Real Estate Short Sales

Real Estate Short Sales:

Definition:

The definition of a real estate short sale is basically the sale of a house in which the proceeds fall short of what the homeowner still owes on the 1^st and/or 2^nd mortgages.

Many lenders in the country should and will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage loans. Assuming the homeowner cannot make the mortgage payments. In the event the lender will accept a short sale they can avoid a long, lengthy and costly foreclosure.

The homeowner has some final options:

Despite the short sale

1: Deed in Lieu of foreclosure:

  This method offers several advantages to both borrowers and lenders. There is a deed instrument whereby a mortgagor (borrower) conveys all interest in the property to the mortgagee (lender) in order to satisfy a loan that is in default. The homeowner also avoids the public notice of a foreclosure proceeding and may receive additional generous terms, especially in a formal foreclosure.  To be considered in a deed in lieu of foreclosure, the debt must be secured by the real estate; both sides must enter the transaction voluntarily and in good faith.

The settlement agreement must have consideration.

Also must be equal to fair market value. The lender probably will might not proceed with a deed in lieu if the debt of the borrower exceeds the fair market value.

2. Workout with the Servicer: More on this later

3. Last Resort: 

Homeowner files bankruptcy which is the legal declared inability or ability of individuals or organizations to pay their creditors.

Creditors can file a petition against the debtor in an attempt to recapture a portion of what is owed to them.

As a majority, the initiation of a bankruptcy is by the homeowner/debtor.           The four chapters of bankruptcy with the most common first are: 7, 13, 12, 11.

Short Sales Continued:

Many homeowners on the verge of foreclosure tend to be embarrassed and/or procrastinate. For Realtors, try and determine this pattern early on and communicate that a possible positive outcome can be reached. Make sure to list the property at fair market value in the property's current condition and if you receive no offers, within seven to ten days, lower the listing price according to your market.

 For Realtors:

When pricing the property for sale, list it at fair market value in the property's "As Is" condition. To determine a favorable listing price, run your comparative market analysis (CMA), summarize the estimated repair costs and adjust your calculation accordingly. Document the condition of the property for the justification of your listing price and forward this information with the listing agreement to the Real Estate Department.

  Make sure, you get the listing contract signed from the Seller, with the listing price filled in. Acknowledge in the remarks section on your contract, the seller's property disclosure statement and the multiple listing information sheet, as well as in Seller and Buyer Disclosures or addendums that this transaction is "Subject to third party approval".

  If the property is priced correctly, this should generate multiple offers. The Servicer should be more motivated to negotiate with you if they receive legitimate offers to purchase. Then they will consider postponement of the foreclosure date.

Verify with the homeowner if there is a foreclosure date scheduled or if they received a notice of default or complaint. Also check county records and your courthouse to see if there a notice of public sale posted. Review your state statues and time frames regarding the foreclosure process in your area.

The foreclosure process will continue while the property is listed and even during negotiations of a short sale. Ask for a postponement of the foreclosure sale if a legitimate offer is pending. Do not assume the negotiator is aware of the pending foreclosure sale. Very Important: There are some attorneys who will negotiate right with the bank and they can possibly negotiate their fee as well. Don't short sell the Homeowner because their might be some legal ramifications.

  ALSO IMPORTANT QUESTION:

  WILL HOMEOWNERS STILL OWE ANY MONEY AFTER THE FORECLOSURE OR SHORT SALE?

The homeowners may still owe the difference between the mortgage balance and the sale amount.  This is called a "deficiency judgment."  If granted, this judgment will affect the homeowners and their credit report just as any other judgment.

You need to ask the bank to accept "payment in full without pursuit of any deficiency judgment, and even a 1099".  But the lender does not have to grant your request. 

Hopefully the lenders will not pursue the deficiency judgment; they will just 1099 the homeowner. The Homeowners need to understand that the difference between the mortgage balance and the final sale price may be declared as ordinary income on their income tax return by means of a "1099."

Homeowners should be advised to contact a local tax advisor for more details.  Make sure disclosures are provided to the homeowners Do not give any legal or tax advice.

There is much more information we need to learn on this subject as our US economy and the mortgage industry has many homeowners (upside down) and in the process of losing their home.

For more information on this blog: e mail:  markb@topproducer.com

Unless you have been involved in the short sales, there are numerous hours of work and time devoted for real estate professionals.  Also there are few Real Estate agents who have the experience, knowledge and skills to successfully help the homeowner complete a short sale.