2010 Update on Short Sales / With Review Part 1

SHORT SALES FOR THE REALTOR

PART 1 Getting Familiar With Short Sales:

This first section of the series describes the basic definition of a short sale, the motivations of the Seller and Lender in negotiating a short sale and the basic steps that need to be taken when a Realtor works with a Seller who needs to accept offers that are lower than the amount necessary to transfer the Seller’s property free and clear of all liens and costs ---- The updated portion of this section is the identifying the lemons!

SHORT SALES DEFINED

Short sales are sales in which the total amount owed by a Seller (including adjustments and costs of transfer) total an amount that is greater than the price for which a property may be sold. Typically a Seller who finds herself in the position of selling for less than what is owed will attempt to negotiate with the creditor who is owed the most upon sale - this is usually the Seller’s lender (i.e., the mortgage). Seller will attempt to lessen the obligation necessary to pay the lender in full in order to allow the sale to go through. Although it is the cumulative effect of all of the liens, costs and transfer fees that make a sale “short”, we are usually talking about larger numbers when referring to a particular transaction as a “short sale” and therefore it is the negotiations between Seller and Seller’s Lender(s) that are at the crux of short sales.

It is the negotiation between the Seller and the Seller’s Lender that this series will focus on with particular attention paid to the interaction between the Seller, Realtor and the Real Estate Attorney. Although Short Sale Transactions have become easier in some respects, short sales are still time consuming, resource hogging, stressful transactions that can be a real gamble for the real estate professional who dares to accept the challenge of listing a short sale property. It is only through preparation and good communication that these transactions can reach happy results for all parties involved.

WHY IS THE SELLER LISTING THEIR PROPERTY WHEN THEY WILL BE SHORT?

First off, many times the Seller is unsure of whether or not their sale will be a “short sale”. There are entire categories of Sellers who need to sell quickly for a variety of reasons e.g. to relocate for a job, marriage, school, death of a spouse, or other family obligations, requiring them to sell quickly regardless of the consequences. Therefore, it is critical that the realtor takes the time to review all of the Seller’s obligations and costs that will effect the sale of the Seller’s real estate when listing the property. In the next section of this series I will go into great detail concerning gathering the information , but for now suffice to say, it is important to take great care when the numbers are “close” to properly determine whether or not the sale will be short.

In the majority of cases, however, it is the Seller’s inability to pay their current mortgage obligations and Seller’s lender’s foreclosure efforts that bring the Seller’s “short sale” listing to the realtor. Sellers may have already run through some of the alternatives discussed below before seeking your assistance as a Realtor to list the short sale property. Time may be a critical factor in listing the property, selling the property and negotiating with the Seller’s Lender before an auction date. This is why a quick and thorough evaluation of the Seller’s debts and costs of closing is necessary and why preparation for and knowledge of the negotiation process with Seller’s Lender are important.

CALCULATING HOW SHORT YOUR SALE IS:

The non-mortgage costs of a sale are as follows:

Mortgage and Lien Payoffs: These are the payoffs for the mortgage, equity lines and any other liens that you may have on your home. When reviewing these numbers keep in mind that the interest is always running and that making a payment will not reduce your balance by the entire payment.

Tax Stamps: Tax stamps are a Seller fee that is collected at the registry of deeds at the time of recording. Tax stamps are calculated at $4.56 per $1,000 of the consideration listed on the deed. A deed for $100,000 would require tax stamps of $456.

Overnight Fees: Every mortgage and lien must be paid to the day (remember that interest is running) and such payments will be mailed overnight to the creditor. Overnight fees average $20 each.

Discharge Recording: Seller must pay the cost of recording discharges for all mortgages and liens that are on record. This is a one page document from the creditor that indicates a debt is satisfied and removes the lien. Each discharge or release costs $75 to record.

Discharge Tracking: In Massachusetts it is common for the Buyer's attorney to charge $75 per mortgage or lien to track the discharge or release in order to insure that the title is cleared.

Adjustments: Taxes, water and sewer, trash, condo, homeowner's association, fuel and other miscellaneous municipal charges as may apply are all adjusted to the day of the closing. In short sales these costs can be very high! It is VERY IMPORTANT to ascertain what these costs are so that they can be presented to the lender for payoff.

ADVANCED STRATEGY: With adjustments, if you have an idea of what the water, sewer, condo fees, etc are, you can negotiate the price with Buyer agreeing to pay these costs.  This way if the lender refuses to pay the costs, your short sale can still proceed!

IDENTIFYING LEMONS: A really good practice for Realtors is to develop a relationship with a Real Estate Attorney who is willing to assist you in screening short sales. If there are multiple lien holders beyond a typical 1st and 2nd mortgage, the likelihood of success will be greatly diminished.  These are the transactions that you should walk away from.

Nyles Courchesne is an attorney specializing in real estate for the past 15 years. He is a partner with the law offices of Peskin, Courchesne & Allen, P.C., located at 101 State Street, Suite 301, Springfield, MA 01103 - ph. 413.734.1002 - fax 413.734.1002 email: nlc@pcalaw.net and on the web: www.pcalaw.net

Disclaimer: In accordance with rules established by the Supreme Judicial Court of Massachusetts, this web site / blog must be labeled "advertising." It is designed to provide general information for clients, prospective clients and friends of mine and my law firm and should not be construed as legal advice, or legal opinion on any specific facts or circumstances. This web site / blog is designed for general information only. The information presented at this site / blog should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.