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Gayle Henderson RE/MAX Phone: 602.850.4335 Visit My Website View My Luxury Homes |
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Short Sale... A Dignified Solution to a Homeowner's Financial Crisis Short sale: mentioned a lot, but not fully understood by many. A short sale is a traditional sale between a Seller, the owner of record, and a Buyer, with a third party contingency requiring approval from the Seller’s lender to sell the property “short” of the debt due to decreasing values and documented hardship by the seller. A short sale happens when a homeowner NEEDS to sell their home, but cannot because the value has dropped below what they owe. The “needs-to-sell” determines who qualifies for a short sale. In the eyes of the lender, this “need” is a circumstance or series of events that has made it impossible for the homeowner to continue to pay the monthly mortgage payments. Also called hardships, these circumstances could be a reduction in income as a result of a pay cut or loss of commissionable income, a job loss, a divorce, a job transfer or new hire out of the area forcing a move, the death of a family member, prolonged illness, any serious family medical condition causing a forced move, increase in medical bills, sustained medical leave of absence from the work force or disability. In many situations there is a combination of factors that when compounded, the probability of a homeowner losing his/her home increases. A short sale may be the solution after the homeowner has tried the other options available to ease his/her financial crunch: Seeking advice, from the lender, for a possible refinance, loan modification or forbearance are possible ways to stay in the home while reducing monthly financial obligation. Visit www.makinghomeaffordable.gov to research the viability of these programs for each situation. If those avenues don’t produce successful results, a short sale may be the best alternative. But how does a homeowner make a short sale case to the lender? A critical part, of the pre-qualification for a short sale is the homeowner’s hardship letter which outlines the circumstances and what has been done to try to prevent foreclosure. Each case is unique, and there is not a hard and fast rule as to who will qualify, or what lender conditions may be imposed. Most lenders only want to review one completely executed contract and will not consider any partially executed contracts. Remember, this is a sale between a seller, the owner of record, and a qualified buyer with a contingency on seller lender approval much the way a buyer makes his offer contingent upon a buyer’s loan approval from his lender. This is not a bank-owned property where the bank is the seller and therefore collects multiple offers and makes a decision on which to select. Could a homeowner go through the documentation, showings, negotiations and contract acceptance, and then be turned down by the lender or presented with conditions of which the homeowner may not accept? The answer is “yes”. However, in today’s climate, lenders are more actively interested in working with homeowners to prevent foreclosures. The lender is in the business of lending money, not acquiring property. Foreclosed properties not only create a financial drain on the lender until sold to a Buyer, but they are also a liability to the bank; reducing the amount of money they are able to lend. Some may still ask: “Why not just hand over the keys and request a deed in lieu of foreclosure, or just walk away and allow a foreclosure to occur?” Unfortunately, not all lenders will accept a “deed in lieu” and because any underlying lien (a second loan) is not discharged in that process, a deed in lieu is only entertained by a lender when there is just one loan. Often known as a soft foreclosure, this is still a foreclosure on the homeowner’s record, a 5-10 year blight on one’s credit, an event that will follow long after credit repair, possible wage and asset garnishment if an equity line of credit is also involved, and a variety of personal challenges that can haunt individuals indefinitely. Security clearances are jeopardized, and with rise in unemployment, some employers are now seeking new hires that do not have personal and professional blemishes on their record. There is no legal classification for “short sale” either in reports or other types of financial disclosures. Credit rebounds can occur in less than two years after a short sale depending upon individual circumstances. The homeowner’s personal credit simply reflects that his/her debt was satisfied or paid as agreed, for less than the full amount, or in some cases, even paid-in-full. Additionally, there is no negative stigma attached to a short sale. For instance, potential employers do not ask, “Have you ever had a “short sale”? Your REALTOR plays a very critical role in this process and requires special training and skill-sets to understand how to best present your case. To guide you through this complex maze, you should have a Certified Distressed Property Expert, (CDPE) REALTOR, a tax and real estate attorney, along with a CDPE escrow officer to help you accomplish your goal. CDPEs have gone through approximately 16-25 hours of initial training, and continue advanced training with up to three hours of monthly webinars, national forums, and networking with more than 8,000 national members of this elite group of REALTORS. Here in Arizona, local REALTORS understand the importance of education in assisting homeowners who are facing foreclosure, and more than 800 CDPEs are currently offering assistance to distressed homeowners. With over two hundred luxury homes in metropolitan Phoenix currently listed as short sales, a CDPE team can skillfully help stabilize our communities at higher levels than the resulting future foreclosure level lacking successful short sales. However, at the end of the day, it is important to know that you, along with a skilled CDPE REALTOR by your side, did everything possible to avoid foreclosure. There is no guarantee that a short sale will succeed, however, your chances for success are many times increased with a CDPE by your side through the process. Would you climb into a executive jet with a pilot at the controls who had never had any training on that aircraft? There is no reason to expect anything less than the best trained professionals when managing a home mortgage crisis. Skill-sets, experience and education matter! CDPE certification is an absolute must! After learning more about the process, Sellers will understand why using a CDPE team is critical to the chances of success." – Terry Ray, CDPE, The Ray Group, Prudential |
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