Real Estate Short Sales aka…Stripping For Your Lender!
September 17th, 2008 Categories: Colorado Round Up, Market Conditions, Selling Thoughts
The more I learn about Real Estate Short Sales the more I realize that it’s a little like taking all of your clothes off in front of your lender. The qualifications are quite stringent, fairly regimented and not only must YOU qualify for the short sale with a “hardship”, YOUR PROPERTY must qualify as well as the OFFER that is submitted to purchase the property. You are probably very humiliated in the first place that you have to disclose everything about your personal life to the lender to qualify so you better be armed with some good facts to navigate the options. At least knowing the facts might make you feel a bit more “in charge” at this precarious point in your life. If you’re totally upside down financially and it’s not just your home that you can’t afford, than other options like bankruptcy might be the right choice for you. But if you’re considering whether to try for a short sale with your lender or just let the lender have the property back through a foreclosure please read on. Here are 8 proven logical facts about how to weigh out your options before a short sale and how to proceed with your lender.
1. YOU MUST HAVE A HARDSHIP of some kind for the lender to even think about talking to you. Put it in writing yourself and make it sound as awful as it really is!
2. CALL YOUR LENDERS! Ask for the “loss and mitigation department” and ask them if they even do short sales. Some lenders have stopped doing them. Don’t talk to just anyone….get to the right department. Find out your payoff numbers for each loan and what kind of loans you have. Do you have a conventional 30 year fixed or a FHA or VA loan? If you have 2 loans and the 2nd trust lender is willing to absorb the short sale (they’re not really willing, but they will work with you) and if you think you can sell your house and pay off the first loan completely, don’t even bother to ask the first lender about the short sale. They don’t care as long as they get paid. Ask the 2nd lender to send you a Short Sale Package. Also ask them how they will handle the deficiency in the loan payoff. Whether or not they come after you for the balance due, you will probably receive a 1099 Tax Form from them because they have to report the deficiency to the IRS for their taxes and you might have to include the additional income in your tax return.
3. DETERMINE HOW DELINQUENT YOU ARE. Like you don’t already know right? If you are 90 days delinquent your lender will soon be sending your file to their foreclosure attorney to start the foreclosure process. If this is where you are than GET MOVING! If you act quickly and get your house out on the market and get an offer in, your lender might consider postponing the foreclosure. If you have already entered into bankruptcy and your house is “part of the bankruptcy” AND your bankruptcy is NOT closed or discharged yet it’s possible that your lender could require a Motion for Abandonment to release the property from the bankruptcy courts so you can do a short sale. This could take between 60-90 days and you will probably owe your bankruptcy attorney more money. By this time the buyer for your house has already said Bye Bye. My point is…..do your homework first on all of this early before it gets to this stage. One more thing, if you are also behind in condo association fees or homeowner association fees, please call them and get something in writing as to the status of your account and how much you are delinquent with them. This is part of the whole delinquent picture.
4. FIND OUT IF YOU HAVE ANY EXISTING JUDGMENTS OR LIENS ON YOUR MORTGAGES. Your local county records will have this recorded somewhere, just call them and ask. A prime example of this would be delinquent child support, or a mechanics lien of some sort, taxes..etc. If the judgment is less than $2000 the lender might allow this to be paid when you sell your house and go to closing. But if it’s a larger amount the lender will require you to pay this before they will do the short sale for you.
5. DO NOT MOVE OUT OF THE HOUSE! Your insurance company will have a heart attack and if the lender finds out they might have your property re-keyed to secure it. If you do move out, leave your furniture or some of your furniture behind to look like you are still there. If the lender does re-key your house, call them and request a key.
6. BE PREPARED TO TAKE YOUR CLOTHES OFF FOR THE LENDER….ie…they will want full disclosure of everything from you, and at a minimum they will want the following:
- Hardship letter
- Past 2 years of tax returns
- Past 2 months of bank statements, including 401K and retirement statements
- Past 2 months of pay stubs or other income
- Full financial statements (lender will provide you with their form)
- Any and all supporting documentation such as divorce papers, job termination letter, disability letter, medical bills - and whatever else they might dream up.
7. TALK TO YOUR TAX ACCOUNTANT OR CPA. They will be able to tell you whether or not you qualify for Bush’s Mortgage Debt Relief Act (Dec 2007).
8. INTERVIEW 3 GREAT REAL ESTATE AGENTS TO HELP YOU and then pick one! Short sales are relatively new and there is a big difference between working with an agent that knows the process and one that just says they’ve heard of it. Your agent will get paid by you - just like a regular sale of your home, but there is a big difference on what the lenders will allow the real estate agents to receive in commission. It will mostly depend on what kind of loan you have and what the lender regulations are. The real estate agent you pick must know the differences, how to get around roadblocks and should not be a bully. No one likes to work with a bully and especially lenders. They just might loose your file……..somehow. Getting through all of this is a highly charged emotional time for you and your agent must be as professional as they come. Sign a authorization form for your real estate agent to represent you in calling the lenders, following up on procedures and working through all the details. Some lenders might have their own forms and will want this form signed by you and sent to them as soon as you have the property listed for sale.
In Colorado where I live, for the first quarter of 2008 we had 11,630 foreclosures already. In 2007 Colorado had close to 40,000 foreclosures and our 3 top foreclosure counties were Adams County, Weld County and Denver County. Interestingly enough, Colorado foreclosures for the second quarter of 2008 is down 34% from the first quarter of 2008 at 3895 foreclosures. So that must mean that the banks are working with their clients a lot more to try and work out deals with them. It’s worth a shot and it might be worth taking your clothes off for your lender if it means that your credit won’t take such a huge hit!
Great article about short-sales; I think we are all going to turn into short-sale experts in the current market place. Very informative article.
Hey, is there a section just for latest news
Dacey, on the left side of the site are “Categories”, check under Buyers Corner, Market Watch, Market Conditions, or Trends you should see all the latest posts. You may want to subscribe to our feeds, just click on the the RSS button on the top left, you will not be spammed by my site.
You are a very smart person! I never would have thought about it this way.