Diary of a Short Sale
We've all heard the news about the housing market. Most of the negative news in the downturn of the housing market is occurring mainly in areas were there have been a housing boom which as resulted in an over abundance of supply for the market place. Simple put there are more Sellers on the market than there are Buyers. We call this market a Buyers market. In a strong Buyers market area you will also hear of foreclosure homes increasing. As a Realtor and Lost Mitigation Specialist, I have worked with clients that were on the edge of losing their homes by way of the foreclosure process.
The client said, " I need to sell my house, but I am almost sure I owe more on it that I can sell it for what can I do?"
The client had not missed any payments...yet, but it was a struggle each month and seemed like only a matter of time before they would be unable to make the mortgage payment..The seller had a first and second mortgage on the property.
As a Realtor and Loss Mitigation Specialist I usually have this conversation in reverse, the client has already missed several payments and Foreclosure is imminent.
We talked about the options, which included stopping the mortgage payments and letting the home go to foreclosure, not an option with this client, they wanted to preserver as much of their good credit as possible. Deed-in-Lieu of Foreclosure also not an option as it has about the same affect on your credit as the Foreclosure.
We agreed that a SHORT SALE- negotiating with lender(s) to take less on the property that is owed, was the best option at this time.
My client had done some preliminary investigation with the two lenders while looking for options. I was very lucky that she provided me with two very good contacts at each mortgage company.
STEPS TO A SHORT SALE:
1.The first thing I had my client do was to write a letter of authorization to lenders allowing them me to talk with them and for them to share information with me. When writing this letter it is important that the letter contain the: Property address, Loan number, Names on the account, Realtors Name, Company and Contact information.
2. The lender sent a list of information they required in order to assess the financial condition of my client. This included:
1. Financial sheet to list all debts and assets
2. Three months Bank Statements
3. Hardship letter
4. Comparative Market Analysis
5. Estimated Net sheet
All information was sent to secondary mortgage holder at the same time. My client did not want to default on the second. The secondary lender verbally agreed to allow the seller to convert the mortgage loan to an unsecured note and make payments, with some money in good faith.
3. The property was placed on the market for $132,500, which would have paid the primary mortgage, but not the second.
After several showings in 3 weeks and no offers we reduced the price to $125,000, again
several showings, no offers, the list price was reduced to $100,000. The Mortgage companies were updated every week and advised of each price change
4. An offer was accepted by the seller. A copy of the offer and a new net sheets were sent to the mortgage companies.
The primary mortgage company sent letter of approval which was copied to the second lender.
The deal is still contingent on the Secondary Mortgage Company giving written approval for their mortgage to be converted to the unsecured note.
I am calling on a daily basis, and digging for other numbers to contact to obtain the approval letter.
A Short Sale is not normally a quick transaction, but if you know ahead of time and provide the Mortgage Companies with complete information it's a smoother transaction.
Note: Be aware that IRS will consider debt forgiveness as income, except in certain circumstances, check with your account/tax professional or "Mortgage Forgiveness Debt Relief Act of 2007" when considering a short sale. There is no guarantee that a lender accepting a short sale will not legally pursue the borrower for the difference between the amount you owed and the amount you paid.