Short Sales – Complicated But Fruitful
Short sales are some of the most complicated real estate transactions a homeowner can face – and many are prone to failure. Some estimates suggest that the failure rate for short sales is 49.4%, compared with 17.9% for foreclosures and 13.1% for traditional sales.
Yet, the challenges notwithstanding, there are many reasons why it may be fruitful to go through a short sale as opposed to a foreclosure or a Deed in Lieu (which is a way to turn over the keys and title back to your lender). By going through a short sale, sellers can avoid having to come up with thousands of dollars at the closing to make up for the difference in the sale price and what they owe on the mortgage. There are also a number of federal programs that can help with the process of a short sale and even a federal tax forgiveness statute to aid homeowners.
But local residents should never try to go through this process without professional help.
Who Is Involved?
Finding out who holds your loans is a difficult process in itself. In the past, in most cases when you originated your loan with a local bank, that bank provided the money for your loan as an investor. It also was the servicer – the one that collected your payments and paid your insurance and taxes out of escrow. Today things are rarely that simple.
The originator, investor and servicer are often different entities and may have changed ownership a number of different times. Also, mortgages are sold in bundles multiple times. Finally, servicers (where you send your payments) may have hundreds of investors. This is why people may not understand why various short sales with one bank can have different outcomes. Most lenders don’t provide their guidelines in writing, which makes it frustrating for homeowners to understand and know who to contact.
A great deal of negotiating is needed to proceed with an economically beneficial short sale. For example, the deficiency between what the property is sold for and what the seller owes on the mortgage is not always forgiven. Some lenders may even retain the right to pursue the deficiency in the future. Also, some lenders may require an unsecured promissory note on a lesser amount and some may require a cash payment toward the deficiency.
The paperwork and the constant follow-up that is required with a short sale can amount to a full time job for many people going through this process. Therefore, many real estate agents are turning to short-sale negotiators – people who are well versed in the terminology, laws and mechanics of the process. It is important to structure a contract that will be most acceptable to the lender and to the seller alike. Frequent communication between the professionals and the lending institution or institutions is crucial in the short sale process. Missing documents or deadlines could slow or even derail all the proceedings. Short sales can take awhile to get approved. Only about 25% of short sales get approved within 2 weeks, and many take much longer. However, new rules are aimed at speeding up the process. The appraisal is one area that could cause a delay. The appraised value needs to be about the same with what the prospective buyer offers to pay. Sellers also have to worry about the buyer basically changing their mind or getting drawn away by a better offer.
Many other complications exist in these transactions. For that reason, it is vital to have professional help when working through this process. Fortunately, that help does not have to cost you anything, as payments are usually made by the bank as part of the closing costs. For information and assistance on short sales in our area, contact one of our Moorestown short sale lawyers.