Short Sales
The following are some highlights from our experience with short sales; this is not a guarantee of what you will experience since this is not a one size fits all subject which can vary from lender to lender. I do hope that an insight from my perspective will aid you in experiencing a successful short sale if one happens your way.
What is a short sale?
This is when a seller does not have enough sale proceeds to pay the existing mortgage(s) and all of the closing costs incurred with a transaction. The seller will ask his/her existing lender(s) if they would agree to accept less money than what is due for a FULL release so that the deal can proceed to close.
Some things that need to be considered when this term comes up in a transaction are as follow:
- There is no guarantee that the lender will agree to this, so from a listing perspective, a seller may do a lot of work only to have it fall apart at the last second. From a buyer perspective, the buyer may incur cost for appraisals, inspections, etc. and still not be able to purchase.
- Most of the short sales that I have experienced require the seller to make the initial request to their respective lenders. Most of the time it is required in writing and the lender will provide a seller with a laundry list of items that they need to provide such as appraisals, financial records, copy of the purchase contract, and estimated HUD.
- The estimated closing statement must reflect all the changes and be as accurate as possible; it is not always easy to get a lender to say that they will accept the net sale proceeds. Often times the lenders demand will say that they will accept no less than a specified dollar amount and it is usually what is on the closing statement.
- The lender may put restrictions on the amount of commission that can be charged. They may also come back and not allow any credits and/or repairs to be done. If this is the case then these items will have to be removed or handled outside of escrow, which in most cases would make the buyer responsible for these items.
- The process for a short sale approval can take as much as 45-60 days to complete. In addition, the proceeds need to be delivered according to the specifications of the lender – they accept no deviations! This can also add to the time crunch.
- Once a closing date has been set it must be met – to get approval for an extension is a long drawn out process, and in the mean time the foreclosure date could occur.
- Once the short sale has been agreed upon by the lender and the seller, escrow must have written demand for the amount they will accept and it should state that a full release will be issued upon payment.
- A request to a lender for a short sale does not automatically stop any foreclosure proceedings, that is a separate matter that the seller or his agent need to deal with.
- The seller also needs to know that even if a short sale is approved and the debt released – it still may have a negative impact on his credit. A lender may report to the credit bureau that the loan was paid in full for less than the full balance. The lender will also issue a 1099 to the seller on the loss amount.
- If there is a first and second mortgage the first lender does not have to work with the second lender.
- You do not have to be in default to apply for a short sale. Every hardship is looked upon differently.
Other Articles and Resources
http://www.mtgfoundation.com/2007/07/arizona-mortgage-holders-turn-to-short-sales.html
http://www.surpriseazhomesource.com/resource_pages/sellers_How-to-Avoid-Foreclosure5795860.asp
http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html
