A short sale can be great for both real estate sellers and buyers. It’s a way to buy property at a steep discount or sell a property you own and need to get rid of. Many people got turned off to this process because the short sale timeline was extremely long and tortuous. But that’s all changed now. As a result, you may want to take another look at short sale opportunities.
What is a short sale?
In a short sale, the property is sold for less than is owed on it. That means in order for the deal to go through you need the bank to agree to take less than the outstanding mortgage. Historically, it took a very long time to get the final OK from the bank. It wasn’t unheard of to take 9 months or longer in order to get an answer. That’s a long time to tie up your money and property. As a result, the demand for these types of deals was lower than it otherwise could have been. For buyers, there were much easier ways to invest in real estate than going through that.
But starting November 1st 2012, Fannie Mae and Freddie Mac* consolidated, streamlined and standardized the process. Now it will be easier for banks to qualify a short sale and get it done. It will probably take a few months to get all the bugs worked out, but the short sale process will be much easier to enter into and complete.
And the news gets even better. That’s because the new rules allow some homeowners to sell their homes short even if they are current on their mortgage.
How do you start a short sale process?
Disclaimer – First I am not an attorney and you should seek expert legal advice on this process. It is involved and complicated. Also, if you are the seller, the short sale process will negatively impact your credit score. You’ll get a 1099 for the amount forgiven but probably won’t have to pay taxes on that amount thanks to the Mortgage Debt Relief Act of 2007. Make sure you understand the fallout before you get too far down the road. If you are a buyer – a short sale might be attractive but you can still lose money if you aren’t careful about where you buy property.
The most important step is to find the right real estate professional to work with. Interview a slew of real estate brokers. Of course every realtor will tell you that they can handle short sales but you need to find an expert. You want to work with someone who deals almost exclusively in this area and who has the battle scars to prove it.
Remember that this is a very unique process. You want someone who is very familiar with the paperwork and the players. It’s important that your broker has contacts at the major banks. This will help you get the deal done and uncover opportunities before they hit the overall market (if you are a buyer).
If you are the seller, ask the broker how she’s going to market your home. Some realtors pocket the listing and play monkey business with buyers. This is not good. The buyer makes a low ball offer and gives the broker a payoff for keeping the listing off the market. That artificially keeps the price of your home low and it really stinks for sellers and buyers alike. It is illegal and may result in the short sale being denied by the bank. Make sure you understand the marketing plan and verify that it is executed fully. Also, make sure you know the value of your home before you take the first step.
Once you have the right broker on your team, the remaining steps will take care of themselves. Your agent will help you create a short sale package to present to the bank. This is basically a proposal to sell your home for less than is owed explaining why it’s in the bank’s best interest to approve the request. These documents are the cornerstone of the short sale so you want to make sure your broker has a great deal of experience putting this package together.
What experience do you have with short sales? What would you do differently today? Was it worth the trouble?