This is my reply to a question about short sales that I recieved a week ago. Thought it would be good info to share:
Hi ,
Youre in good company with the loan modification being denied. I just saw figures that indicated what a failure that program was. Only a small percentage of people that went through the entire application process actual had their loan successfully adjusted and in many cases the adjustment wasnt enough to help and the homes went into foreclosure anyway.
The good news is that the short sale program with the new HAFA guidlines is working much better. I recently helped two different families get out from under upside down properties with a short sale and the process is much more stream-lined and efficient than it used to be.
Basically, how I handle short sales is to sit down with you and go over the financials and your expectations. If we decide that a short sale is the best option for you ( rather than a modification, deed in lieu, etc.), then I would want to list the property for sale at a price that we think it would sell for relatively quickly, or in whatever time frame you need.
Then I prepare the short sale package and application to send in to the lenders. This is pretty intensive and needs to be done the way each bank wants it to maximize our chance of getting approval. The package will contain almost everything you submitted for the loan modification (so dont throw any of that info out) plus some property and comparable information from me to help make a case for a low price.
Then there is usually a month long process of negotiations between myself and the lenders trying to determine who is going to be forgiving the debt and how much of a hit each lender will take. This is the tough part.Once we get approval from the lenders, they will usually tell us what price they will take as their bottom line and what needs to happen for them to accept the short sale in exchange for a release of the lien and the debt.
A couple of important things to keep in mind:
1. A short sale is usually a much better alternative to a foreclosure for most owners. The short sale process does much less damage to your credit report and in many cases allows you to buy a new home relatively soon after the short sale.
2. The short sale program works the best for owners who are selling their primary residence rather than an investment, rental or 2nd home. There usually needs to be some form of hardship as well. (Reduced income, increase in living expenses, health care costs, etc.)
3. You want to make sure that the bank does not pursue a deficiency judgment after the short sale is complete.
4. You will likely not be able to make much money on this but again, it is much better than letting it go into foreclosure. The new HAFA program, which Wells Fargo, Chase, Bank of America and most of the large mortgage lending institutions are participating in, allows for up to $1500 to be paid to you from the lender at the time of closing if this property is your principal residence. ( My last client walked away with $980)
5. Make sure you are working with a realtor that has experience doing short sales. Ask them how many short sales they have closed. If they can’t tell you straight out, or they haven’t done any…keep looking. It is also good if the realtor has specific training for foreclosures/short sales, like those with the SFR designation. It is also a good idea to have an experienced attorney involved.
I usually charge a % of the sale price for my services, which is paid from the proceeds that would otherwise go to the lender.
I would like to hear more from you, regarding whether this is your principal residence, how far behind on payments you are and what your goals are given this difficult situation.Please feel free to call me to discuss this further.
-Mike
