Is your Seller a Candidate for a Short Sale?

By
Services for Real Estate Pros with Great American Title Agency

What a question to ask. Of course they are, right?

You may want to consider the following questions before making the final decision.

  • Does the seller owe more on their home than the current market will bring?
  • Is there a pre-payment penalty on one or both of the payoffs that will add a substantial amount to the bottom line?
  • Does the seller have a valid hardship for why they cannot make their monthly mortgage payments?

If the answers are yes, then you most likely have a good candidate for a short sale. Look further into the situation and you may find the following:

  • There are two loans on the property. Is the 2nd a HELOC?

If the 2nd is a HELOC keep in mind that these are the toughest kind of loans to negotiate a short sale with. Most of the time the lender will want the seller to sign a note to payback the difference owed. Don't fall into this trap! Keep negotiating, getting the lender to release the loan without that note can happen and usually does.

When you are dealing with two loans on the property you will need to look at the value of the home and determine what amount a potential buyer will bring. Remember you don't work for free so be sure to include the commissions and closing costs when estimating. Check with your escrow officer or title company to get their fees correct as well. Take into consideration whether there is an HOA and the possiblity of Liens and/or Judgments on the property. Most lenders will allow $1,000 to be paid towards these items so you may need to negotiate with the Lien and Judgement holders.  

What is the benefit to my seller in doing a short sale?

  • The home is sold and the lender is paid off.
  • There is no out of pocket cost to the seller since the lender absorbs the costs of the sale into their discounted payoff.
  • The sellers credit score is protected from a foreclosure (a foreclosure would stay with them for 10 years).
  • The seller can move forward without having to worry about their house or mortgage(s).
  • Many sellers that participate in a short sale are able to purchase another home within a year. The majority will purchase a new home within two years with no major complications.

How do I approach my seller with the possibility of a short sale?

  • Sympathetically, keep in mind how you would feel in this situation. Let them know they are not the only one in this situation. Try and make them feel better about it, remind them of the benefits.
  • Show them that they owe more on the home than the home is worth.
  • Show them the other homes in their area that have been on the market for x number of days and haven't sold due to the higher price being asked.
  • Let them know the lender may be willing to accept less that what is currently owed.
  • Let them know a short sale affects their credit much less that a Foreclosure or Deed in Lieu.

The Lender will report a short sale to their credit as "loan paid not as agreed". The most damaging part will be the amount of 30, 60, and 90 day lates they have accumulated due to missed payments prior to paying the loan off. A foreclosure will affect the sellers credit for 10 years. A Deed in Lieu has much less of an effect on their credit than a foreclosure but will still not show as a "paid" on their credit.

Once your client has agreed to the short sale get the listing and get it on the MLS as soon as possible. Be sure to check with your broker for any contingencies or addendums they may require you to include in your listing agreement or purchase contract. 

Comments (7)

Donna Lueder
Integrity Group Inc. - Boise, ID
Meridian Idaho Real Estate

Karen,

You must have been reading my mind today. I am working on a short sale today. All of the questions were answered yes. Trying to work with the banks can be difficult and time consuming. That is the hardest part.

 

Sep 10, 2007 08:30 AM
Karen Hubbard
Great American Title Agency - Gilbert, AZ
Escrow Officer

Donna,

You are very right, that is the hardest part. Hang in there it will happen. I also posted a short list of items all lenders will want in case you need it at this point.

Sep 10, 2007 08:35 AM
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate
I'm researching on behalf of one of my sellers and sending these to her. Thanks for sharing your knowledge on the subject. AR is a great place to find the info we need, from people we trust!
Sep 17, 2007 03:21 PM
David Petrovich
S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ
Even if your pre-qual indicates the homeowner to be a good short sale candidate, not every loan can offer a preforeclosure short sale as a workout option.  Before you spend a nickel's worth of time... contact the mortgagee and ask about its workout criteria for that specific loan. 
Sep 18, 2007 08:43 AM
Doug Beaver
Century 21 Olde Tyme - Corona, CA
Corona Norco Eastvale Riverside Homes
Karen, It also changes with time. My current Shortsell the second really did not want to give us the time of day. Now they call 2-3 times a week to see if we have an offer yet.
Sep 18, 2007 09:37 AM
Karen Hubbard
Great American Title Agency - Gilbert, AZ
Escrow Officer
Very good point Doug. Thanks for pointing that out.
Sep 18, 2007 09:50 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

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