The Basics of a Short Sale in the Real Estate world
I have been receiving a lot of questions regarding what a short sale is. The essence of a short sale is defined as selling a home short of the mortgage pay off amount. This of course means that the lending bank that has interest in that property will be taking less for the home than what is owed and therefore will have the ultimate decision on whether an offer on a home that is “short” the pay off amount will be accepted or not. Typically the property owners are in financial hardship and are trying to sell their home for less than what is owed on it in order to keep from having the property foreclosed on. Many people have different philosophies to this process and what it represents.
Conducting a short sale on a property starts with a hardship, usually a financial hardship like the loss of a job. The other key dynamic is the home is worth less than what is owned on it and has “negative equity”, therefore selling it at today’s perceived value would then in return short the bank the difference between the amount owed on the mortgage and the sale price of the home.
If you think that this may be an option to avoid foreclosure, you should contact a Real Estate Professional and discuss your situation. These are confidential consultations where you bring the required documentations with you and the Real Estate Professional reviews your situation and determines if this is an option. You will need to bring two years of tax returns, two recent pay check stubs and the most recent two months of bank statements along with your mortgage information. The Real Estate Professional will have you sign a listing agreement and order a Broker Price Opinion (BPO) from someone independent of the transaction in order to determine fair market value.
You will complete documents that will grant permission for the Real Estate Professional to deal directly with the lender. The Real Estate Professional will submit a file to the bank to start the process and will be the key point of contact for the property. At the point the first payment is missed, the clock starts to tick, so time is of the essence. Getting the file packet submitted and all of the documentation completed is a high priority. The subject property is then loaded onto the Multiple Listing Service (MLS) and your home is marketed. Marketing the home is just as important now during a short as it is at any other time because you are racing that foreclosure clock and you want to have the best offer on the property. I also recommend using staging and making some minor repairs like paint to get the home sold quicker. The faster your offer comes in the quicker the bank will begin to work on your file, although there are some other techniques that can be leveraged to get your file moving as well.
Once there is an offer on the property it is submitted to the bank for approval. Understanding the numbers from this point forward is the one key to getting a short sale closed. Having a complete understanding of the financials behind a short sale versus a foreclosure is the role of the Real Estate Professional. A bank will typically approve a short sale if it is more advantages than the alternative which is a foreclosure. This is important when setting price and submitting an offer. The bank is going to take the best deal for them and if it is better to foreclose on the property they will. Keys to the negotiating include excessive holding cost, taxes, HOA dues and other key calculations.
Once the bank receives the estimated HUD1 form, which is a document used for real estate transactions, they will run the numbers against their own calculations to see what they are getting on the deal. If there are two mortgages on the home, the junior position will also need to agree on the proposed deal so it is important that all of the numbers are carefully calculated, including closing cost and commissions, on the HUD1.
What I have found is that short sales with offers don’t get closed for two reasons. First the numbers are not good for the bank. The bank is better financially to foreclose on the property than to take an offer that does not net them what they need during the short sale. The second reason is lack of escalation. Having a highly trained Real Estate Professional who deals effectively with not only the negotiation of the short sale pricing but are able to progress the case with escalation when needed and get things done at the bank. I highly recommend that you use someone who is a Certified Short Sale Professional (CSP) and knows the ins and outs of dealing with banks.
A short sale can be the answer in today’s tough economic environment but someone who is in trouble with their mortgage needs to check out their options. If you have questions about Real Estate or short sales, please give me a call.
Jason M. Jakus is a licensed realtor for Leisure American Realty, a full service Real Estate and Property Management company serving the beaches and surrounding areas of Lee County. Their office is located at 2450 Estero Blvd., Fort Myers Beach FL 33931. For more information on this or any other real estate or property management subject contact Jason at 239-463-3178 or email RealtyInfo@LeisureAmerican.com.