The original concept of a short sale is when a home sells for less than the mortgage(s) on it. The homeowner may or may not sign a promissory note or bring money to closing. Many homeowners in Orange Park and Fleming Island have not one, but two or three mortgages, including a home equity line of credit. You may be considering a short sale, but the question is - Do You Qualify for a Short Sale? Not every Clay County homeowner does insofar as no financial penalty. Here's the thing:
The rules for short sales keep changing
If a home is not sold as a short sale and goes into foreclosure, all the mortgages may be wiped out except first mortgage, so any second or third mortgages may be a total loss to their respective bank. Second and third mortgages are often held by different banks from the first mortgage. A year ago a second mortgage would accept from zero dollars up to $1000 payment and agree to a short sale. So would home equity lines of credit. Not now.
Today, the second lien holder often demands $3000-5000 from the first mortgage bank to agree to a short sale, and they may demand sellers sign a note agreeing to pay back a portion of the loan. Banks have figured out a way to recoup some of their huge losses by demanding some cash now and a promise to pay later. Additionally, some homeowners are also required to bring money to the closing if the bank determines they are in a financial position to do so.
Please note that if a prior promissory note has been signed on any of the mortgages, the bank can still come after the parties and obtain a judgment after the sale. A breach of contract has a long time period, so it can be years after the short sale that the bank can still come after the borrower. This is important to negotiate at the time of the short sale to have this waived.
It is not part of this discussion, but one of the comments mentioned liens that survive a foreclosure. There are liens that do, such as Federal tax liens, child support liens and construction liens. Check with professional legal/financial counsel for others. The liens for the purpose of this discussion are the mortgage liens.
So who qualifies for a short sale?
Homeowners with a genuine hardship who owe more money than their home is worth due to: job loss, medical reasons, divorce, or relocation that deplete a home owner's assets are considered by banks to be genuine hardship. In this instance, a bank will typically agree to a short sale and not demand cash at closing or a promissory note (but that doesn't mean prior promissory notes signed at the time of the loan may not come up later - this has to be negotiated to be waived).
So who may not qualify for a penalty-free short sale?
1. Homeowners who realize their home is worth less than what they paid and they just don't want to make the payments anymore.
2. Homeowners who have significant assets and income.
3. Homeowners who have bought a second home.
4. Investors.
Please note that there are always exceptions and in some areas banks may be more lenient with negotiating due to the number of short sales and foreclosures in those markets. The observations here are what we are seeing in our market. There are situations where the borrower who can be in the investor, second home, significant assets, or just upside and wants out category walks away with little or no money out of pocket or without signing a promissory note, but in our market and our experience, this is an exception.
Homeowners who qualify for a short sale as of now will usually not be asked by the bank to execute promissory notes for any balance owed. Homeowners who do not qualify for a penalty-free short sale may be required to either sign promissory notes and/or bring cash to closing or the property will go into foreclosure.
What should you do if you are behind in your payments?
If you are behind in your payments, call your bank(s) and keep communications open. Ask to speak to someone in the Loss Mitigation Department. You may qualify for a loan modification or another program. Seek the advice of your financial adviser, accountant and attorney to give you all the information about your particular situation.
Contact an experienced short sale real estate professional to determine what your home may sell for. You may contact us for a consultation and for referrals to legal and financial professionals.
So should you do a short sale or not?
Short sales affect your credit for two years. After two years, you may buy a home again. Foreclosures impact your credit for five 
years. Bankruptcy has a more negative impact than a short sale also. Donna Bigda has written an excellent post covering this subject.
About 20% of homes on Fleming Island on the market are short sales or bank owned and 38% of homes in Orange Park are short sales or bank owned, so you're not alone in the decisions you are facing. Once you speak with the bank and other advisers, including an experienced short sale real estate agent, you will have enough information to make a good decision. Give us a call at 904-673-2308 if you want to get together to see if we can help you navigate a short sale.
Please note: The information in this article is the opinion of the author, based on her personal experience, the experience of colleagues, research on the subject and courses attended by the author. As stated in the article, the rules are constantly changing. Any person considering a short sale is advised, as it says in the article, to seek professional counsel including legal advice and financial/tax advice. Every individual's situation is different and this article is no substitute for professional counsel.
To reach us, call or text us at 904-673-2308 or e-mail - sharon@teamalters.com
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Many homeowners do not understand much at all about short sales or if they are eligible for one.
The banks are still tough to work with on short sales - and the second lienholder may prefer the write off on the whole amount of the second than accept a few thousand. It can be so complicated with 2 loans and that seems to be part of the long time frame.
