Short Sale Tips for those who have a HELCO “Home Equity Line of Credit.
Home Equity Lines of Credit can be really hard to get approved on a short sale. The bank usually wants more than what the 1st lien holder is willing to give. A lot of times these 2nd liens will want the “borrower” home owner to pay cash at closing or sign a promissory note or a combination of both to approve the short sale.
Savvy Short Sale Realtors will always alert their clients of this fact when discussing their client’s short sale options. First thing to decide is if the 2nd lien is a purchase money lien, used to pay for the home, or a cash out equity line. Once determined that the 2nd lien is a HELOC, we evaluate the financial hardship of the home owner.
I personally will ask if the home owner is able to participate in the loss. Most home owners are not able to participate and truly have a considerable hardship. An experienced do all they can to mitigate any cash coming out of their client’s pockets.
I have found that the cash out is used in 1 of 3 ways or a combination of all.
If the CASH OUT WAS USED TO:
PAY OFF EXPENSES like living expenses, medical bills and or food, your Short Sale Realtor will ask for that documentation to prove to the bank that the homeowner was not just buying a new car with the money. This usually helps and the bank may not ask for more money over than what the 1st will give. When an experienced short sale realtor knows that they are working with a HELOC up front, they may negotiate with the buyer once they get the offer. Handling this scenario upfront will keep the short sale in process and approved faster than not anticipating this situation in the first place.
IMPROVE THE HOME and if that is the case, your REALTOR will provide all receipts and documentation showing the bank that the homeowner increased the value in the home or make needed repairs to keep the home in good condition.
BUY PERSONAL ITEMS like boats, cars and life style toys, as this is harder to negotiate. You have to see it from the banks perspective, if cash was taken from the property to buy personal items; banks are looking to recover as much as they can. Most of the time banks will allow 20-30 cents on the dollar which is still a good deal.
A COMBINATION of the above. If some funds were used to pay off medical bills and some used for personal items, then the bank will take that into consideration and may not require as much of a cash contribution. Remember, if the home owner shows funds in their bank statement, it will be hard to justify to the bank that the homeowner cannot afford to make any contribution at all.
An Experienced Short Sale Realtor will get their clients the best results when dealing with a HELOC. Now is not the time to work with a friend of the family who is a realtor or someone you may know who sells homes. You will want to work with someone who does and works short sale all day long. They will get the best results, resulting you less out of your pocket if anything at all. I have found the better the hardship, the better the results. If the home owner does not show much money reserves in their bank or savings accounts, then an experienced Short Sale Realtor will have better results with negotiating no money out of your pocket. short sale realtor
Take Action Now:
Talk with an experienced as soon as you know you cannot pay your mortgage.
Pull together the documents needed for the short sale. Your short sale realtor will let you know.
Find the documents needed to prove you used the cash out for anything other than personal items.