If you are reading this then you probably already have heard the term "short sale" and are interested in knowing what to expect selling a house short of what is owed or what to expect when putting an offer on a home listed as a short sale. For those of you who do not know what a short sale is I will give a brief definition. A short sale is when a home, not owned by the bank or lien holder, is sold for less than what is currently owed on the home. The home does not have to be in the foreclosure process for it to be a short sale although many times it is. So lets get to some tips of what to expect.
Tips for the seller!
Because you are selling the home for less that what is owed you will need to prove to the bank you cannot afford to keep the home. You will have to prove this much like when you bought the home. Banks typically ask for 1 months pay stubs, 2 months bank statements, 2 years tax return, a letter of hardship, and you will need an authorization letter stating your real estate agent can act in your behalf when it comes to dealing with the bank. Having all this together at the beginning of the process will help your Real Estate Agent save you time and it shows your motivation, typically resulting in better service.
Many people have a hard time writing the authorization letter because they do not know what the bank wants to hear. In my experience and conversation with other Agents it seems banks want to know what has changed in your life to make the home no longer affordable. This may be change or loss of employment, the interest rate change on an adjustable rate mortgage, having to move to another state or area of your state (moving down the street typically will not work), or any change which can logically justify the bank taking a loss.
This next tip is huge! Make sure your Agent prices your home at current market value to begin with. This will save you a ton of time! Many agents like to start the home pricing at what is owed and slowly work down to market value. By the time it reaches market valley your house has been on the market 180 days and most agents will think there is something wrong with your home and will not show it. If the home is priced at current market value in the beginning you are more likely to sell your home and not have it foreclosed on.
Have your Agent reduce the price every 2 weeks, if you need to have it sold ASAP then have the price reduced weekly. Once you receive an offer stop reducing the price and many times you will receive more than one offer. By the time you receive an offer you home may be below market value which is okay. When your Agent presents the offer to the bank make sure the Agent includes a letter explaining what price the house started at and each price drop. This will help the bank see the house would not sell at a higher price and will give you a better chance of the bank accepting the offer.
Once an offer makes it to the bank expect the process to seem like it has stopped. This is usually the banks fault. Some banks take up to 6 months to approve a short sale. Your agent should be make contact with the bank twice a week and each time they call they will spend about an hour on hold just waiting to talk with someone so please be patient with with your agent during this process. They want the home to sell just as much, if not more, than you do.
Once the house sell what happens to the loss? I'm sure this is a question you are asking. The bank will send you a W-2 with the loss amount for you to claim on your taxes. President Bush signed a debt forgiveness act allowing you to write off this amount IF its your primary residence and the money was spent on the home. A second mortgage used to pay bills typically will not fall under this and that is something to talk with an accountant about. Your accountant will have a much better understanding of the taxes and how/what to write off.
This brings me to my next tip, make sure every offer is accompanied with a Short Sale Addendum. This give either party the right to walk from the transaction at anytime. In the event you can afford the home again, before the bank has given written acceptance of the offer, you can back out without defaulting on the contract. If staying in the home becomes an options via a loan modification or any other means take advantage of it! It will save your almighty credit score!
What to expect at the time of closing. All you will be doing is signing papers. You will come to closing paying nothing and you will leave closing having received no money. You will not be paying your agent a penny, the bank will be the one paying your agent. So just show up, sign the papers and turn the keys over to your agent. Closing is that simple for a short sale. Closing is the only simple part of a short sale.
And my last tip for the seller is be patient. This is going to be a long process so be prepared and expect there to be some speed bumps but if you have chosen a Real Estate Agent committed to you and with enough free time to complete the process it will happen as fast as possible.
Tips for the buyer!
I have fewer tips for the home buyer but there are still a few things you should know ahead of time.
Make sure you have MAJOR flexibility in your moving date. The home could close anywhere from 60 days to 6 months so make sure you have flexibility.
NEVER submit an offer without a Short Sale Addendum. Tthe process can take so long you will need to have the freedom to submit multiple offer and/or walk from your offer for any reason. Having this freedom when submitting an offer on a short sale is extremely important.
Get the extended title policy offered from the title company, this will prevent any lien holder from coming after you once you own the home. This is good advice for ANY home buyer. This protection is VERY cheap and should always be purchased especially with a short sale.
My last bit of advice is to get a home inspection. This is smart for all home buyers. It's important to understand what you are moving into and to know what is wrong with the home prior to moving into it. A good inspector will find most everything wrong with the home and give you more information to make the best decisions possible for you and your family.
I guess the over all advice for the home buyer is to be smart and protect yourself. Take a necessary precautions to protect yourself, your family, and your new purchase!
I hope this helps both buyers and sellers on what to expect and how to handle a short sale. The road to closing can be long but worth it and these tips should make it a smoother road to head down.
Life is great!
Lee Taylor
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment