Unfortunately, the number of people who owe more than their house is worth is increasing in Metro Detroit. If you are staying in your house, you don't have a pressing issue, though the new housing bill that is coming out on March 4th may provide you with some relief. More on that later when the details come out.
If you have to sell your home now, and you are upside down, there are some things you should know. Some people have the cash to bring to closing when they owe more than it they'll net at close. Most simply don't.
One option is a Short Sale. This is when the lenders agree to accept the shortfall and write it off. They may ask you to contribute as much as you can, or they may write off the entire amount. If there is a first mortgage and a second mortgage, then both lenders will need to agree to the outcome. Other liens will complicate the picture too.
You need someone experienced in short sales to help you. Chose wisely. The bank is not expecting to deal with you: they are want the package put together by a professional. In order to have any success with the bank, the transaction requires great attention to detail and follow through. Banks notoriously lose short sale packets over and over. Last summer I faxed a short sale packet to a lender at least 12 times. I called to confirm receipt. Each time I called in, nobody knew where it was... That's just the reality.
You will not be paying the Realtor's commission, or, most likely, many of the other things associated with a short sale, like tax prorations, transfer tax, etc. The bank usually pays most of those expenses.
You need to be 100% committed to the process. Short sales are not quick and easy, but with a solid plan, the pain can be reduced.
There is really nothing “short” about short sales. They usually take much longer than the typical sale, mostly because we are waiting for banks to make decisions.
Banks usually don’t tell you how much they will accept until after you have an offer. That means we start the process without knowing how it will end. It is important to have a very good grasp of the market. You need an offer to get things really started. Pricing and marketing are key. Buyers can be scared off by short sales because they don’t want to take on the uncertainty. We have to do a good job of demonstrating that we are on top of the process.
There are some things you will need to do to facilitate your short sale:
- Write a hardship letter. In your own words tell the bank why you are not able to pay the shortfall on the mortgage. Typically banks are looking for things like illness, job loss, etc, but just tell them honestly what the problem is.
- Gather your last 2 tax returns, w-2's and current bank statements and current pay stubs.
- Talk to the bank. The banks don't want your house, and they need to hear from you. You might run into some brick walls, but start the dialog. If you chose to work with us on the short sale, we will take over most of the bank discussions after we list the property. We will also keep you informed about our progress with the bank. We have to work together as a team to succeed, so it is important that you keep us informed to any changes in your status.
Short sales have generally not impacted a seller’s credit score as much as a foreclosure. You may wish to consult with a tax adviser to determine if you will have an tax consequences from a short sale. Short sales can be a great path toward avoiding foreclosure and a real relief for a strapped home owners.