Distressed vs De-Stressed: Short Sale Basics

If you stopped people on the street and asked about the economy, the majority would probably say that the US economy is improving.  However, there are still a good number of folks who remain unemployed or underemployed.  Moreover, with the prospect of “Obamacare” on the horizon, many more are fearful that their work hours will be reduced, causing financial strain or full-on crisis.  Homeowners facing financial uncertainty experience incredible stress.  Often, the stress puts owners in a state of denial, driving inactivity until a point of desperation is reached, typically caused by receipt of bank/mortgage letters that threaten action on delinquent or missing mortgage payments.  Still others find themselves in a financial fog due to a job-required relocation, illness or death in the family, or a change in marital status.  In this scenario, the homeowner has one stress upon another piled on until he/she reaches the proverbial last straw.

Fortunately, there are options with respect to home selling that can transport a homeowner from “distressed” to “de-stressed.”  If selling a home is a key tactic that will help an homeowner regain financial equilibrium, a Realtor can assist in facilitating a Short Sale.  A Short Sale allows the borrower to sell his/her home for less than the total amount due on the mortgage loan.  Choosing the Short Sale process allows the homeowner to avoid foreclosure and allows the lender to minimize its losses.  It is a cooperative process versus a legal resolution (foreclosure or eviction).  A Short Sale is usually not considered for homeowners who are not delinquent on payments, unless a major change in financial status is imminent.

There are a variety of documents that will be required, submitted by the Realtor often in a national online system such as Equator, including:

• Hardship Affidavit, noting the reason(s) for the financial issue
• Third Party Authorization, which allows the lender to discuss all aspects of the mortgage with the Realtor
• Verification of the borrower’s income (pay stubs)
• Copies of most recent bank statements
• Copies of most recent tax returns
• Buyer’s Offer to Purchase
• Preliminary settlement statement

The timetable for completing a Short Sale can be considerable.  In the Savannah area market, Realtors have experienced up to 3 to 4 months to get a bank decision AFTER an offer to purchase has been submitted.  This is down from an average of one year, as recently as three years ago.  During this time, the lender will obtain either an appraisal or a Broker’s Price Opinion (BPO) on the property; will evaluate the borrower’s financial documents; and seek authorization to accept the offer from the investor and/or the insurer of the homeowner’s mortgage loan.  The good news for the homeowner is that the Realtor coordinates the paperwork, keeps up the continuous dialogue with the lender, and assures that the process is managed properly.  In short, the homeowner moves from distressed to de-stressed.

Of course, there are a few caveats:
1)  Each potential Short Sales is reviewed on a case by case basis.  There is no guarantee that the bank will accept an offer.
2)  There may be potential tax implications to the homeowner.
3)  The sale of the home must be a “arm’s length” transaction, meaning that it can’t be sold to anyone with close personal ties to the homeowner.
4)  The odds of the Short Sale success are reduced if there is a second mortgage or equity line on the property.
5)  If the homeowner has sufficient assets, he/she may be required to make a monetary contribution of some of the difference between the net proceeds of the sale and the amount due on the loan.

If you are facing financial difficulties and want to know if you could qualify for a Short Sale, contact me.  I will be delighted to be part of the solution to your financial needs.