I was in a Short Sale class last week and the teacher referred to Foreclosure as the 'F' word! I have to say I wasn't shocked at all. It IS the 'F' word! It doesn't always have to happen. Realtors that are experienced Short Sale agents may be able to help the seller stop the process. It depends on many things, but here are a few to get us started:
- How late are you? If you have a scheduled Foreclosure date... it will be difficult to get an offer in, submit it and stop the foreclosure. Call your agent as soon as you know you MAY have to be late or not make your payment.
- Do you have a hardship? A hardship is usually something like bills due to an illness, loss of employment, divorce, getting transferred or taking a new job in a new area, significant drop in income, etc. If you aren't sure, call me and we can discuss it. A hardship is NOT that you are way upside down in your house and you just want out.
- Do your bills add up to be more than you make each month? We have a worksheet you can fill out to see if you aren't sure.
- Is your current situation temporary? This means, is your inability to pay a short term thing. Like you have the flu so you had to take a week off work. Then a short sale is probably not for you.
Your agent should also ask you if you have tried to Modify your loan. This is important depending on who your loan servicer is and who is holding your mortgage insurance policy.
There are so many moving parts and details depending on if your loan is FHA, Fannie Mae, Freddie Mac or if it is conventional and not held by any of the big 3.
There are so many emotions that the seller goes through during this typically stressful time. I call it the Emotional Journey... stress, denial, guilt, resolve, and then indifference. If the seller can manage these emotions, he or she can make good decisions. Hang in there!
Let's assume a scenario: The seller has lost their job and isn't currently employed. The seller has a valid hardship. He is also 30 days late on his payment, but hasn't contacted his lender yet. Due to the unemployment his bills add up to more than he is bringing in. At this point, a short sale is a better option than letting the house foreclose and a modification is probably not likely due to the job loss. Why is it a better option? Usually the Short Sale department negotiates a settlement amount with the seller and then doesn't pursue them for the deficiency. On a Foreclosure, that is not the case. Also, your credit is hurt less by a short sale. The lenders tell me that a short sale seller will not be eligible to buy another home for 2 to 3 years and should plan on putting at least 5% down. I'm sure this will change in 3 years, but no doubt it is better than a foreclosure.
SO, as an agent I would gather all the info about this family and help them fill out the Short Sale package. The next step is to put the home up For Sale. The seller should NOT do any repairs as the home will be sold AS IS. The agent should adjust the price according to the condition and to illicit an offer with in 30 to 45 days. In my experience, if I can get an offer in in under 90 days from the first late/missed payment, I have a good chance at getting this house closed if there is a valid hardship.
Then it is a matter of follow up by the Realtor. We call every single week for as long as it takes. The seller should stay in the home until it is closed. This is important for tax consequences... which I will not go into today!
If the seller has 2 mortgages, then both will have to agree to short sale and often that is more difficult. And the second mortgage is usually not as amenable to "forgiving" the deficiency. Those are more complicated.
With all this said, I must tell you that every Short Sale is different. It depends on so many things...
The most important thing for a seller to remember is this: DON'T GIVE UP! I know you have tried your best, spent innumerable hours on the phone with the lenders call center to get no where.. I get it. But, that doesn't mean there isn't help for you. Call an experienced Short Sale agent in your area and tell them your particular situation. Don't wait until you are 90 days late. Do it today. Do it now. The more time you have, the better chance you have of avoiding the 'F' word. Short sale may not be the best option for your family, but it's important to check it out.
Most every Short Sale Realtor I know has a list of other helpers too - Bankruptcy Attorneys, Counselors, HUD Advisers, etc. Do not go it alone.