Statistically, 1 in 10 homeowners are finding themselves in the position of having to sell their home quickly,; even when they cannot recoup the price they paid. This is called a short sale. While not an ideal situation, it is an option that allows you to walk away with limited impact on your future. Here are some tips to help you through what is often a very difficult process.
Depending upon the circumstances of your loan, a real estate and/or tax attorney may be necessary to contact, especially to explain any tax implications you may face. In some states, such as California, there is no recourse on purchase money loans. For example, if you secured a first and a second loan to purchase a home, and never refinanced, the lender may not request you to repay the shortfall between the amount you owe and the amount the lender accepts in a short sale. However, if you have refinanced and taken home equity money out, there most likely will be tax and repayment consequences. In these cases, you should definitely contact a tax expert.
Before making the decision to sell your home, meet and discuss with a professional and experienced real estate agent to discuss all of the alternatives available to you for keeping your home, including potential loan modification programs. If that is not possible, then explore short sale options and foreclosures. Be sure to understand your options, how long each option can take to complete, and what the expected outcome and impact will be on you financially, especially on your credit and your ability to buy a home in the future. Since you must work very closely with your realtor in any of these situations, as well as share sensitive financial information, it is imperative you believe in your agent’s ethics and integrity.
As you interview your prospective agent, be sure to ask if they have a game plan or set process in place on how they will sell your home, especially as a short sale. Ask how many short sales have they successfully completed as a listing agent and as a selling agent. This is important since you want a higher success rate for selling your home if at all possible. The short sale process is complex and having an agent who understands the lender’s steps, necessary documents, and communication requirements is critical to being successful in selling your house. A short sale is not something you want a new or inexperienced real estate agent negotiating for you.
Your lender would prefer you keep your home and not sell it as a short sale or lose it to foreclosure. So, even if you have not missed a mortgage payment, but are struggling or unable to make future payments, it's important to contact your lender before you start missing the payments. They will send you or direct you to a web site explaining a loan modification process. In some instances, the lender will consider adjusting your interest rates and payments to keep you in your home. You will be asked to write a hardship letter, explaining why you are requesting a loan modification. It would be a good idea to ask your real estate professional for a list of comparable sales in your area in order to support your request for lowering your payment. Be persistent, and do not take no for an answer.
If, after applying and furnishing all the required documentation to the lender, there is little or no offer of a loan modification, it may be time to consider selling your home, even if it means a short sale. A short sale means a lender allows a property to be sold at a price lower than the homeowner’s mortgage indebtedness. However, in terms of time, there is nothing “short” about a short sale. It takes a real estate agent with short sale expertise, and a plan for constant communication with the lender to close a short sale transaction. Short sales can take anywhere from 2 to 4 months to get a response, not considering the time to receive an approval from the lender, and that is after you have received an offer to buy your home. Be sure to ask your agent about their process to get the transaction closed.
The most important difference between a short sale versus foreclosure for the homeowner, is the extent of damage to one’s credit. Traditionally, short sales remain on, and negatively affect, a person’s credit report for about two years, but shows as “settled” on the report. Conversely, a foreclosure remains on and negatively affects a person’s credit report for 8-10 years, and does not show as “settled.” Also, note that a request for a short sale offer signed by the seller does not arbitrarily stop a foreclosure if you are delinquent on your mortgage payments. The lender’s short sale and foreclosure departments operate independently of each other and often do not communicate well with each other. It is very important for your listing real estate agent to constantly ask the loss mitigation department that handles short sales, if they are on the same page as the foreclosure department.
It is vital to protect your credit. In the event of a short sale, a homeowner can rent a home for two years, clear their credit, and catch up on unpaid bills. This helps position you to be able to purchase a home in the near future. With a foreclosure on the other hand, eight to ten years is a very long wait until you are once again able to qualify for a home loan. Don't just send the keys back to the bank either -- it’s easy but not a good long range plan and can affect you much like a foreclosure.
People love to give advice, but you wouldn’t go to a dentist for brain surgery or your landscaper for investment advice. Be sure you are in the hands of an experienced professional, including your real estate agent, attorney or tax consultant. Be sure to ask what experience each has had in a short sale transaction. They should be able to provide referrals.
Many sellers consider real estate agents who quote reduced commissions. In a short sale, the lender generally pays agent’s commissions, property taxes, escrow fees, and title insurance. So don't be tempted to cut corners - choose your agent based on experience, not “bargain” price.
Communication is vital in any transaction with your lender and agent. In a loan modification, you must be in constant contact with your lender. Let them know you are willing and able to supply them with any information needed, and do what it takes to resolve your situation. It shows that you are committed to successfully completing the process.
In a short sale you will be required to communicate frequently with both the lender and your real estate agent. Do not ignore calls, requests for additional information, or even the same information you have already submitted. Don’t be afraid to open mail from the lender. Open it and work with your agent who will help you through the many documentation requests the Lender can ask for. Be calm in your communications and interactions with all parties. A short sale process can become quite emotional. Don’t let your own emotions interfere with the completion of transaction. The key objective here is to sell the home so you can move on with your life.
Don't give up, stay in contact and get a good agent. Qualifying for a short sale is based on individual needs and circumstances. An experienced real estate agent can help you determine if you are a candidate. It is very gratifying to help troubled homeowners walk away from their homes with limited effect on their credit scores and their futures bright with promise for a new beginning. Together with the information gathered and your agent's help, you too can survive the crisis of losing your home.
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