This is the second installment of what will be a three part series. The first part, we covered the first steps and some of the ways the mortgage company can help you stay in your home.
I gave three basic warnings, #1) Denial is not a way to avoid foreclosure, rather it is a way to nearly ensure it. #2) You cannot latch onto the horror stories about failed loan modifications or short sales.
#3) Stay away from companies that offer to handle this for you.
So, what if you are behind on your payments and you cannot realistically keep the home. If you income has been greatly reduced, you may not be able to come up with a modification that works. Or, what if you have been transferred or what if you had to take a new job somewhere else, etc.
There are a myriad of reasons that you could want or need to sell your home in this situation. So, what is a short sale? It is quite simply, the sale of your home when the sale does not cover all of the mortgages or liens on the property.
As an aside, a short sale may not even be mortgage related. You can owe less than what the home is worth, but have other liens on the property. These can be from contractors, HOA's, taxes, etc. And, believe it or not, in many cases, these can all be worked around. (Yes, even the tax liens)
Okay, so, now lets talk about some basics of a short sale. Keep in mind that every lender is different and many times even different employees of the same lender may make different decisions. Okay, so with that in mind, lets try to set some basic parameters.
#1) The person that is the biggest key in a successful short sale is the seller. The seller has to be committed to supplying the mortgage company all the information that the mortgage company requires.
#2) The second most important person in the short sale transaction is the agent. Regardless of what type of sale it is, the house has to be marketed well. Remember, the bank is going to want to get as much as they can out of the property. The agent needs to have a good idea of market value, so that they can offer insight to the lender. And, of course, they need to know how to market the property. It appears as if some agents don't want to put the same time and effort into marketing short sales as they do other sales. I see so many short sales with no pictures and lackluster or no descriptions. They also know that once a seller starts the short sale process with one agent, they aren't likely to switch. They don't usually have that luxury.
#3) You will need to list your home with an agent. The mortgage company is protecting its interests.
#4) Your mortgage company will not typically allow you to sell to family members. I hesitate to say they won't allow it. But, it will certainly raise their eyebrows and it will require a good explanation.
#5) Your mortgage company will have your home valued by an agent doing a BPO or an appraiser. A couple things to factor in here. It won't be your agent doing the BPO for the lender. However, if your agent knows the market well, they can provide valid input and explanation if their valuation differs from the appraisal or BPO. Additionally, the appraiser or BPO agent does not see the inside of your home, nor do they get an up close view of the exterior of your home. If you have been struggling to keep the house maintained, they may not factor in the deferred maintenance at all. But, think before you hire the agent whose sole marketing ploy is to under price the home. Remember, the mortgage company has to agree to the price.
#6) If you have the short sell approved for one buyer and they walk, that doesn't mean that it will be automatically approved the next time, even if the next buyer makes the same offer. You may get a different case manager in the middle of the process. The mortgage company may have another appraisal done and the value could be higher on the most recent appraisal.
#7) Attention to detail is VERY important. I personally use an attorney's office to handle the mediation of the process. Some agents prefer to do this themselves. So long as they have sufficient staff and processes in place, this is fine. Remember, you have to have a team that is proactively following up on your deal. Not reacting to bad news.
#8) Believe it or not, you may not have to be behind on your payments to short sale your home. There are a number of different hardships that you can have. They can vary from lender to lender. But, job transfer, divorce, death of a wage earner, etc. can all come into play.
#9) A short sale leaves a deficiency. This deficiency can be forgiven in most instances. However, it may depend on circumstance. You need to know that the deficiency isn't always waived in the short sale process. Be VERY clear on the details of your short sale.
#10) A short sale will typically prevent you from buying another home for three years. However, if you have good credit other than the short sale, and there are other mitigating factors, you "may" be able to buy a home sooner than three years. It will be up to the individual underwriter at the time that you go to buy a home.
You may thinking this is a lot of work, why not just let the home go into foreclosure? Well, the foreclosure process will add thousands to your deficiency, and the bank can get a judgement for the deficiency. It will hurt your credit more than a short sale. It will most likely prevent you from buying another home for a longer period of time. It may make it harder to rent a home. And, there is the emotional toll of going through the foreclosure process.
Deed In Lieu- If you have only one mortgage, and you have tried to sell your home, but have been unsuccessful, you may be allowed to turn the property back over to the lender without the foreclosure process. This is called a deed in lieu. If there are two mortgages, a deed in lieu is much more difficult. Many times, this will allow you to avoid being required to pay the deficiency.
