December 21, 2011

The Short on Short Sales: A Guide for Understanding the Process

With the state of the economy and most real estate markets, short sales seem to be the topic at large.  Here at the Rain, I've seen several posts come up about them.  Some some agents get them, some don't.  Some think that they are good potential deals, others try their best to avoid them!  One thing's for certain, a lot of people, agents and consumers alike, still have a lot of questions about them.
States have different laws concerning real estate.  If you're a seller that is in a short sale position, it's very important that you get with a knowledge, professional REALTOR® in your area today.  For agents, your Multiple Listing Service may have specific guidelines for listing and maintaining short sales, so if you've got one as a listing, find out what your MLS rules are for them.

What is a Short Sale?

The basic definition is it is a sale where the Purchase Price isn't enough to enable the Seller to pay for the costs of selling and the Seller is not able to pay in full all deeds of trust (mortgages) that are due and owing to one or more lenders, the Seller does not have sufficient liquid assets to pay the difference and the Lienholders have agreed to release/discharge their liens against the property for less than the total amount owed.

The Short Sale Process

The process is fairly simple, though it isn't easy and it definitely isn't Short!  A short sale can take anywhere from about a month to 4 months from OFFER to Lender Acceptance.  That doesn't include any marketing time.  So if you're a Seller or Listing Agent, hang tough!  If you're a buyer considering making an offer, don't be in a hurry.
As a seller/listing agent you need to get a few things together.  The listing agent is going to need an Authorization to Release Loan Information signed by ALL the people on the note, so that they can communicate directly with the lender.
From there, you need to start a short sale package.  Lenders vary as to what they want exactly and some may forward you a specific package.  But, in general, you'll have to supply the following:
  1. Hardship Letter: Very important.  This tells them why you can't pay the loan.  Here is a link to a good sample of a hardship letter.
  2. The last 2 months of bank statements and paycheck stubs
  3. The last 2 years of complete tax returns (w-2, 1099s, etc)
  4. Your listing contract.  Most lenders want the property listed with an agent.
  5. When you get an offer, the completed, signed Offer to Purchase on the property.
  6. An estimated HUD-1 sheet showing the net to the lender.

Things to Know

Things work differently with a Short Sale offer/listing.  This is true whether you're the buyer, seller or agents involved in the deal.  It's important to know a little of the 'in's and out's of short sales if you're going to be involved with them.
1. The Buy/Sell Contract is just an offer until the Lender approves of the short sale.  You should have a form explaining this to both parties.  In NC, we've just got a new form, the "Short Sale" Addendum that fully discloses that the contract is contingent up to the day of closing on the lender approving the short sale.
2. There is no guarantee of the LienHolder's Approval or Timeframe of Approval.  Again, this is spelled out in our new form.  The buyer can back out of the contract with no penalties (earnest money returned) up to the time that the Lender makes a formal written acceptance of the deal.
3. No Repairs.  If seller cannot pay their loan in full, they cannot make any repairs. Simple.
4. There may be other offers.  Even if you are the first one to make an offer and go 'under contract,' other offers may come in between the time of your contract and when the lender makes final approval.  Under NC Law, these offers must be presented to the lender for review and approval as well.
ADDED POINT:  Related to this is how a short sale appears in the MLS system.  The new addendum to our listing agreements clarifies this.  An agent must continue to market the home "For Sale" until such time as the Lender has made a written formal acceptance  of the offer/contract.  Now, as a listing agent, you should inform all people making offers when there are multiple offers on the table (There is nothing that makes this a legal requirement.  I think it's just good business).
5. The property may foreclose before final acceptance. Banks are slow.  And they also frequently have the problem of the left hand not knowing what the right hand is doing, which means that while one branch may be trying to work out a short sale solution, another part of the Lender's office is following through with the foreclosure process.
Short sales may be a lot of work, but they may also be the best chance for the Seller to get out of a bad situation.  For the buyer that has the ability to wait it out on the process, they can really get a good deal, often times better, in fact, than if the property was foreclosed and resold by the lender as a REO property.

December 13, 2011

Why Do I Need to Get Pre-Approved Before You Show Me The House?

Why Do I Need to Get Pre-Approved Before You Show Me The House?

This question has come up a number of times in recent weeks, so I thought I'd write about it here.

Some buyers today seem to really get offended if they are asked if they've spoken with a lender yet or if they've been pre-qualified for a mortgage for the dollar amount of the house that they are inquiring about.  What I usually get is a gruff, "No I haven't!  But I'm more than qualified to get a loan!  And I want to see this house TODAY!"

Tony Eltora's 4th Annual Christmas Jam - Dec 18, 2011

The public is invited to the 4th Annual Christmas Jam by Tony Eltora and the Hickory Music Factory.  This year's event will be held at the newly renovated Main Cellar Club behind Market on the Main.  It's an "all ages" event and the goal of the Christmas Jam is to raise money to help provide music lessons for kids of all ages that might not otherwise be able to afford it.

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