Ok I want to talk a bit about a pretty hot topic currently. Unfortunately spinning off of the previous post related to the sad phenomena of foreclosures now, I will talk about Short Sales & Deed in Lue.
On occasion, one of the options that various mortgage companies suggest for families that they are refusing to grant a loan modification is a Short Sale. A Short Sale is where the mortgage holder or “bank” offers to allow the home owners to sell the house for whatever it can sell for and the BALANCE either the bank will forgive OR may require the previous home owner to pay. The term comes from selling the house SHORT of what the held mortgage is.
I will take the roses & thorns for each transaction seperately (buyer & seller).
Ok Seller’s side Short Sale:
As a Seller in a Short Sale, you are in the unique position of negotiating the loss of your property. Your options are that you either having to endure a foreclosure of your property or the lesser of evils of
1. Short Sale or
A mortgage company or lien holder will usually offer this option if a foreclosure is eminent or it is an investment or secondary residence. They will state that if you wish you can seek to SELL the home and whatever you get for it, the difference or SHORT-fall will either be “forgiven” or due to the mortgage holder. Whether they forgive or not generally depends on the owner’s perceived ability to pay. There are usually a slew of documents that a seller will need to provide to the bank as well as acquiring a buyer for the property. The sale side transaction side generally goes according to a typical sale of property except that instead of negotiating with the owner of the bank, you are negotiating with both the owner AND the mortgage holder. Guess who has the most leverage? Most terms have to be agreed to by both owner and mortgage holder including the fees paid to everyone even Realtors. Once the buyer and seller(s) agree with terms of the sale. the bank (mortgage or lien holder) will require documents from the seller to help decide whether they will complete the Short Sale and if the seller/ owner will need to pay the deficiency. The bank (mortgage holder) usually goes not pay any other bills connected with the house unless they are liens that directly relate to transfer of title (can talk title later). Sometimes they will decline a short sale because there are other bills that are high such as a Gas or Water bill or even tax or other judgements. After the bank is satisfied that the seller cannot pay the deficiency, an appraisal is done to find out EXACTLY what the house is worth. Once this is done, generally some loos ends are tied up and the sale os allowed to move forward. As you can imagine, this process DOES take longer than a typical sale.. thus to the buyers side….
Buyer’s side of the transaction is very similar to a general purchase except a couple more forms and the WAITING !!!!!. The WAITING is the biggest issue and many buyers cannot or will not wait the time it takes to close the transaction and become frustrated with all involved.
SIDE NOTE: I once had a client that was very interested in purchasing a Short Sale. The particulars that I can share were that the property worth about 750k was being “Short Sold” at an agreed upon 629k or so. Now the rub was.. as all the work that was put in making this work, the Seller’s agent was less than honest and after a month wait and 2 postponed closings, the Seller’s agent “just found out” about two (2) additional liens for a Tax and business lien totally about 40-50k. Of course, the deal feel through because no one was willing to pay this lien including the bank. So of course the waiting on behalf of my client AND the failed transaction my client decided to “take a break” from looking. Fast forward a few months, they found another agent that sold them a house from an open house that “suggested” they complete the entire transaction through him and his “people” to allow it to go smoothly. LESSON: Short sales are tricky for everyone involved and that a bad agent on the other side will make you look bad and lose a client at no fault of your own.
Two new forms are an affidavit to make sure that there is no shenanigans going on where you, your agent or anyone involved gain illegally from this sale (kick backs etc.), and one that gives the bank permission to act in the matter of the sale of the home. Not much changes, except the waiting and that more can go wrong as well as the bank may be less willing to negotiate terms.
2. Deed in Lieu of forclosure:
I will not discuss much about this in this post because honestly I am NOT A FAN OF IT. Ok that is out of the way. Basically, you (the owner of the property voluntarily give all rights back to the bank and just leave. Give keys, sign deed and are done with it. Saves the bank the time and expense of the proceedings as well as putting the owner in better favor with the bank in terms of credit “dings” and overall responsibility. I take pride in home ownership, thus my disfavor with this option. Banks would disagree.