Good explanation for sellers in a tough spot.
On the short sales I have done we have been successful throwing the 2nd lien holder a bone in order to get them to approve quicker and get to closing.
Good information for home owners who believe that short sales are for anyone who wants to do it.
I get calls regularly from folks who simply don't qualify for short sale but just want to dump a property.
It IS good information. My son and his girlfriend are in a short sale situation but are trying to proceed with bringing funds to the table. After being involved in so many short sales, there's a piece of me that says we should proceed with a short sale rather than seeing them struggle to close with funds that are accumulated from parents and draining their bank accounts. It's the hardship that I struggle with. I don't believe they're in a hardship situation. They are relocating across country because of a job offer and the company will not assist in selling their house. Still I don't consider that a hardship. They could stay at their current jobs. I know however, others, who have used relocation as a hardship.
Good news is that they should be able to close for about $10,000. Considering that they've lost about $50,000 in total in this endeavor - after only 15 months of ownership, it's a lesson they will no doubt remember for a long time!! Not sure they'll buy again for a very long time
Hi Guys !
What an exceptionally good explanation of the qualifications for a short sale !
I see so many articles about this subject, but this is one of the most easy-to-understand versions I can remember !
...very well written, and I know your readers will appreciate it.
Cheers guys, enjoy your weekend !
Sheldon :o)
PS: And congrats on the very well earned Feature !!
Hardship has always been the measring stick for a short sale..."I don't wanna..." has never cut it..
Sharon, you are right they are not for eveyone but are much better than a foreclosure on a person's credit. Also it is always best to hire an agent who knows what they are doing.
They are hard but with the knowledge of an agent experience we are able to get them done.
Very simple information for the consumer regarding short sales. Congrats on the feature. Well earned.
The rules are always changing not only in the short sale area but in many areas of finance and taxes. It is tough to keep up when the rules keep changing.
Sharon - Great post! This is really good information for sellers that want to do a short sale. I basically gives them some information to see if they qualify to do one. I've had sellers that just didn't want the house anymore. They just thought they could do a short sale without finding out what a short sale really means.
All good information. Much is misunderstood about short sales, and yes second mortgages to complicate things. Very often they want to do a non-secred loan payout. Of course it is not secred by anything so technically they can bag it. Second mortgage holders have been tougher to deal with recently.
Virginia, that's a good point. One area I didn't cover is the whole private mortgage insurance issue - where the second lienholder would rather allow the property to foreclose so they can recover some money.
Bill, bones do help. But they keep getting bigger as time goes on!
Lenn, that is exactly why I wrote this post. We also receive calls from folks who think they can just put the property on the market and dump it, as you say, but when you dig deeper, they can't.
Marcia, that is a tough situation for you and your son and his girlfriend. However, if they can save their credit, I think it is worth it. Since the rules keep changing, no one knows what the full impact of this will be on people in the future. There are people who must relocate to take care of an elderly parent or other family member. There are military who are ordered elsewhere. There are people in a company where they must take the relocation or lose their job altogether.
Thanks, Sheldon! I tried to make it easy to understand.
Sally & David, exactly. But people don't get it. They see their neighbor doing it and figure it will work for them.
Missy, you are 100% right. Getting these sales negotiated is not for the inexperienced Realtor. The right agent can mean the difference between closing the deal or a sale on the courthouse steps, which is much worse for the sellers' credit.
Tere, thanks! It was a lovely surprise to wake up to a gold star! :)
Scott, you are so right. That's why we need to keep our financial and legal advisors in our hip pocket so we can keep up. That's the point of this post. The rules have changed and homeowners really don't know it. Heck, most Realtors dont' know it!
Thanks, Robert! Right, it seems to be the thing to do, like casting off last year's fashions. The banks don't see it that way. Sellers need to know. Lots of them just need to stay in their homes and keep paying their mortgage.
Joe, excellent point. It is unsecured, so technically, the Sellers don't have to pay it. But they will have a Judgment against them eventually and they will not be able to buy a house unless they deal with it. Expect to see these 'unsecured notes' atached to home purchases in the future.
Jim, it's not a note in lieu of foreclosure that I was talking about. It is an unsecured note along with a sale of the home along with some cash to the lienholder, whatever they agree to. It's not just 'sign this note and walk.' In our area we have seen multiple instances of banks requiring this to agree to the sale. Of course the amount can be and is negotiated, but banks are doing it.
