A Little About Short Sales:
The following are some highlights from our experience with short sales. This is not a guarantee of what you will experience since this is not a one size fits all subject, and things can vary from lender to lender. We do hope that an insight from our perspective will aid you in experiencing a successful short sale if one happens your way.
What is a short sale? This occurs when a seller does not receive enough proceeds from the sale of their property to pay off the existing mortgage(s) and all of the closing costs incurred with the sales transaction. The seller will ask his existing lender(s) if they would agree to accept less money than what is due for a FULL release of the mortgage debt, so that the deal can proceed to close.
Some things that need to be considered when this term comes up in a transaction are as follows:
• There is no guarantee that the lender will agree to this, so from a Listing perspective, an agent may do a lot of work only to have it fall apart at the last second. From a Selling perspective, the buyer may incur cost for appraisals, inspections, etc. and still not be able to purchase the property.
• Most of the short sales that we have experienced require the seller to make the initial request to their respective lenders. Most of time it is required in writing, and then the lender will provide a seller with a laundry list of items that they need to provide such as appraisals, financial records, copy of the purchase contract, and Estimated HUD.
• The estimated closing statement must reflect all the charges and be as accurate as possible. it is not always easy to get a lender to say that they will accept the net sale proceeds. Often times the lenders demand will say that they will accept no less than a specific dollar amount and it is usually what is on the closing statement.
• The lender may put restrictions on the amount of commission that can be charged. They may also come back and not allow any credits and/or repairs to be done. If this is the case, then these items will have to be removed or handled outside of the transaction, which in most cases would make the buyer responsible for these items.
• The process for a short sale approval typically takes around 45-60 days. It can take as long as 6 months to complete, but the process seems to have gotten much more streamlined now that we are several years into short sales in the East Valley. In addition, the proceeds need to be delivered according to the specifications of the lender - they accept no deviations! This can also add to the time crunch.
• Once a closing date has been set it must be met. To get approval for an extension is a long drawn out process, and in the meantime, the home could be foreclosed on.
• Once the short sale has been agreed upon by the lender and the seller, escrow must have a written demand for the amount they will accept, and it should state that a full release will be issued upon payment.
• A request to a lender for a short sale does not automatically stop any foreclosure proceedings, that is a separate matter that the seller or his agent needs to deal with.
• The seller also needs to know that even if a short sale is approved and the debt is released, it still may have a negative impact on his/her credit. A lender may report to the credit bureau that the loan was paid in full for less than the full balance. The lender will also issue a 1099 to the seller on the loss amount.
• If there is a first and a second mortgage on the property, the first lender does not have to work with the second lender in order to help get the property sold.