Short Sale In many instances in our market, we are finding that homes are worth less or equal to their value of four years ago. This has cause an extreme increase in foreclosed properties and given rise to a formerly lesser used practice of the “short sale.” A short sale is not a new option by any means, I recall a period of short sale mania in Southern California in the late 80’s. It is however, become so prevalent on a national level that it is on the tip of every real estate agents tongue. With the current unfortunate market conditions, some real estate agents with little or no experience otherwise have begun the unsavory practice of taking a three hour class and promulgating themselves as Short Sale Experts or worse with no experience in closing this complicated type of transaction, conducting seminars, or simply adding a page to their web site that suggests there are certain things that must be done in order to facilitate a short sale. Be very careful with these sorts. The fact of the matter is that at least at the point of this writing, there is not Standardization among lenders as to how they deal with Loss Mitigation. Case in point, I recently was working on two short sales simultaneously. The process from start to finish couldn't be more different. One lender asked for more documentation from the seller than was required to obtain the loan in the first place. They also had a certified appraisal performed on the property. The other lender asked for one document to be signed and had a Price opinion from a local real estate agent conducted, period. There are no rules for this across the board; each of the thousands of different lenders are as individual in this as the people requesting a short sale are. The best advise I can give in looking for an agent to assist you with a “loan work-out” is to ask, “how many short sales have you closed in your real estate career.” Then, “oh really, what were the addresses of those properties?” The word experience is a derivative of expert. There is no class or newspaper article or web page that can substitute for OTJ. (on the job Training). Below is an abbreviated version of a definition of a short sale: In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation. A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located. Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second mortgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale. While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating the zero balance and settlement option on the mortgagor's credit report, or even flat refuse to do so "due to their financial loss." The Mortgage Forgiveness Debt Relief Act of 2007 When the lender decides to forgive all or a portion of your debt and accept less, the forgiven amount is considered as an income for the borrower and is liable to be taxed. However, After the signing of The Mortgage Forgiveness Debt Relief Act of 2007 by President Bush, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together and find a common solution that is beneficial to both the parties. |