Preparing For A Short Sale

This past week, we had three appointments with sellers looking to sell their home for less than what they owed.  Each situation was unique - one involved a family being transferred out of the area, another a job loss, and the third was simply living in a home that was too small for the addition to the family that was coming.  Short Sales come in all shapes and sizes.  But the interesting aspect of each appointment was the expectations of the individual sellers.  I have listed some interesting points that developed from these conversations and many others that we have had over the past couple months that you need to understand if you are facing the possibility of a short sale:

Assets vs. Liabilities: Not being able to make your mortgage payment due to a job loss is scary.  At first glance, it seems like no issue to contact the bank and have them accept a shortage rather than foreclosing on the property.  However, if you are showing a surplus in assets...such as significant stock holdings, cash on hand, or even another home that is paid in full...the bank looks at those as resources to pay the loan.  Even in a situation where you do not have enough to cover the amount owed, the bank will look at cash on hand as a way to make ends meet until you are able to secure employment.  I am not defending the banks, but please do not think it will be a cake walk if you are showing a significant positive in your assets over your liabilities.

Foreclosure is not a positive option:  A short sale is a lot of work...but the damage a foreclosure does to your credit and psyche is far worse than the effort to try and sell your home short.  A foreclosure can cause you to lose your job if you are required to hold a security clearance, and now more employers are checking credit history's during the hiring process.  Also, on any future credit application, you will have to answer questions relating to a foreclosure.  A short sale can avoid all the headaches down the road that may not seem too important right now.

Sometimes, you have to miss a payment:  There are two schools of thought when it comes to paying the mortgage on a short sale property.  One side of the equation says that you should never throw good money at bad money.  The other says that if you stop making the payment then the foreclosure process starts and the deadline for resolving the problem shortens.  If you have to miss a payment to keep afloat, then you have to miss a payment.  The goal is to sell the home and the reason is because the mortgage can not be paid anymore.  Do not waste money trying to save a sinking ship when the co-captain is not offering any assistance!

Market The Home To Be Sold:  The latest short sale listing we put on the market last Friday is awesome.  The owners worked very hard to get the home to look spotless.  Their extra efforts mean that their home shows extremely well compared to other short sale properties in the area.  It is important to make the buyer feel at ease during the process.  You also need to have a full marketing effort from your agent.  This means that they have to spend money...even though they may not end up with a closed transaction.

Document Everything:  Be upfront and honest - the bank will follow the paper trail!  The big boy word for this is Fraud - lying to the bank will cause the transaction to fall apart, and open yourself up to prosecution down the road.  Your agents responsibility up front is to outline what you will need to present your case to the bank.  If they do not have a detailed packet, find a new agent.  There should be about 30-40 pages that will be sent off to the bank - that gives you an idea of what you should expect from your agent.

Exhaust every option first:  Being transferred to another area is one type of short sale that is hard on a family.  Your still employed, showing good incomes, but the home you are leaving is like a 50 lb weight hanging around your neck.  Part of your short sale package should be a section on renting the property out and if that will still present a shortage.  The bank will want to see that every effort has been made to find the best solution possible.  It is your agents responsibility to make sure that due diligence is handled and that the bank understands this.

Short Sales are going to be the future of the real estate market for the next couple of years.  This has nothing to do with the economy, or even the sub prime lending issues of the past.  People will still need to move, and buyers will still be looking for homes.  The most important action you can take is to make sure that your family is mentally prepared for the journey, and that your agent is professionally prepared to get the job done.

Jimmy Mulhern

Http://www.HowToAvoidForeclosureInVirginia.com

Http://www.HomesInVirginia.net