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What is a Short Sale?

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

But to be technical, here's a more official definition:

• A homeowner is 'short' when the amount owed on his/her property is higher than current market value.
• A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.

For homeowners to qualify for a short sale, they must fall into all of the following circumstances:

• Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
   

Short Sale Myths

A short sale can be an excellent solution for homeowners who must sell and owe more on their homes than they are worth. Unfortunately, a number of myths about short sales have developed, and it is important to understand the reality of this process should you find it meets your current needs.

Myth #1 – The Bank Would Rather Foreclose than Bother with a Short Sale

This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks, investors, and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.

The qualifications for a short sale include:

1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
2. Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short Sale

While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.

If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until the countdown clock to foreclosure has started and you have even less time left.

Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure

This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes.

The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.

Myth #4 – Listing My Home as a Short Sale is an Embarrassment

It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, more than one out of eight homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution.

With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.

Myth #5 – Short Sales are Impossible and Never Get Approved

This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.

For example, agents with the Certified Distressed Property Expert® (CDPE) Designation receive thousands of short sale approvals on a monthly basis. These professionals have undergone extensive training in methods to help homeowners in distress and process short sales. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process.

Myth #6 – Banks are Waiting on a Bailout and Not Accepting Short Sales

You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It is preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses.

Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.”

Myth #7 – Buyers are Not Interested in Short Sale Properties

This is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, many agents are getting calls from buyers who say they only want to look at foreclosure and short sales.

For buyers, short sales and foreclosures have become synonymous with “good deals.” More specifically, international buyers are targeting these properties. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.

In conclusion, Agents with the CDPE Designation have been trained in all aspects of the short sale process, and know how to deal with the parties involved in foreclosures. Finding a CDPE can explain what options you have, and get you on the path to recovery.
 

Pitfalls & Solutions

As a homeowner considering a short sale, it is important you understand the process. Following are some of the most common mistakes agents and homeowners make when handling a short sale.

• Your Property is Priced Incorrectly
• Your Short Sale Proposal is Incomplete
• There has been Inadequate Follow-up and Communication
• Not Enough Time
• Your Deal is Not Submitted Properly
• The Buyer’s Offer is Too Low
• The Buyer’s Contract is Not Strong Enough

1. Pitfall: Your Property is Priced Incorrectly
   This is the most common mistake made with all properties, and the most common reason a property doesn’t sell.
    
2. Solution: Agent Providing Understanding and Transparency Your real estate agent will go through a detailed listing price strategy with you, allowing you to see exactly where your property should be priced based on its current condition, sales in your area, and most importantly, how much time you have left to sell.

 

1. Pitfall: Your Short Sale Proposal is Incomplete
   This is one of the most frequently seen causes for the rejection of short sales proposals. Most agents do not understand the short sale process and what your lender will be looking for.
    
2. Solution: Understand All Aspects of the Process
   Your agent should understand the short sale process in detail and be able to explain it clearly. The agent should also be able to communicate effectively with both you and lenders to produce a complete and cohesive proposal.

 

1. Pitfall: There has been Inadequate Follow-up and Communication
   As your property goes through each stage of the short sale process, an agent can jeopardize the transaction by not properly communicating with everyone involved. As the homeowner, you may not know that your file has been delayed, and that you again may run out of time to close and avoid foreclosure.
    
2. Solution: Select an Agent With Experience
   The right agent knows exactly how to follow up to ensure that your lender’s issues are addressed in a timely manner, and will make certain you do not have unnecessary delays.

 

1. Pitfall: There Isn’t Enough Time
   It is critical that your agent understands the foreclosure laws in your area. They should be able to show you an estimated timeline for the process, from start to closing. In addition, they should know how to communicate with your lender. Certain information can be provided to lenders to postpone your foreclosure for weeks or months in order to negotiate a sale.
    
2. Solution: Provide Accurate and Useful Information
   Make sure you provide your agent accurate information as to exactly how many payments you have missed and any correspondence you have received from your lender. This will allow your agent to understand your situation and work to improve it.

 

1. Pitfall: Your Deal is Not Submitted Properly
   If you do not follow the directions you receive for submission, then you are expecting an over-worked, under-staffed department to go out of their way to handle your file. There is very little likelihood of this situation working out in your favor.
    
2. Solution: Follow Instructions Closely
   If you are instructed to fax your file, fax it and send a backup copy in the mail. If you are instructed to mail two copies, mail two copies. When you reach the point of having a contract, all your information, and a completed proposal, you do not want your deal to fall apart because no one sees it.

 

1. Pitfall: The Buyer’s Offer is Too Low
   Many agents will encourage you to submit any offer that comes in. The reality is that a short sale is not the same as a fire sale. In order to have a legitimate chance of getting your deal approved, you must have an offer that is more attractive to the lender than a foreclosure.
    
2. Solution: Proper Negotiation
   The right agent will work with you to properly negotiate any offer that you receive to get ‘highest and best’ from each potential buyer. This ensures you are presenting the best possible solution to your lender.