People with vacation homes, second homes and investors can sell their homes short - but they do not qualify in the traditional sense of a hardship and will be scrutinized much more closely for assets and bringing money to the table, signing promissory notes, etc.
Well-written, concise article on the confusing topic of short sales. I have a more fundamental question-what critiera/paramters does a lender use to determine to accept a short sale vs foreclosure? I'm guessing its all or mostly based on which option incurs the least amount of loss? or is a short sale (forgiven debt different than having an REO property on the books?)
Great post. I agree for the most part. However, I have also worked with several investors/2nd homeowners that have been able to do short-sales. It is never easy, but it is possible.
Thanks, Adri
Dora and Vincent, in our experience, the bank would usually rather sell the house than foreclose. Foreclosures cost the bank more money. They do their own price opinion and if offers are significantly lower, they will let it foreclose, figuring they can get more money selling it themselves. The rule has generally been that they will take within 5-10% of market value, but the rules keep changing.
Having said that, we had a cash offer turned down last summer which was within 10% of market value and the buyers would have negotiated and we watched the house sit and sit and go into foreclosure and eventually sell for $115,000 less than the cash offer. So trying to figure out the logic behind a bank and their negotiator is sometimes like nailing jello to the wall.
Adriana, yes they can sell short but were you able to get them off without signing a note or bringing any money to the table? There are always exceptions and maybe they were able to get off with no financial penalties, but for more people and their banks, this is not the case. People with assets are being told to "show me the money" before the bank will agree to a short sale.
Thanks for the info. I have avoided short sales so far but its only a matter of time before i am working with one. Very informative Post
Aaron, if you live in Florida, Nevada or California, you can't avoid them and stay in business. Thanks for stopping by.
This is a great explanation of short sales directed to consumers. Another thing that sometimes plays into the picture is mortgage insurance that may cause the need for a promissory note despite the fact that there are little to no assets. I've been seeing that quite a bit in the last few months.
Frank and Sharon:
I like to preface by saying that anyone can do a short sale if you are willing to pay the piper. You will either pay in cash or credit. To the degree that the hardship is a hardship is a hardship will determine the contribution from the seller. But that is not always the case.
We most certainly get short sales approved for just about anyone.
We get short sales approved with NO cash layout from investors every week. Saying that investors don't qualify is simply not the fact.
We have a short sale approved with a seller who has a million dollars in the bank and they will only have to bring 6K to closing out of a 200K deficiency. It all depends on the negotiation skills of the agents doing the short sale.
When the bank comes back with their offer- we just keep going back and forth with the counters from the sellers and the short sale lenders.
We do multiple short sales for one party. We have one who has perfect credit, the banks says, they have perfect credit so we want a note back for 65K - we said no, they will file bankruptcy, bank says no they won't cause they have good credit and are not late with payments on their personal home. We say, are you taking that chance, VP of bank came back and released them fully with no cash outlay. That just got approved and closed two weeks ago. They own 3 houses.
This is what you wrote in your post:
"So who does not qualify for a short sale?
1. Homeowners who realize their home is worth less than what they paid and they just don't want to make the payments anymore.
2. Homeowners who have significant assets and income.
3. Homeowners who have bought a second home.
4. Investors.
Homeowners who qualify for a short sale as of now will usually not be asked by the bank to execute promissory notes for any balance owed. Homeowners who do not qualify for a short sale will either sign promissory notes or the property will go into foreclosure."
We say: You either are approved for a short sale or not. You can not be "do not qualify for a short sale will either sign promissory notes..." If they sign a promissory note they are approved for the short sale.
We do short sales for people who:
Have significant assets and income. We are doing 3 right now for attorneys who are doing short sales of their own properties, multi millionaire clients and 2 orthodontists.
Have bought a second home. We get these approved every month. We do at least two of these ones per month.
Investors! We get investors approved on short sales every month. We have one investor where we are on this 5th property that we are short selling. Not one of the other 4 has he to bring one penny to closing and not one has he had to sign a note on. Everyone one he had to be current on HOAs. Katerina
I love it when I can take something as well written as this and basically hand it out to my clients. Thank you and congrats on the feature
Thanks for the well written and very easy to understand post explaining the short sale. There are so many misconceptions out there. It seems many folks think having that 2nd mortgage and/or home equity loans have nothing to do with it. Those 2 items alone can drag a transaction on and on and make an agonizing experience for all that more painful.
