Real Estate Short Sales: What You Need to Know Now
Over the past year, the real estate short sale process has resembled a Lewis and Clark expedition: a journey into the unknown, never knowing where you’ll find yourself the next day. And while the process is becoming clearer, it’s not getting any easier.
The number of short sale attempts is increasing every day, driven by equal and opposite forces of rising mortgage payments and falling home values, in the context of a recession. Nationwide, foreclosure applications have increased 97% since 2006, and median home sales prices continue to decline. Most experts expect these numbers to worsen until 2010.
What is new is the enormous scale of these transactions that is overloading our financial and legal systems. A system that used to handle a rare short sale is now completely overwhelmed, held back by red tape, indecision, outdated policies, and a lack of leadership in the financial community.
What you need to know right now:
The short sale solution is not perfect, but it is one of the best general solutions available. Sale of shorts:
- Help the seller. The seller can have his or a large portion of his or her debt forgiven, and short sales are easier on your credit rating than a foreclosure. Loan forgiveness is not guaranteed; It depends on whether the bank or the mortgage holder want to get a judgment on the difference. However, it is in the best interest of an investor or homeowner who cannot normally afford to pay is to get out from under the property as quickly as possible.
- Help banks recover as much of the asset as possible, without taking possession of a property.
- It helps the community. The community can avoid having another boarded up house in the neighborhood and more quickly get someone in the house to pay taxes.
- Help real estate people earn something from these transactions and put food on your table, even though the commissions and fees are usually less.
- Help other investors or homeowners. More investors or homeowners will be able to afford to buy at the bargain price of the property.
Lenders are becoming more receptive to this crisis
Until recently, lenders have been unwilling to accept many short sales, preferring to demand what is owed and then take legal action. They didn’t seem to understand that yesterday’s solutions don’t work in a market that has suddenly lost 10 years of appreciation. Slowly, they have started offering mortgage assistance plans, are automating their communications, hiring and training more staff, and are learning how to stop treating short sellers like criminals.
Progress has been made, but there is a long way to go, particularly in the provision of credit for buyers. Keep in mind that there are big differences between banks in terms of processes, programs and collaborative attitude.
Resources that can help
As usual, entrepreneurship flourishes in a crisis, and people have created useful services. There are a growing number of professionals who specialize in short sales. Be sure to find attorneys, real estate agents, and title companies who have experience in this area and who have contacts at banks. The quality and price of the services range from $400 to $3000 and up depending on who they are and how much they make. Some require money up front and others collect their fees at the closing table. Get references or use an Internet search to find options for resources you may need.
Lessons From Interviews With Short Sale Professionals
- Be patient – the system is really stuck right now and the backlog is growing every day.
- The process itself is simple, but it is far from easy to implement. Be diligent with the paperwork.
- Hire experienced legal and professional help early in the pre-foreclosure stage. You will also need professional tax advice. Find people who have experience in short sales.
- Understand as much as possible about this process. You can save time, trouble, and money by being well-informed.
- Everyone is learning this process together, including the banks.
- Make sure that the offers submitted to purchase the property are legitimate and close to market values. Nothing slows down the system more than an insultingly low offer.
