The Short Book on Short Sales
Last week we spoke of two “creative” methods of transacting the sale of your home when you have insufficient equity to do so through traditional means. They were the Land Contract and AITD (wrap around mortgage).
Each of these methods can be useful “tools” and a skilled professional should be well versed as to when to pull them out of their “Toolbox”. That being said, each of them do have their own risk and benefits for both the buyer and the seller. And, they should only be used when traditional methods are not an option.
Today, I thought we should all talk about the five hundred pound gorilla in the room. We all know he is there. And yet we refuse to discuss his presence for fear of dire consequences. That is the Short Sale.
I actually did my first short sale in 1993 shortly after receiving my license to conduct real estate. It truly was a fluke. While attending a breakfast meeting at the then Corona Norco Association of Realtors, a gentleman got up and started promoting his book called “The Short Book on Short Sales”.
This book could not have been more than fifty pages. And, it was no larger in width and height then a pack of chewing gum. In this book there was something so amazing and, (until I read the book) unthinkable. It explained in great detail how to convince the bank to accept payment of less then what was owed as payment in full.
And, while agreeing to lose tens of thousands of dollars, the bank also would release their lien against the property and the borrower. All of this was revolutionary in my eyes and I capitalized on every opportunity to use this amazing technique.
I wish I could remember the author of this book. I would love the opportunity to thank him. Because with his brief five minute presentation. And, his equally brief but informative book on this topic, he provided me with a set of skills that I have been able to use over and over throughout my career.
On average a short sale could be completed in sixty days or less. And, there was little or no acrimony between lender and borrower.
Fast forward to today and the tale is somewhat different even though the process is changing in a positive direction.
In November of 2007 I recognized early that the tide was changing. And, I knew that I would once again need to dust off my skills and put them back into action. But, this time it was different. You see the banks were not prepared for what was about to hit them. They did not have the people in place to negotiate short sales. And the result was frustrating for Seller, Buyer, Realtors, and lenders alike. For those of us who knew how the process should go, our job was doubly difficult in that we had to teach the negotiators we were working with how to process a short sale. And more importantly, we had to teach them why a short sale made sense for everyone concerned.
Here is the reality, on average a home that is sold through a short sale nets the bank 24% more than a home that is foreclosed on and resold. Second, a home that is owner occupied and sold through a short sale is more often than not, in much better condition when compared to one that has been foreclosed.
You see, when you allow the seller to orchestrate his own exit, you allow him to maintain his dignity. And, in doing so they tend to treat the home with respect right to the very end. The opposite is true when foreclosure is inevitable. Once faced with the reality that the home will be taken by judicial mandate (with force if necessary). The property owner resigned to the inevitability of his fate will start to look for mitigation of his loss. The lighting that he installed often comes up missing. The lawn he planted with great pride is no longer watered.
I think you get the picture. The home that the bank often receives is no longer a dream home. It is in fact a nightmare in need of repair. And the bank is left on the hook to make the home saleable.
If you are considering doing a short sale, here are a couple of tips that I hope will make your decision to do so an easier process. First, hire a REALTOR® who has experience in short sales. You should know that in processing a short sale, we are not allowed to ask for any upfront fees. So this should be a big red flag if the person you hire requires them.
Second be honest with your agent, provide him or her with all the documentation they request.
Third be patient. While the time frames have shortened, they still can be quite long. And, there is never a time when it is 100% certain that your short sale will be approved and closed until it happens.
Also, you must understand that there may be tax and other implications involved in a short sale. So, seek the counsel of your tax advisor or attorney before making your decision to proceed final.
There are plenty of reasons why a short sale can be of benefit to you, make sure you are fully apprised of the facts.