Robin had spent an inordinate amount of time in one such transaction for her clients (sellers). It went on and on and finally when the sellers agreed to the Promissory Note thingy on the 2nd both lenders agreed to close. On the day of closing as the Walk-through was being done severe water damage was discovered!! The main lein holder had sent a company to winterize the home and they neglected one step in the process!! What a mess and if I had been the sellers I think it quite possible I would have had a nervous breakdown!! Ironically as it has turned out the buyer has lost his job so in retrospect it was a blessing for them. And poor Robin -- she shared the pain of all -- including herself!!
Sue
Katerina, I think you and Barry are missing the point of this post. We forget that people don't even know what a short sale is, let alone if they can qualify for one - by which I mean walk away without any financial consequence other than their credit. In our experience here in NE Florida, banks are demanding that people bring money to closing and/or sign promissory notes. Of course there are always exceptions.
If you have people with a million dollars in the bank and the bank is willing to let them walk away with so little out of their pocket, I think that speaks to the state of your market in South Florida which is much more dire than other areas of the country, as well as your negotiating skills. That someone is willing to play poker and call the bank's bluff on bankruptcy is not surprising. It speaks to the greed in people that has gotten us into this situation in the first place.
Not everyone is so brave. Attorneys and other highly educated people are willing to go to lengths to preserve their assets that other people are not able or willing to do. The emotional toll financial problems puts on a family cannot be left out of this equation. Someone who has a million dollars in the bank isn't going to be affected much.
We only have 20% short sales on Fleming Island. What is your %? Banks may feel lucky to even get a buyer in your area with so many short sales competing.
Barry - I am speaking about the mortgages attached to the property. If there are not sufficient funds to satisfy the first mortgage, the other mortgages are wiped out. Federal tax liens are not written off and construction liens stay attached to the property. I will clarify that.
Short Sales can be tedious and lengthy and frustrating when you are dealing with some bank employees. I don't think it is professional to insult a Realtor just because they find short sales hard. They are just speaking the truth about how they feel about them. I know some agents who won't even show them because they don't want to have to deal with waiting so long for an answer and the anxious buyers.
Thanks, Claude. It was intended to be a general guideline for short sales. Of course there will be exceptions, but in general, these are what banks are saying about this type of sale.
You're right. The only thing that's consistent about short sales is that they are inconsistent. We are seeing fewer closings of short sales locally.
Sue, it sounds like in that instance it turned out for the buyer's best interest. Unfortunately, Robin's time and effort were not rewarded and that is one reason why agents think short sales are hard. She did her job and brought it to the closing table - only to have it blow up. That's hard! My comfort in these situations is that there was a reason why it happened and I'm not looking to any one person for my income.
Vickie, exactly. You think you have it figured out and it changes. Wonder why less are closing? I have heard some banks are holding out trying to see if the bail out will help them - actually with homeowners instead of buying other banks. What a concept!
Frank you wrote.." I don't think it is professional to insult a Realtor just because they find short sales hard."
My response is why is it an insult if it's the truth? I see realtors always comparing themselves to Doctors and lawyers. If either of those professionals decide to practice in a certain area they become proficient in it or don't do it at all. The podiatrist doesn't try his hand at heart surgery and then claim it's too hard.
My problem is the multitude of posers. And yes it is insulting! If you don't have competent experience in short sales, then GET OUT..don't take a listing because someone called in and then pretend you know what you're doing because you don't have the honesty to say..Sorry..it is beyond my field of experience.
In this forum I see agents commenting about short sales with unadulterated BS and yes..it's insulting to those of us who have honed our craft to the point where our expertise is questioned because of all of the other hacks dippint their toes in the water.
I make a decent living on a segment of my business which involves cleaning up the mess of agents who took a shot, failed and moved on. Check out the amount of expireds and cancelled listings wherein all an agent did is fail and burn time.
The gross misrepresentation and malpractice is going to be a boon for attorneys. I have already been called in 4 separate times as a witness to the incompetency.
It is so easy to prove and when I see posts like this (now clarified) and comments like some herein..it makes the lawsuits easy.
In fact one we were called in on had an Active Rain post where the agent actually said he was practicing on the client. Don't you all realize that this is a public forum? All of this can EASILY come back to bite the malpracticing incompetent agent. I have already seen it!
Hey...doesn't matter to me..makes my job easier. So my comments being insulting...hardly. I think more should find them as a warning.
Like I said above and underscored by Nestor...it's all about relative skill. I don't know ANYTHING about a 1031 exchange so I NEVER comment or get involved in them and always refer them to other people.
