What is a short sale?
To put it simply, a short sale is an agreement of terms in which the lien-holders of a loan on a home agree to accept less than the amount that is owed from the borrower on the home, through an offer by a 3rd party buyer. The inability to pay the remaining debt is usually a result of financial hardship on the part of the homeowner, accompanied by a substantial decrease in property value. This is seen as a less detrimental alternative to letting the home be foreclosed on.
To explain it in real-world terms, it is a 3 to 12 month+ dogfight between the borrowers, the lien-holders, the buyers, and the agents to push this short sale through. People lose patience, money, hair, and sometimes their sanity during the process of working a tough short sale. However, to help a seller get out from under a mountain of debt they cannot pay and to assist a buyer in finding their perfect home, its what we do at Century 21 M&M and Turlock Homes.
Lets break it down with a very simple, common scenario. Mr. Smith has been laid off in a very tough economy where finding a new job is tough. He is very diligent but unsuccessful and has burned through his reserves and is starting to slip on his bills. Mr. Smith also bought a home using two loans to get 100% financing back in 2005, the height of the typical CA market. Mr. Smith has fallen behind on his mortgage and has little option but to try and short sale his home or let it be foreclosed on. Mr. Smith enlists the help of Adam Dalton,Turlock Homes and they list the home at a competitive price as a short sale.
At the same time we gather Mr. Smiths financials:
-Most current bank statements
-Last 2 years tax returns
-A well written letter explaining Mr. Smith's situation over the past months and a clear request to allow an attempt at a short sale. This is called a hardship letter.
-Different banks will also request other forms so be ready for that.
We also need Mr. Smith to sign a Letter of Authorization letting the lien-holders know that Mr. Smith gives Adam Dalton,Turlock Homes his permission to speak to them on his behalf in regards to the short sale. This is sent in at the beginning of the process so that when an offer comes in, the lein-holders are aware that you exist and a short sale is being attempted.
Mr. Jones has found Mr. Smith's house to be a perfect fit for him and puts in an all cash, full price offer. Mr. Smith accepts and signs off on the offer. Should be a lock, right? Nothing in a short sale is easy or guaranteed (first lesson of “Short Sale Fight Club”). Now the offer the estimated HUD, and the sellers financial packet go to the banks to be processed.
After processing, the file is, hopefully, assigned to a negotiator from each lein-holder. Now keep in mind that both liens are going to lose money, how much is the variable. Now the listing agent must get the 1st lien and the 2nd lien to agree on terms of the short sale and get the 1st(senir) lien to make an offer to the 2nd(junior) lien. If either bank refuses to sign off on terms, you do not have a successful short sale if you cannot resolve their issues. If both banks agree to the price and terms of the offer, how much money each will net from the sale, and agree to fully release the owner from financial responsibility, then you are on your way to having a successful escrow and a successful short sale.
This is a very simple and uncomplicated version of a short sale. Multiple factors exist in each step and any Realtor who doesn't learn something new from each short sale isn't doing something right. If you are considering a short sale and would like more information, please contact us here at Turlock Homes.
Adam Dalton, Realtor - Century 21 M&M and Associates
Adam C Dalton · Century 21 M&M and Associates
1351 Geer Rd Suite 103· Turlock, CA 95380
209.844.4967 · Fax: 209.840.5440 · Adalton@c21mm.com