Short Sales: an alternative to foreclosure. As the economy continues to improve, a large portion of the population is still unemployed and a record number of people have lost their homes to foreclosure or short sales. As one of the leaders in the Greater Charlotte real estate industry, we have seen many homeowners face this difficult situation.
Fortunately, there are often options for homeowners. What if you could get your lender to accept less money than what you owe in order to sell your home and avoid foreclosure? Well, in some situations you can!
A short sale is defined as selling a home for less money then you owe on it. As an example suppose you have a mortgage on your home for $300,000; however, the current price value of your home is $260,000. When this happens, your home is now “short”, as a result if you were to sell your home you would be required to pay the $40,000 difference plus any fees associated with the sale. An alternative solution is a short sale, the bank would pre-approve your sale and you would not have to pay the $40,000 at closing nor the Realtor fees. The downside of a short sales is the process takes between 3-7 months depending on the lender and the number of liens you have on your home.
First step is to contact your lender and request a reduced payoff based on a potential sale. Lender’s requirements will differ and some may request a boatload of documentation. The timeframe for responding could also take several weeks.
Your lender may also request a hardship letter informing them of how you have found yourself unable to pay your mortgage. While it’s important that you are honest, describing your personal story in the most tragic way possible is often effective.
Once your lender has agreed to a short payoff, they will send you a short-sale letter stating the minimum amount they will accept to pay off your loan. Keep in mind, if you have more than one mortgage, the lender in first position will allocate the amount to be paid to the junior lien. It is also important that you speak to your accountant regarding potential tax issues, such as whether the deficiency forgiveness is considered income.
Now that you have your short-sale letter in hand, it is a good time to market your home. Many people will already be in contact with a real estate agent before the short-sale negotiations begin. If you have not done so, now would be a good time to get an agent to help sell your property in a timely fashion. Considering most short-sale payoffs have time limits, a real estate agent’s resources may help sell your property faster.
Regarding the commission to be paid to the agents, this is another allocation made by the lender as set forth in the payoff letter. As a homeowner you will not be responsible for paying the Realtors commission. The lender may report the loss to the IRS or request that you take out a loan to pay the difference; however, this is very rare in todays market.
In some situations, it is beneficial to both you and the lender to conduct a short-sale rather than proceed with foreclosure. For the seller, it is definitely beneficial in that it is a slap on your hand credit-wise as opposed to a major hit like foreclosure. Most homeowners will be able to buy another home in just a few years after a short sale. For the lender, they determine whether the costs and potential losses of foreclosure actions are more detrimental than a short-sale.
Sellers will not receive any money from the closing, even if money is available above the minimum the lender will accept. That money will be added to the payoff for the lender. Be aware that in some cases, sellers have to bring money to the closing because of the attorney’s fees, commission, transfer tax stamps, proration of tax/HOA and the payoff. It is important to take this into consideration when negotiating a final amount with the lender.
In a perfect world, all of our homes would be free and we would never lose our jobs. Unfortunately the real world is a very different place. People do run into hard times and need a little help. So before you just say “oh I can no longer afford my home, I’ll just let it go back,” pick up the phone and call your lender to see if a short-sale would be an option for you.
To learn more about the short sale process or how we can market your home for a quick sale, call Executive Sellers Realty at 704-398-2585 or email us. We can help you market your home’s true value and avoid the nightmare of foreclosure!