Yet short sales became the soup of the day for many realtors and they think the 2 hr board training or the Active Rain short sale forum qualifies them as an expert.
Hope it works out for them. And I really hope they don't end up in Court with that as a statement of their competency.
Good clear concise information to pass along to clients. We are seeing very few short sales go thru here in my neck of the woods lately. Tons of foreclosures, yes.We've had some succesful short sale closings and many that took forever to get response back and buyers moved on. That seems to be the general consensus with many of the agents that I talk with. Not so much that they're 'hard' but more so they don't close and/or they take 4 to 6 months to close if they ever do get that far.
It is interestng to me that short sales classes teach the fact of having to prove hardship. Apparently that is not the case. It drives me a little nuts that people with multiple properties, plenty of cash on hand etc etc, are able to short sale. This kind of activity is what got us into this mess. Greed continues to live and breath and I'm sure it always well. Some I'm sure will think it's nieve of me to think this wasy.....and that's fine. I just don't think it's right.
Frank & Sharon - A solid blog. Clear and very concise info on what is a simply process that has gone awry!!!
Keep em coming.
Cheers
Barry - this is Sharon (not Frank) and Nestor is actually Katerina, FYI.
Thank you for your opinions. You are entitled to them. We welcome different opinions but here in Active Rain, but most members try to add value in a positive way - if you knew the liens that wouldn't be wiped out - which you obviously did, you could have chosen to be helpful and add value and inform the readers what those liens are. I guess you were wanting me to do my homework? I already knew that, it was just one point that wasn't clarified and I thank you for bringing it up. That's what we're here for, to help each other!
Anna, thank you. Classes do teach it and in our area the agents we talk to including ourselves, banks are increasingly more aggressive. Recently, we now have an addendum some banks are using that gives them the right to walk from the sale at any time that a friend sent me from Miami over a year ago. We have a lot of short sales but methinks we are about to have more foreclosures with the moratorium lifted.
I totally agree with you about the people with multiple properties and lots of money in the bank. It is greed personified and greed is what got us here. I guess I'm naive also, because I just don't think it's right.
Fredyt3, thanks for the compliment and blogging is a passion - they will keep coming!
Hi Sharon..I do add value..plenty of value...teaching however is not free. I prefer the "teach a man to fish" perspective rather than the free lunch variety of instruction.
By the way,,there are indeed some other things which survive foreclosure and attach to the property.
Frank & Sharon, thank you so much for this information. Many homeowners do not realize that just because their first mortgage holder may be willing to short sale, if they have second & thirds, those lien holders may not agree.
This is great information to share with homeowners, and I appreciate your taking the time to share with us.
Hardship has always been the measring stick for a short sale..."I don't wanna..." has never cut it..
I loved this comment from Sally and David! It summarizes the whole thing. Too many people just want to hand the house back even though they have jobs, perhaps have assets, second home, etc. I understand loss of jobs, medical problems and true hardships but just because the house has decreased in value is NOT a valid reason for a shortsale.
The comment Marcia Kramarz left about her son and girlfriend not buying for a long time scares me. I have a feeling that a lot of people are going to feel that way after all is said and done here. Which is not good for the housing market our economy. The banks still do not seem to understand the situation fully. The more they fight the current circumstances of the economy the more they prolong this downturn in the housing market and economy and the more money they will continue to lose. And don't let these latest "earnings reports" lead you to believe the banks are now making money. Those are all due to the mark to market rule change. It's just accounting earnings, not real cash flow earnings. Good post and best of luck.
Marney, you are welcome. Many people are completely ignorant of this.
Barbara, unfortunately there is a wave of people who are just deciding, "I don't wanna," and that isn't right. Other people who would like to move are staying put and making their payments. We have many potential listings that just can't sell right now but they are doing the right thing and staying in their homes.
Jerry, you are right, but after not too long people give in and buy. That's one reason why I think our market is so active right now. Pent up demand. People have been on the fence over a year and finally they're coming out to buy. Rates are good, prices are good, selection is good, and they decided not to wait anymore.
Great information for people who want to do a short sale. It is the just the beginning of them for metro Detroiters
People call all the time wanting to consdier doing a short-sale -- but they have no hardship.
Hi Frank and Sharon -- Too bad the photo doesn't show her pulling her hair out, which is what many short sellers are feeling these days, as the process is so complex it requires a great relationship with the seller and deep knowledge and persistence to deal with some banks who are less than responsive. Great practical tips on who qualifies.
2nd & 3rd mortgages are not automatically wiped out with a foreclosure by the first. they usually won't redeem and make their loss worse.