 

1. Pitfall: The Buyer’s Contract is Not Strong Enough
   Especially in our current economic climate, willingness to make an offer on a property does not mean that a buyer is truly qualified to purchase. The reality is that buyers need to be pre-approved for financing, closing funds must be verified, and their ability to buy needs to be confirmed.
    
2. Solution: An Agent Familiar with Qualifying Buyers
   Your agent should be familiar with what must be verified in order to qualify a buyer to submit an offer on your property. Otherwise, these offers may have little chance of closing. Don’t risk this process with an uneducated agent who does not appreciate this aspect of short sales.

In conclusion, While these pitfalls may seem troublesome, the right agent can help you navigate your way to a successful closing. Don’t endanger your financial future and the potential sale of your home with an agent who does not fully understand the process. CDPE-designated agents have completed extensive training in the short sale process, and in assisting struggling homeowners who need real solutions. They understand what you are going through, and are here to serve and help save your family’s interests.
 

CONTACT US TODAY

WE ARE HERE TO HELP!
All conversations are CONFIDENTIAL!

Please, let us try to help you stay in your home and to help keep the foreclosure off your credit report.

Some Foreclosure Facts and Misconceptions ..

• Banks lose an average of $30,000 to $40,000 on a single foreclosure.
• If your bank loses money from foreclosure they can obtain a judgment against you for the rest of their money!
• Foreclosure auctions are in the papers for three weeks. Your neighbors will know!
• Your credit can not be damaged worse than by having a foreclosure on your record.
   
• "I'm so embarrassed!"
  Don't be. There are hundreds of perfectly understandable reasons for situations changing that are beyond your control. Among the most common are divorce, injury, illness and prolonged unemployment. Eventually anyone's savings are going to run out! 
   
• "I'm behind on my mortgage and I don't know what to do about it!"
  You're not alone. Most people do not realize just how many options there are available to avoid foreclosure. There are some basic questions you have to ask yourself.
  1) Can you afford your mortgage moving forward? If the payments were slightly lower?
  2) Do you have enough money to bring your mortgage current?
  3) Do you owe more than your home is currently worth?
  
  Depending on your answers to those questions you have the following options:
  

  Repayment Plan
  The option exists to arrange a repayment plan with your lender, applying a portion of your arrearage each month for a period of time, typically between eight and fifteen months. These plans usually also consist of a good will up front payment from the borrower to cover some or all of the expenses incurred such as interest and attorney's fees.
  
  Loan Reinstatement
  Pending a review of your current financial situation your bank may "forgive" that you're not current, allow you to pay some or all of the arrearage, and reinstate your loan.
  
  Loan Modification
  Pending a review of your current financial situation your bank may be willing to "forgive" some of your arrearages, put the balance at the end of your loan, or even possibly lower your interest rate - making your monthly payments lower.
  
  Re-Finance
  Depending on your current financial situation and your credit history you may be able to qualify for a new loan. There are many options available even for people with bad credit and low credit scores.
  
  Pre-Sale / Short Sale
  Lastly, if you can not afford to make your monthly payments any longer you may need to sell your home to prevent foreclosure. This much may be obvious, but what most people don't realize is that it is usually extremely costly for banks to foreclose. If you owe more than your house is worth you still have the option to sell to prevent foreclosure. Most banks are willing to write off a loss on your loan. Why? Because on top of all of the attorneys fees, auctioneer's fees, property maintenance and clean-up costs, losses due to damage,.. and the list goes on - they're still not going to be able to sell the property for any more than you will be able to. Please read below for more information as to why it is critical to have help from someone who is familiar with this process.
  
  "I called my bank already hoping to work out something with them and they just told me to wait for the foreclosure notice!" 
  We realize that sometimes the banking industry seems like the big bad wolf, but please realize that they are in the business of making money. Even if you are trying to work with your loan servicer on a workout they cannot afford to take the risk to stop their collection / foreclosure process UNTIL the workout is complete. That being said, every servicer weve spoken with at the highest levels of management have said that they're working very hard to educate their own staff on better ways to manage their calls. The last thing they want to do is alienate their borrowers. Believe it or not, the person on the other end of the phone is human too, and they're just trying to do their job.
  
  "Don't you only make money if you sell my house. Why should I call you?"
  Yes, while it's true we only make money if we sell a house (unless we're working on a loss mitigation assignment), we would still like to try and help you stop your foreclosure. It is our hope that if we can help you out you will remember us, refer people to us, and when you're back on your feet and ready for that upgrade (or downsizing) you will call on us.

• PLEASE DON'T BE EMBARRASSED TO ASK FOR HELP. EVEN IF YOU ARE IN CONTACT WITH YOUR BANK ALREADY, IF YOU ARE HAVING TROUBLES WORKING WITH THEM I WOULD LIKE TO HELP YOU. CALL US or EMAIL US NOW FOR A FREE CONFIDENTIAL CONSULTATION.