be able to demonstrate a significant hardship that makes it impossible for them to satisfy their obligations to the lender. Owing more than the property is currently worth is not considered a hardship. A few examples of legitimate hardship include: death, disease, divorce and job loss. The hardship must be documented and verifiable.
FAILURE TO DISCLOSE - The short sale process requires an audit of the homeowner’s finances. As part of a short sale package, the homeowner must provide tax returns, pay stubs, bank statements and disclose all assets. Some homeowners make the mistake of withholding some of this information in hope of strengthening their hardship case. This is a terrible tactic. Once the bank discovers that you have been hiding assets and information (and they will) your short sale will be denied and the bank will pursue foreclosure on your property with enthusiasm. Always be honest when dealing with the bank.
BUYER CANCELLATION - Don’t let the name fool you, short sales are anything but. In fact, the entire process can take weeks if not months. It is not uncommon for short sales to close 3-4 months or longer after the contract is executed. Many buyers don’t understand this when they submit their offer and end up terminating the contract so they can move on to another property. Short sales aren’t recommended for buyers who need to move by a specific date or have other time-sensitive needs.
REALTOR COMPETENCE - Hiring the right Realtor is critical when attempting a short sale. In fact, this may be the single most important factor for success. Short sales are time intensive, stressful, complicated transactions. At minimum, your Realtor should meet the following criteria:
-Hold current knowledge and experience working with short sales. They should have a history of at least a couple successful short sales OR work in tandem with a partner or team that does. Formal training with or without a designation is recommended.
-Maintain their Real Estate practice FULL TIME. Agents with short sale listings need to be available during business hours. They should also have a fully functional office with a computer, fax, scanner and copier.
-Be attentive and efficient. The agent you hire should answer their phone or return missed calls within 3 hours. The agent should be willing to take the time necessary to answer all of your questions and address all of your concerns.
-Have above average knowledge and experience in marketing Real Estate. The marketing program for a short sale should be 2-3 times more robust than plans used for conventional listings.
-Have above average knowledge of market analysis methods. To effectively negotiate with the bank, accurate and compelling market data will be required.
The listing agent is responsible for submitting the 100+ pages of documentation to the bank for consideration. Hire an agent with expertise, confidence and ambition.
There is never any guarantee that a lender will accept a short sale offer. Avoiding the most common mistakes will, however, give you a good head start towards success. While short sales are complicated, time consuming transactions, they can be an excellent alternative to foreclosure.
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Are you or someone you love facing foreclosure? Considering a short sale on your property? As a Certified Distressed Property Expert (CDPE), I can offer hope and help. Call me at 305.851.5910 for a confidential, no obligation consultation.
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