A few "Short Sale" thoughts.

OK folks, let's talk about short sales for residential property.  Unless you have been living under a rock, you have heard someone use the term "short sale" when describing a real estate transaction.  Although, that term is frequently used incorrectly, more often than not. . .the meaning (and reality) of the short sale procedure is also misunderstood.  Hopefully this will clarify some of the confusion.  First, a short sale simply means that someone is selling their home for a price that will result in net proceeds to the seller that is less than the payoff of their mortgage balance. . . .and second (but often overlooked) that person does not have the ability or resources to make up the shortfall.


WHAT?


THE MEAN MORTGAGE COMPANY ACTUALLY WANTS THE SELLER TO PAY THE DIFFERENCE IF THEY CAN?  

Yes they do.  Remember, the lender didn't buy the home. . .or loan the money with a "value" guarantee. . .they approved a loan for someone who promised to pay it back.  The closing documents did not have a clause that reads . . . . "borrowers only have to pay this money back if the value of the home does not drop"  The reality is that a bank will only consider approving a short sale for a homeowner/borrower who can prove that they are unable to pay via income, savings or other resources.  A short sale is not a "bail out" for people who own homes that have gone down in value. (or took out a 2nd mortgage for more than the value) The owner must provide written documentation of an existing hardship.  Cleverly titled as a "hardship letter". . .and written by the borrower describing their situation, it must be submitted to the bank along with tax returns, pay stubs, and financial statements disclosing all assets, before the lender will consider approving a short sale.  To make it a little more difficult, the lender will not actually consider approving a short sale unless there is a bona-fide contract/offer to purchase the home.  The home must be on the market and an offer presented.  That contract along with all of the other required documents will be collected by the listing agent who then will present the "case" to the mortgage company.  It is extremely important for someone pursuing a short sale to list their home with an agent who has the knowledge and experience in these transactions. It is a long and laborious process and even the most experienced agents run into road blocks along the way.  Mainly, because the "rules" keep changing. . . .and they are different from one lender to next.  A good "short sale" agent will know the right questions to ask and the follow-up procedures necessary to keep the process on track. 

SO . . . . . WHAT DOES THE MORTGAGE COMPANY CONSIDER WHEN EVALUATING A POSSIBLE SHORT SALE?

Great question, I am glad you asked! 

First, they want to be sure that the borrower is truly experiencing a hardship that prevents them from making payments or covering the shortfall.  Second, they want to verify that the home is selling at a "fair" price.  What we are generally seeing approved, are sale prices that will "net" the lender approximately 85% of what they deem to be "market value".  That is "net" of all costs associated with the sale.  It makes no difference on the amount. . .it is strictly based on their assessed current market value.  Take a look at it from the lender's standpoint. . .they are primarily trying to evaluate if it is better for them to foreclose and sell the home themselves, or accept the short sale amount.  One final punch in the stomach. . . .in most cases, the homeowner must be currently behind on their mortgage payments to be considered. .  . and . . . the approval (or denial) process can take as much as 6 months to complete. (sometimes more)  Most are completed more quickly than that. . .in the 2-3 month range. . . and every once in awhile we get lucky and get a response sooner than that.  I would recommend that you anticipate the 2-3 month range as most likely if you are in this situation.  I am not trying to cover all of the "in and outs" of short sales in this blog, (and the processes and procedures are constantly changing) but I wanted to clarify a few points and cover some of the highlights.  If you have any specific questions . . . or if you know someone else who might need assistance . . . please call or email me.

David Arnold
RE/MAX Greater Atlanta
David@HomerunAtlanta.com
678-784-4354