It was two years ago exactly that I first heard the term “short sale.” The Metro Atlanta market was booming and expanding by leaps and bounds. The seller in this situation had lost her job and needed to sale before the home went into foreclosure. The bank was very gracious in working with her but most of us agents were swimming in unchartered waters. I had never personally met a seller that had to sell short of what they owed on the property. Our market was just too good for that.
Enter 2007 and certainly 2008 and short sales are everywhere. Banks have entire departments dedicated to nothing but loss mitigation and short sales. Short sales and bank foreclosures are becoming such the norm and offer great deals to the point that they are hurting sellers that want a “normal” return on their investment.
What exactly is a “short sale”? A short sale occurs when the net proceeds from the sale of the home are not enough to pay off the loan. In a normal arms-length transaction, the bank would require that the seller pay the difference at closing. In a short sale situation, the bank has agreed beforehand to take less than is owed on the property. Lenders agree to this arrangement because it is usually a better financial option to foreclosure.
How does this happen? One hundred percent financing, cash out refi and a slowing housing market have all contributed to sellers owing more on the home than it is worth. Couple this with other adverse situations such as job loss, divorce, death in the family, etc. and it leads to the short sale. Loosing one’s home is devastating but approaching the lender to do a “short sale” is a proactive move rather than simply allowing them to foreclose. Either way – it is emotional and many homeowners just can not face it.
How do you begin the process? First exhaust all other options. Talk to the lender’s loss mitigation department about a forbearance or a loan modification first. Perhaps you just needs a little time to get caught up. If you know that the situation is more serious, bring up the subject and ask what documentation the lender will require for the short sale. Most lenders will want a financial statement and a letter detailing the nature of the hardship. Be honest.
After you have spoken to the lender, you will have to contact a realtor experienced in short sales. Lenders will want to see that your home listed with a professional. Talk to the realtor about your situation, give them written permission to talk to the lender and allow them to negotiate on your behalf. However, stay in the loop – don’t just turn it over to the realtor. This is your credit and your life – stay involved; but let the realtor work.
Finally, take the emotion out of it. Selling the home at this point is just a transaction. The bank will not let you profit from the sale. Keep the home is “showing” condition and don’t be offended by low offers. It’s not personal.