Sharon,
I congratulate you on the star.
And while I applaud Katerina, I was very disappointed by Barry's comments.
Barry might be the most knowledgeable person in Short sales, but I think he misses the whole point of AR. If you can add, do it. If you do not want to, then why comment?
Not that he can't keep it all for himself, that's fine, but why then take the podium? Barry could simply write his own blog, and give just general information, which would be highly appreciated. His tone, however, is more "Get out of the way" type screaming.
I can bring the example of Richard Zaretsky, an attorney from West Palm Beach, who wrote terrific blog posts on Short Sales and Foreclosures. Very informative, very authoritative. It is his business, but the general information, the general sense of from where the legs our growing is not a problem for Richard. It is a problem for Barry. And it is insulting to the rest of the crowd.
Besides "me, the greatest" there actually was no value for participants.
I do not think you deserve any personal attack, and anyone questioning your integrity. And destroying the tone of the whole discussion.
Because Barry chose not to add value, why don't you just delete these comments as derogatory? Look, Sharon, if they do not add anything to your blog, why alloow to take away from you? We come to AR to learn and to share and to discuss. Not to be castigated...
Great information on short sales. Last year i was working a short sale where there was a 2nd and it was a company representing the first lien holder. I had to get help from the first lein holder to help get the 2nd to work with us and accept $2,000 so we could close. This was a long drug out short sale.
Thanks, Russ. Welcome to our world!
Bob and Carolin - There are many people who need to stay put for awhile.
Jon - After your comment, I went back and looked at his comments and you were right. Not only that, but they were a thinly-veiled third-party advertisement for the course he teaches. Since they didn't add anything to this discussion and he continued in his manner, I deleted the rest of them.
Roland - The first lienholder has also helped us get the second to cooperate. Thanksk for your comment.
Frank & Sharon - What a wonderful post and I am so sorry I missed all the action. A gold star from the AR gods and a feature at:
LATE NIGHT - EARLY MORNING AT ACTIVERAIN
Great job my friends!
Vegas Bob
I don't know who Jon is but I am not suprised by your actions frank..and I don't need your endorsement..by any means...nor do I troll here for business.
Why I comment here is to be a beacon of hope for those who want to improve upon their game not languish in continued mediocrity and incompetence. I am EXTREMELY passionate about the business and short sales are but a portion.
I guess I'll continue this discussion on a much more open platform. I'll send you a link..I'm SURE you'll want to read it. But when you do..by all means please remember I invited you to email me personally for information instead you went the other way and chose to try and silence me.
Trust me, you'll find it would have been better to have open discourse here rather than the forthcoming alternative.
Sharon- A short sale is a seller's bank accepting terms and/or conditions less than the full amount of the loan due upon closing. That is what a short sale is.
Saying a seller has to qualify for a short sale via a hardship is relative at best.
What I have a problem with is that when we write posts for the public about who can not get a short sale is that some seller who could get a short sale reads a post where it says he can't and then he does not even try and just lets his house go into foreclosure.
Getting a short sale approved with the seller bringing a portion of the amount due to the closing table is still a short sale. A short sale definition is not just those who get off free and clear.
If the second mortgage is $60 and the seller negotiates it down to $6K- it is still a short sale. It is still that they are paying less than what the original note was for.
We do have a lot more short sales than you have in your market. However, the short sales getting approved has more to do with negotiating skills than any thing else.
We had one client where the PMI company was stuck on getting a promissory note and cash pay out of a certain amount at closing. Most agents would have stopped there. We go to bat for our sellers all the way. So we contacted the president of the PMI company and he made the call to release the sellers of all obligations. This is what most people tell us can not be done, even here in S Fl but we get it done.
If the negotiator demands something and your seller does not like it, then you go up the chain of command until you find someone who sees it your way. It is done in every state and in every area, even in areas where there are not a lot of short sales. We have been doing short sales for over 12 years and we got our sellers of all financial capabilities approved for short sales.
For those who pass judgment on people with money in the bank doing short sales on their properties:
IT is NOT my place to judge their motives or reasons. I can either choose to accept their listing or not. Most of our people who have over a million dollars in the bank are over the age of 70. That money has to last them the rest of their lives. We have people here who got taken by Maddoff really bad and are losing everything and now are being told they also have to give whatever they did get from Maddoff back to the trustee. They are millionaires but they still have the right to do a short sale on some of their properties. We have a lady now who owes over 3 million on her house and her husband just died. Her property is only worth 1.5 million now. She is going to be able to do a short sale with very little payment out of pocket- just because she has money does not mean she can not have the same opportunity to do a short sale as someone who just lost their job in a 100K house. Katerina
@ Jon you wrote.."If you can add, do it. If you do not want to, then why comment?"
