Let’s talk “short sales”…every expert seems to have a different or better solution to the doom and gloom of a short sale. As everyone is aware, each and every transaction is a totally different animal, dependent on the bank, the hardship, the title company, the Realtor, the lender, the seller…this isn’t new news. So instead of talking about how stressful, challenging and sometimes depressing the process is, I thought I would share a personal story that “just may” be able to help you and your sellers….in the current market and in the future because, “This too shall Pass.”
I have a friend that endured a legitimate hardship in 2008, due to divorce and loss of income. In 2008 before loan modifications?, government programs, etc., basically you had one choice, walk away or short sale. My friend had stellar credit, unfortunately like thousands of other households could no longer maintain her obligation. She called the bank months before seeking assistance, her voice was never heard…she was current so what’s the problem??
After consulting with a real estate attorney that told her to just walk away (the seller had a 1st & amp; 2nd – non-purchase money?), she consulted a Realtor. The Realtor advised to try to short sale. The home was impeccable, listed on a Friday and sold on Monday, Canadian/cash buyer. The property closed in 90 days..start to finish. This wouldn’t have happened if it wasn’t for her Realtor who spent hours on end on the phone with both banks, etc. etc. (you know how the story goes). So, things are different now, HAFA, HAMP, loan mods, etc…..but how did this transaction really effect her credit? It’s now 2011…
I hear all the time, a short sale will only drop your score maybe…80 points? Isn’t every situation, just like every transaction different?? A short sale is better for your credit than a foreclosure…but personally, I wouldn’t advise further (though I’m NOT the expert..just an opinion). My friends credit score dropped from a 780 to low 500′s, while she maintained and is still current on all of her other obligations. She also received a letter from the 2nd that gave her FULL release of any future liability or interest in the property, due to the fact that the 1st lien holder, seller and buyer came to the closing table with cash, more than the 1st gave(and a great Realtor).
FAST FORWARD….2011. You should be able to purchase an FHA home 2 years after a short sale or is it 3 years? Is that really the case? If you have an opinion, please share! Since 2008, once a year she is contacted by an attorney or the bank that is trying to collect the debt on the 2nd,, which was settled in 2008. She pulls the letter out of her files and faxes it to them,, then sends letters to all 3 credit bureau’s including the letter from the bank and the HUD-1.,, the debt collector disappears for another year, then they’re back! A new one this time…the cycle starts over. May 2010 her credit was high 500′s, Sept. 2010, mid-high 600′s. So, though the debt was forgiven and she is able to manage her affairs, the transaction is still having a significant effect on her life. So when does it end…or better yet does it ever end?? How does the story end……
Being in the title industry, we deal with short sales all day long..you might say “experts”. I haven’t seen many lenders giving a full release, letter, etc., more like a promissory note with the sellers signature to allow the bank to “try” to collect the debt at any time. I am privileged to work with professionals and so are your buyers and sellers!
So, hence the reason I wrote this, I feel like it’s an important topic that we may not be talking about now…but we sure will be somewhere down the road!! I can’t help to think that Collections will be a very lucrative business in the future!!
Thank you for reading, would love your feedback… on just some of my random thoughts!
You must first know that not all short sales are meant to be. Red Flag: If the seller is unwilling to participate, and provide the necessary documentation for the short sale package to the bank – you may want to stop here. The seller must be fully invested in the sale of their home, or chances are, the property will not sell. The seller must also identify a legitimate hardship: Ethical implications notwithstanding, the seller should present to the bank a legitimate hardship (in the form of a letter) in order for the bank to consider approving the short sale.
Critical too, is the property search you ask your Escrow Officer to perform prior to listing the property. The foreknowledge of any outstanding liens, or of that 2nd Home Equity loan thought to be paid off, will always help eliminate the 11th hour scramble to negotiate these liens to be paid, often ending in three months of work and a cancelled escrow.
The number one point of contention I have found in the short sale, is undoubtedly the HOA and more specifically the past due HOA assessments. One of the first questions to ask is whether or not the HOA assessments are paid current. If assessments are more than a month behind, it is best to obtain a balance statement; three months behind, it may be in collections with an attorney, from whom the seller must obtain a payoff statement. It is not uncommon for $1000 in late assessments to incur another $1000 in attorney fees. The listing agent or seller can often negotiate some of the fees to be waived.
Upon approval of your short sale, your Escrow Officer should always review the approval letter against the HUD, along with the terms of the purchase contract. Especially verify that the terms of the first loan approval are consistent with those of the second loan approval. Any discrepancies must be addressed immediately.
By and large, I believe short sales are being approved more quickly and with less hassle of late, but every lender and situation does vary. I recently closed a short sale that went from listed, to contract, to short sale approval in under four days!
Disclaimer: A short sale involves legal and financial matters, for which a seller should seek professional advice.
Photo Credit: Jay Thompson. CC Licensed on Flickr
Each February thru April the Renaissance Festival comes to Arizona.
The Family and I spent St. Valentines Day at the Renaissance Festival in Gold Canyon, AZ.
Was it romantic??? Probably not.
Was it Fun? You bet!
Was the food good? If you really searched for it you could find Greek food, or grilled Chicken
The Pickles were cold and crunchy!!
The Guinness was cold and satisfying!
We spent 7.5 hours there!
We will be back next year!
For 2012 the Dates are Saturdays and Sundays February 11 thru April 1, 2012