Starting Your Short Sale Process on the Right Foot

The first step in the beginning the short sale process is for you to determine and document your reasons for falling behind in your mortgage payments. Most often the hardship is due to the loss of a job, medical expenses, divorce or the sharp increase in the interest rate. Once it has been determined that you have a legitimate hardship then there are two steps that can be taken simultaneously; the first is to call the lender and the second is to call a realtor.

Calling your lender takes time and patience but is necessary to begin the short sale process. Because short sales are so prevalent, banks have entire departments dedicated to handling incoming calls from homeowners on this issue.  Once you have a bank representative on the phone, express your desire to begin the short sale process. There are so many programs that you may qualify for and I will begin to discuss each one in subsequent posts; so just know that you have options as you begin this process.

At the same time that you are calling your lender, you will need to find a realtor that has experience with short sales. Your home must be listed with a realtor in order for the bank to process your short sale request. Because short sales are a specialty area, you need to find a realtor that is experienced with the process. There is a widely recognized certification for realtors – the Certified Distressed Property Expert or CDPE – whcih means that the realtor went through intense training to understand the short sale process. Often times, realtors will team up with attorneys and allow the lawyers to process the short sale once a contract is received. In either case, ask the realtor what process they use and what are the results. You have to be very comfortable with this realtor because as you will see, they will have access to personal family documents.

At your initial meeting with the realtor, they will assemble the ‘short sale’ package.  Included in this package are the following documents:

• Hardship Letter & Supporting Documentation
• Two Years Tax Returns
• Two Months Bank Statements
• Two Months Pay Stubs
• Listing Agreement
• Homeowner’s Association Contact Information
• Last Monthly Mortgage Statement

Be prepared to sign off on the following documents at the initial meeting:

• Authorization letter – authorizing the realtor (and attorney) to discuss your account
• Financial Worksheet detailing your monthly income and expenses
• IRS form 4506T- EZ authorizing the bank to pull your tax returns on file with the IRS
• Short Sale disclosure form – detailing the issues surrounding the short sale

This can be an overwhelming process. It may seem like a lot of forms to sign and documents to bring but the lender wants to be able to evaluate your total financial picture when determining the strength of your short sale request. Also, remember the lender can refer back to your initial financial documents presented when you originally applied for the home loan as well as any refinance documents submitted at the time. Make sure you present a consistent financial picture.

The key to starting your short sale process on the right foot is twofold. First, notify your lender right away if you are falling behind or anticipate falling behind on your mortgage. Sometimes the lender will notify you if a previous program did not work and they will initiate a short sale. But don’t assume that no news is good news – they can foreclose quickly in the state of Georgia.  Second, get your documents ready for your first meeting with the realtor. Different lenders want information in various stages so you want your realtor to be prepared to hit the ground running from the first day of the listing. Don’t make them have to call and wait for you.

There are several types of short sales and I will begin to cover each one in subsequent posts. Bookmark this blog and tell others.

Do You Qualify for a Short Sale?

 

For the past few years foreclosures reigned supreme in the real estate market. As a realtor, I had to get used to the bank’ additional paperwork and timetables for closing a foreclosure transaction. Every bank was different not to mention the paperwork on the government or HUD properties. But we all learned the system and got used to the new foreclosure normal.

Now we have another ‘new normal’ – short sales. As I said in a previous post, short sales are overtaking foreclosures in the real estate marketplace. Given all of the other options for the homeowner, a short sale can actually be a ‘win-win.’  How do you know if you qualify for a short sale? It all begins with the nature of the hardship.

Your lender will want to know why you can no longer make your mortgage payment. Here is where it gets interesting… the answer can not be:   1) my house is not worth what I paid for it, 2) I no longer like the neighborhood or  3) I just want something else.  I am not making light of a very serious situation but sometimes people want to use the short sale process to dump one home and move into another. That will not work.

An example of a real hardship is as follows:

• Loss of a job
• Job relocation
• Reduction in income
• Serious medical issues
• Dramatic change in interest rate
• Death of a family member
• Divorce or separation

The lender will want to see proof of the hardship such as a divorce decree, death certificate, termination notice, medical bills, etc.  This will provide proof that you are in a very serious situation and that while you would like to continue to make your mortgage payments, you are no longer in a position to do so.  A defined hardship is the first step in researching your eligibilty for a short sale.

“Short Sales” are the New Norm

   Back in 2003, when I first got my real estate license, times were good. The prices of homes were going up, sellers were getting a great return on their investment, buyers were getting homes with ‘no money’ down and life was wonderful. But as everyone now knows, the housing bubble has burst and we are all left to pick up the pieces.

The first clear sign that the real estate market was tanking was the rash of home foreclosures. There have always been foreclosures but not in the sheer volume that we saw in 2008, 2009 and forward. In some areas of Metro Atlanta, whole communities were going under. New construction halted as we were seeing builders go out of business and their home inventory go into foreclosure.

But foreclosure is a “no-win” for everyone. The homeowner looses their homes, ruins their credit and is left to face the devastation that comes with it. Every homeowner in the community is affected by their neighbors’ foreclosure in the loss of property values and community cohesiveness. And finally, the lender looses in attorney fees, loss of value in the home, cost to resale the home and so on. The only winner that emerged in the foreclosure arena were the homebuyers with credit good enough to purchase. As with any crisis there is a silver lining and great home deals are the silver lining now.

Then along comes a different solution. What if the homeowner could sale their home prior to foreclosure and work out a settlement with their lender? Everyone knew that property values were declining so fast that virtually all homes sold today that were purchased in the last 5-10 years would sell for less than owed on the mortgage. That is the definition of a short sale. Sounds like the perfect solution… the homeowner agrees to sell the house for as much as they can reasonably get, the bank agrees to accept less for the outstanding mortgage than is actually owed and foreclosure is avoided. Everyone wins… sort of.

Not so fast.  Initially, the banks were not really on board with short sales. First of all, nobody knew what the heck they were. The banks were not staffed to handle any type of short sale volume or answer questions, Realtors were not prepared to facilitate a transaction between the homeowner and the bank and the buyers were not willing to wait until everyone figured this out.

It has taken a couple of years until everyone involved in a real estate transaction – homeowner, lender, realtor, buyer and attorney – has come to a clear understanding of how to complete a short sale transaction. All of the major banks are fully on board and many offer training to the real estate community. There are reputable companies offering comprehensive education to Realtors who want to offer short sale services to their sellers. The most recognized designation is the Certified Distressed Property Expert or CDPE.

Short sales are now the new norm and in some areas are surpassing foreclosures in volume. It can be a win-win for all parties involved but there are pitfalls for both buyer and seller. I will discuss those in subsequent posts.