I'm sorry, I called attention to an erroneous post and mentioned that what was written was not correct. You don't find any value in knowing if that which you read is incorrect? Hmm..interesting.
By the way...what was it that you added of value? In the comparison about the Palm beach attorney..I think you may not be aware of the VOLUMES of free information I provide about short sales and other aspects of real estate. I think you speak of that which you do not know.
Another correction regarding erroneous information. You can get childishly upset all that you want...but it's obviou that the truth hurts when it is spoken in an open forum.
You said that you "We come to AR to learn and to share and to discuss"...?
Really? Then here's a question that I have. If you are taught erroneous information that you plan on taking away and implementing that information in your "business", wouldn't you find it of direct value to know if said information is actually correct before you impart it upon your client?
Or is it assumed to be correct because you heard it here on Active Rain?
And as you ponder that, wouldn't your client expect that in your "learning" process that you actually learned the correct way to help them in their situation or are they too to accept that if you read something on an active rain post that it is gospel?
I don't expect you to answer. For if you can't find value in spirited and open discourse which will allow you to actually improve your proficiency then there was no hope in the learning process to begin with.
Katerina I applaud you! "short sales getting approved has more to do with negotiating skills than any thing else"
Amen..truth hurts! And I love the fact that like us, you too have been doing short sales "before" they became the "in" thing!
Just wonder why the masses can't understand that the viability of this process is but one arrow in a quiver of revenue generating sources. I know that your short sale prowess has allowed you a great many other opportunities. I just wonder how you maintain the patience to deal with the inanity here that seems to be coming more and more commonplace.
Katerina, that is a different story if the people are elderly. That does speak of a hardship. Even if they have a million dollars, that can be gone quickly with a serious illness. When you speak of someone with a million dollars in the bank, the image one has is that of someone just trying to game the system.
When I interview a person for a short sale and I find out they bought the home two years ago and they are a husband and wife team that make $200,000 a year and just want to get rid of it so they can buy something else for cash, I have to break the news to them that "A" that they won't qualify for a short sale and "B" if they find an agent to list their home as a short sale that the agent is an idiot and is only doing it to try to get the commission on the buy, because this home won't sell as a short sale, it will be a foreclosure first!
Way to make yourself shine as a Short Sale Expert!
Very good article, thank you for sharing.
Jorge
There was a great article in April's Realtor magazine entitled, "Short Sales: 7 Legal Pitfalls." Basically, their advice was simple: "You don't want to jump into this niche willy-nilly. In addition to educating yourself on the ins and outs of these complex deals, you also need a good picture of the legal risks that exist for you."
More information: REALTOR.org/realtormag
Melissa Juarez, Massachusetts Buyers Broker Agency, LLC majesq82@yahoo.com
Thanks for your comments everyone. Wow, I had no idea this would generate such a discussion!
Sharon
your "qualifications" for a short sale are incorrect. There are no "hardships" required. A short sale can be done in any situation, and I have done short sales for people with excellent credit, multiple properties, lots of assets, no "hardship," The point is, that if you tell the bank you are selling short, what choice do they have? None. Will there be strings attached in ashort sale with the terms outlined above? There could be, usually a promissory note. To tell people that they can't qualify for a short sale because you don't think they do is irresponsible. Short sales are not a real estate issue, therefore, agents really aren't qualified to determine who is qualified for a short sale. Short sales are a banking issue, and unless you are trained in or experienced in banking, you really have no business attempting a short sale.
www.short_sale_expert.activerain.com
Sharon,
Please, excuse me for hijacking your blog post for a moment. I just do not see any other way to respond as Barry addresses commenters directly, which is, actually, hijacking.
Barry, you are welcome to write a blog, and discuss it with your audience. I am not going to get engaged in the discussion with you on Sharon's blog.
We can debate things, but viciously attacking is not a debate. I did not see any open discussion, and I did not like the word passionate in this context, as then the killer is the most passionate person. Passion is in our hearts, and screaming is not about passion.
Applauding Katerina is one thing. Being respectful as she is another. You were not.
Truth does not hurt, arrogance does. You enjoy party crashing? I am afraid you got it all wrong. Get your own party for that.
