Saturday, February 5, 2011

Short Sale? What is That?

I just wanted to do a little more education today. Lets discuss what exactly is a short sale. As they become more and more popular, sellers and buyers a like are starting to realize their importance.

On average, more than 50 percent of the current listings and sales of property that I analyze are short sales, as compared to a traditional sale or foreclosure. The term 'short sale' gets thrown around a lot, and I want to make sure that people understand the short sale process in detail.
More importantly, should you need to 'short sell' your own property, you must be in a position of knowledge and power.  So few are, and so many pay the price for this lack of knowledge.

First, a short sale in real estate is where the mortgage holder (presumably the bank) will accept an amount less than what is owed.

If you are concerned that you may need to proceed with a short sale, the first thing you need to do is find a real estate professional that knows how to properly negotiate and get a short sale approved from the bank.  In order to do this, they have to know the right questions to ask you, know how to properly value your property, and know who to contact at the bank to get the short sale approved.

So many of the listings that I see on the MLS, or Multiple Listing Service, note the property as a short sale, but few include the word "approved" after it.  Guess what happens frequently to short sale listings that are worked by agents that don't understand them?  They become foreclosures.

As a homeowner, this is among the most important information that you need to have ready and available:

1.  Know EXACTLY what you owe for your property.  This includes first mortgages, second mortgages, liens, etc.  If you have any question as to what you owe, have your attorney or real estate agent help you get title on your property.  Your title will show who has an interest on your property.  This step is the most important of all.  

2.  Find, but do not necessarily retain, an attorney that specializes in short sale and foreclosure real estate transactions and closings.  Be prepared to retain them if you are asked to sign documentation you do not understand.

3.  Interview real estate agents that will list your house as a short sale.  Ask them for references on short sale transactions that they have closed.  Ask them to explain to you how they get short sales approved.  

4.  Be realistic on the value of your home.  Don't let a real estate agent sell you on how they will get more money for your property than anybody else.  Most of the time agents use that baloney to get you to list with them, and then give you the "bad" news on your home value after you locked into them for six months or a year.  

5.  Give your agent no more than 90 days on a listing, with a right to renew.  If they insist on a longer listing, move onto the next agent.  There are plenty out there that will gladly take a 90 day listing.

6.  Prepare a letter of authorization to each mortgage and/or lien holder that allows your real estate agent to discuss your account.  

7.  Allow access to your home for showings, appraisers, and valuation professionals at all times.  

8.  Establish a plan for moving quickly in the event you have an offer accepted and can close in 30 days.  

9.  Be sure the bank explains the tax ramifications and liabilities to you.  Are you going to be taxed on or responsible for the deficiency balance? (This is the difference between what you currently owe the bank less what the bank accepted.)
There is no doubt that a short sale is a traumatic event for a family.  This pain often makes people shut down and not be completely engaged or honest.  I urge you to work through this pain and difficulty.  The more open and up front you are in the beginning will reduce your long term stress.  If properly executed with the right professionals involved, you will succeed in the short sale of your property.  Your family, your credit, and your blood pressure will thank you for it.

John Kim

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