Short Sale Advice

The short sale process is, at it’s core, a simple one. We know that bringing this simple process to pass, can be another story.   Many of the issues that regularly arise, and cause the word short sale to knot your stomach, can be overcome with some practical steps and a good Escrow Officer.

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

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2 Comments


  1. Jun 21, 2011

    Joe Allen

    says:

    Hi Matt,

    Great post. It was an extremely insightful observation on the difference between the cut and dry nature of the process and the real world application of said process.

    I understand there are two types of Short Sales, a HAFA short sale and a “traditional” short sale. could you shed some light on the difference of the two? Also, what do you find to be the more legitimate hardship reasons as opposed to the more illegitimate? Anything in particular to stay away from?

    looking forward to a response, keep up the good work!

    Reply

  2. Jun 23, 2011

    Matthew S. McRoy

    says:

    Thanks for the comment Joe! I’m pleased to hear you found the information useful.

    I believe most legitimate hardships are a result of lack of income, due to job loss or pay decrease. Poor health can also play a role in one’s inablitiy to continue making payments on their mortgage, whether it has rendered the borrower unfit to work or perhaps the property must be sold in order to move to a climate more conducive to the borrower or his/her family’s health. In any case a “legitimate” hardship in my mind, is just that, an honest reason for having to sell your home short of the mortgage amount. Harships to stay away from: dishonest ones! Lender’s criteria can differ on the subject, and like all short sales, details are case-by-case.

    Many government programs including HAFA have been made available to mortgagors in financial distress. While I am not an expert in this realm, The Home Affordable Foreclosure Alternative program is a short sale for borrowers who have attempted and failed a loan modification. The distinguishing difference would be that HAFA borrowers (sellers) are eligible for a $3,000 incentive upon the successful short sale of their home. It is definitely an option to be explored – while always obtaining professional tax and legal advice!

    For more information on HAFA and like goverment programs, see: http://www.makinghomeaffordable.gov/

    Reply

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