Q. We have heard so much about “short sales.” Can you give us an overview as we are thinking we might need to sell our home and we owe more than it is worth? What should we be aware of?
A. First and most importantly BEWARE of those who profess to want to help you and ask for funds up front. This applies to both loan modifications and the short sale negotiation process. General rule: Run the other way if any agent/negotiator asks for money up front.
The good news is there is no deficiency judgment on the 1st and the 2nd. This means that whatever your lender agrees to take toward what is owed is considered payment in full, and this will be stated by your lender on their final demand statement. Typically, borrowers are delinquent on the loans when they request a short sale, but not always. We have successfully negotiated with banks for both scenarios.
Your banks(s) will request the following to consider a short sale:
- A hardship letter
- 2 months of bank statements
- Current paystubs or profit & loss if you are self-employed
- 2 years of tax returns
- An offer from a legitimate buyer (not a relative or friend attempting to bail you out of the situation, this is considered mortgage fraud)
- A listing agreement showing that the property is being marketed
An agent specializing in short sales will assist you in getting all of the information together and submitting it into the bank’s system.
The buyer’s offer will be reviewed by the bank and most often the lender will send out an appraiser(s) to verify the price being offered is reasonable. Often the bank counters at a price that is acceptable to them and gives a time limit in which to close escrow.
Once the amount due to the bank(s) is agreed upon, escrow is opened and the process resembles a normal sale from that point forward.
Your lender will typically pay all of the seller’s closing costs including the agents’ commission and back property taxes. You, as the seller, pay no fees and in many cases the banks are even offering the sellers incentive fees (we have had up to $30,000 paid) to participate in the short sale process. The time it takes to negotiate a short sale can vary from bank to bank; we have had experiences from 3 weeks to over a year. The benefit is that you are living in your home during this time frame.
The benefit to the seller is that credit is compromised for only 2-3 years versus 7 years in a foreclosure. Additionally, the closing process is done with dignity and with plenty of notice as in a normal escrow.
For more details please contact Torelli at Valerie@torellirealty.com or call 714-540-7355.