Surviving a Short Sale: Guide For Homeowners
As I look across the horizon and take in the many different homes listed on the market, the view becomes hazy with disappointed home owners. So many home owners are discovering the unfortunate information that lands them in a sticky situation, their homes have lost so much value that they end up needing to sell them for less then they owe on their loans.
Depending on your personal circumstance you have a few options and hopefully you can choose from several of them and not be restricted to only one or two of them due to other unfortunate economic downfalls, such as a job loss. If you are holding strong in our current economy and can still make your payments on time then the process will be extremely less damaging to your credit score. After undergoing a short sale you can expect to purchase a home with another Fannie Mae or Freddie Mac insured loan with in a few years. A foreclosure can take up to ten years.
There are so many different scenarios that can lead a homeowner toward a short sale. You may be involved with a job transfer and need to move, or you may have discovered that your arm loan just raised your mortgage payment and you decide you can't afford the payments any longer. This situation is disturbing due to the fact that in the beginning of your home purchase when you chose to finance with an arm loan you were told that you would be able to refinance into a fixed loan at some point in time. The only consequence you for saw was a possible higher interest rate. You never suspected that the value would cause the issue. Then there is a whole string of tight money possibilities caused from job loss, cost of living, credit card debt, illness, etc.
There is some good news. You will survive through the short sale. If you have managed to keep up your payments you are only looking at a credit drop of about 50 points. If you were behind on payments it will be a bit more, but in comparison with a foreclosure you are going to be much better off.
The process of a short sale is extremely stressing and emotionally overtaking. Before attempting this road you need to discuss your particular situation with an short sale/foreclosure attorney and it is advisable to speak with a tax attorney. They can discuss the stages of the short sale and which will be more beneficial to you; a short sale or foreclosure. Unfortunately, the process differs extremely between banks. Some are easier to work with and some are horribly difficult. Most short sales begin with a few late payments. To involve the bank in the process the home owner will need to write a letter to the bank explaining the situation and describing why the bank should work with the homeowner to sell for less then the loan. Once the bank receives the letter they will contact the homeowner. Most banks will contact the homeowner, but in some cases they take their time and try to contact you in other ways like the mail. It is best for the homeowner to contact them by phone. It is emotionally stressing to discuss, for the first time, your delicate situation and explain your unfortunate dilemma. Take deep breath and remember there are so many others out there going through the same thing at that very moment. You are not alone. Once you have that first talk aside, you will need to fill out the forms from the bank that you will receive that describe your debt to income ratio proving that you can not make your payments any longer. They will ask you to try and bring your payments up to date and tell you that it is in your best interest to figure out how to keep your payments current. Again, discuss all of your personal situation with your attorney and have them guide you in the right direction. Because it may be in your best interest not to continue those payments, and in other cases it may be better to keep up your payments. Once you have discussed these options with your attorney and decide your correct path to take, your home will be scheduled for an appraisal. An appraiser will give you a value and you will be able to list your home on the market. You will be able to choose your own Realtor and soon after you will be given a foreclosure date at least 120 days out from the date you received the notice. Get your home on the market as soon as you can. If you waste time you are losing possible buyers and then you may find that you have run out of time and foreclosure will sneak up on you. Once you are on the market, listing your home is just the same as any other. You should follow the same rules. Leave the home so the potential buyer feels more relaxed viewing the home, stage the home to give the potential buyer the feeling that it may be theirs someday, and do everything you can to make sure the depression of it being a short sale doesn't visually make the potential buyer feel uncomfortable. When a buyer feels that depression they are more likely to simply not want to be involved. You need to hide that feeling as much as you can to attract the most potential buyers. It will be hard, but worth it.
When you receive an offer your Realtor will help explain the strength of the offer. If it is weak you may choose to counter offer. It is your's and your Realtor's responsibility to weed out the offers that you know your bank will reject. You do not want to accept a bad offer that you know the bank will turn down, go off the market only to waste two or three months waiting for the bank to decline the offer and then you end up having to go back on the market. A good offer would be something close to your listed price. If the bid is too low you may end up wasting your time by accepting it. Having a good Realtor will come in handy during this time.
Once you have an accepted offer from the bank you will spend most of your final days signing papers and completing the sale. The rest of the sale will feel much like an average home sale. In fact, even at the closing table you may not notice anything about the short sale, only that the sale price is a lot less than your loan amount.
Some things to look out for:
If you have a second mortgage beware. Make sure you have spoken with your attorneys about your rights. If your second mortgage is with another bank, different from your first mortgage, they may try to come after their money. It seems like a silly question to answer, but why would they do this after the sale is closed? Because, they want their money. Read everything! Don't sign anything without your attorney. Many times they may want you to sign a note to convert your secured loan into and unsecured loan which is a loan that will carry on after the house is sold and gone. You don't want that. Credit cards are a form of unsecured debt.
Make sure you receive a paid off notice from the bank. If you don't; request one. Have your attorney demand one for you. Don't let the short sale end without having a signed off, paid notice in your hands and hold on to it.
Make sure you have discussed the possible tax fees involved with a short sale. If the home is not your primary residence you may find you will owe taxes on the portion the bank released you from. Speak with a tax attorney.
If you are in a situation where you can not afford your monthly payment or other bills, make sure you and the bank agree who will be paying the utilities at closing. Don't leave this open ended. Someone will end up having to pay them and you don't want to be left with unpaid bills after closing, such as, electricity, gas, water, sewage.
If you have moved due to a job transfer or any other reason, make sure you have someone near the home to keep it up. If you have the home vacant during the winter season do not turn off the electricity or gas. You will need to keep the home in good condition to be able to sell it in a short sale. The bank will be less likely to work with you if you have let the home go to ruin.
If you have good contact with your bank and know the correct connections for questions and sending in offers, your short sale will be less stressful. Do your research and learn your bank. The more people in the mitigation department that you know the better. If you keep in touch and become a recognized name in that department you will find they move faster for you. Make sure you hold a good name with them. You don't want to be annoying, just thorough.
Keep all of your documents and keep track of all your conversations. If you contact the bank, have a paper handy and write down what you discussed. The more information you have the more they will want to follow the rules and complete the short sale. If you send a fax or an email send another fax or email to another person in that department and ask to verify they have received it. If it gets sent to the wrong person they will either contact you to let you know you have sent it to the incorrect department or they will forward it on to the correct department. Either way you have proved that you've sent it. Another good thing to record documents you have sent is to send your Realtor a copy of everything for your short sale file. Then your Realtor can send a duplicate fax or email to the contact person in the mitigation department also. It can't hurt. Your Realtor needs to be someone you can trust. This process is a very sensitive and personal circumstance, so having a Realtor you feel confident in is something you need.
All of those going through a short sale right now, hang in there, you will make it. For all of those about to go through a short sale, learn as much as you can before you do. Take the time, even though you may not have much, to research the best way to go about it. Please make sure you speak with a professional.
Disclosure: In no way is a Realtor qualified to give legal advice or act as an attorney. The above information is only to be thought of as personal thoughts and/or opinion and not fact. Please seek the guidance of an attorney for legal questions or advice pertaining to your personal situation to determine the best path for you.