In the final installment, we will discuss foreclosure and your rights. If you have anything you want to add or clarify to this, PLEASE comment.
I gave three basic warnings, #1) Denial is not a way to avoid foreclosure, rather it is a way to nearly ensure it. #2) You cannot latch onto the horror stories about failed loan modifications or short sales.
#3) Stay away from companies that offer to handle this for you.
So, what if you are behind on your payments and you cannot realistically keep the home. If you income has been greatly reduced, you may not be able to come up with a modification that works. Or, what if you have been transferred or what if you had to take a new job somewhere else, etc.
There are a myriad of reasons that you could want or need to sell your home in this situation. So, what is a short sale? It is quite simply, the sale of your home when the sale does not cover all of the mortgages or liens on the property.
As an aside, a short sale may not even be mortgage related. You can owe less than what the home is worth, but have other liens on the property. These can be from contractors, HOA's, taxes, etc. And, believe it or not, in many cases, these can all be worked around. (Yes, even the tax liens)
Okay, so, now lets talk about some basics of a short sale. Keep in mind that every lender is different and many times even different employees of the same lender may make different decisions. Okay, so with that in mind, lets try to set some basic parameters.
#1) The person that is the biggest key in a successful short sale is the seller. The seller has to be committed to supplying the mortgage company all the information that the mortgage company requires.
#2) The second most important person in the short sale transaction is the agent. Regardless of what type of sale it is, the house has to be marketed well. Remember, the bank is going to want to get as much as they can out of the property. The agent needs to have a good idea of market value, so that they can offer insight to the lender. And, of course, they need to know how to market the property. It appears as if some agents don't want to put the same time and effort into marketing short sales as they do other sales. I see so many short sales with no pictures and lackluster or no descriptions. They also know that once a seller starts the short sale process with one agent, they aren't likely to switch. They don't usually have that luxury.
#3) You will need to list your home with an agent. The mortgage company is protecting its interests.
#4) Your mortgage company will not typically allow you to sell to family members. I hesitate to say they won't allow it. But, it will certainly raise their eyebrows and it will require a good explanation.
#5) Your mortgage company will have your home valued by an agent doing a BPO or an appraiser. A couple things to factor in here. It won't be your agent doing the BPO for the lender. However, if your agent knows the market well, they can provide valid input and explanation if their valuation differs from the appraisal or BPO. Additionally, the appraiser or BPO agent does not see the inside of your home, nor do they get an up close view of the exterior of your home. If you have been struggling to keep the house maintained, they may not factor in the deferred maintenance at all. But, think before you hire the agent whose sole marketing ploy is to under price the home. Remember, the mortgage company has to agree to the price.
#6) If you have the short sell approved for one buyer and they walk, that doesn't mean that it will be automatically approved the next time, even if the next buyer makes the same offer. You may get a different case manager in the middle of the process. The mortgage company may have another appraisal done and the value could be higher on the most recent appraisal.
#7) Attention to detail is VERY important. I personally use an attorney's office to handle the mediation of the process. Some agents prefer to do this themselves. So long as they have sufficient staff and processes in place, this is fine. Remember, you have to have a team that is proactively following up on your deal. Not reacting to bad news.
#8) Believe it or not, you may not have to be behind on your payments to short sale your home. There are a number of different hardships that you can have. They can vary from lender to lender. But, job transfer, divorce, death of a wage earner, etc. can all come into play.
#9) A short sale leaves a deficiency. This deficiency can be forgiven in most instances. However, it may depend on circumstance. You need to know that the deficiency isn't always waived in the short sale process. Be VERY clear on the details of your short sale.
#10) A short sale will typically prevent you from buying another home for three years. However, if you have good credit other than the short sale, and there are other mitigating factors, you "may" be able to buy a home sooner than three years. It will be up to the individual underwriter at the time that you go to buy a home.
You may thinking this is a lot of work, why not just let the home go into foreclosure? Well, the foreclosure process will add thousands to your deficiency, and the bank can get a judgement for the deficiency. It will hurt your credit more than a short sale. It will most likely prevent you from buying another home for a longer period of time. It may make it harder to rent a home. And, there is the emotional toll of going through the foreclosure process.
Deed In Lieu- If you have only one mortgage, and you have tried to sell your home, but have been unsuccessful, you may be allowed to turn the property back over to the lender without the foreclosure process. This is called a deed in lieu. If there are two mortgages, a deed in lieu is much more difficult. Many times, this will allow you to avoid being required to pay the deficiency.
In the final installment, we will discuss foreclosure and your rights. If you have anything you want to add or clarify to this, PLEASE comment.
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