My experience after doing short sales for the past 4 years, in a market where 98% of the homes are in foreclosure or are short sales, property values are down by 75% to 1990 prices, the banks will do a short sale. Their choice-- do a short sale, or have a foreclosure. In my experience, once a homeowner has decided to short sale their property, they are done! They no longer care.
Investors have been approved for short sales. 2nds have asked for promisary notes, been told "NO" and still approved the short sale.
In our market we are expecting TONS more foreclosures if the banks don't start doing 'short-refis" for most people.
It starts to make financial sense when your home is worth $200,000 less (Half) than the loan on the property.
You hit rule #1 right on the spot -- "The Rules for Short Sales Keep Changing"
Also.. there are times when sellers who own multiple homes can qualify for a short sale... especially if the other homes are under water and the seller qualifies under the loss of income criteria.
Just did one...
Jon - Applause!
Susan - Thanks for your comment. I am just reporting what we have seen in our market where we only have 20%. I hope the banks start doing something with the bail out money they have to help the man on the street. So far it has gone to buy more banks.
Paul, great point. That certainly is a hardship.
Frank & Sharon - I never got a chance until now to stop by and read your post after it was featured yesterday. Lots of comments and quite a debate on who does or doesn't qualify for a hardship. Given the diverse opinions here is it possible that we may start seeing a shift in how banks will start looking at short sales with the increasing amount of foreclosures still on the books and more on the horizon? Thank you for the link love too in the mention of my post and the reblog.
Sharon- That was one example. To you and I - we can create a 'hardship' from a couple over the age of 70 with a million dollars in the bank. To some other people because they have a lot of money compared to them, they have an attitude that this couple does not deserve to get a short sale.
The short sale is not predicated on hard ship- it is just that having a hardship makes getting a short sale easier in some cases. Again, I go back to knowing how to negotiate with the lenders.
But Joseph Alfe is very correct. You do not need to have a hardship to get a short sale approved. We get short sales approved for all the same types of situations like Joseph says in his comment.
Great discussion BTW. Katerina
Thank you for taking the time to outline this complex issue - you shoild teach a class on it.
@ Jon...sorry I could not responde earlier. I was actually closing on a short sale on a Sunday..while you were engaged with hollow commentary. Albeit applauded by Sharon.
Hey it's your sandbox...say what you want. I don't comment for your benefit. Hope is lost on those like you. But the emails I received today make it all worthwhile for while silent...there are MANY who lurk here who find great value in the truth.
For those who have sought that out, I deal with rhetoric such as yours.
Have a great week! With 2 more closings set for this week..I KNOW i will.
Congratulation! Great post. Banks are getting smarter when doing short sale and are trying a new way "Short Sale Approved" with the help of homeowners to approve short sale faster.
Frank & Sharon,
Thanks for the post and the awareness that Short Sale Rules are changing. Here in Hawaii, we have the added complication of a lovely law called Act 137 which prevents realtors from talking to lenders of distressed properties ( 60 days delinquent). Makes it hard for the professionals who are studying these complex processes to help their clients who are in distress. Hopefully, realtors will be excluded from this list of people who cannot speak to the bank, and we can assist our clients who don't have a clue how to deal with the banks. Thanks for sharing your insights. Much appreciated.
We too have noticed the reluctance with certain lenders when it comes to the 2nd lien, anyone have any suggestions or expieriences as to how to negotiate to come to satisfactory solution for both parties.
It seems so ood that the 2nd lien holder rather not "agree" and lets the entire deal fall apart.
Any suggestions comments are greatly appreciated.
A successful short sale is predicated by the cooperation of all lien-holders. However, you are right, the first step in any potential short sale is to draft the hardship letter and distribute it to all the secured creditors. Yes, mechanics liens may get filed, but this gives you better negotiating leverage when everything is on the table. It also puts the priority lien-holders (i.e. the first or second mortgage lenders) on notice that their are other municipal, mechanics, etc. liens on file and must be considered when offering to negotiate a settlement.
Which, by the way is fine. How many times have you asked an upside down homeowner "if you could, would you like to stay in this home?" Maybe a loan modification is all that is needed. Maybe the banks need a "wake up notice" from the property owner's attorneys that the owner did not receive proper notice of the last change of loan servicing (which may be a violation of the state's consumer protection laws). Or, that because of a last minute change on the HUD-1 statement, the APR on the loan was incorrectly calculated, which may be a violation of the Truth-in-Lending regulations. If a bank doesn't respond to these claims, a default judgment could be ordered for treble damages. Then, doesn't a $400,000 loan modification sound better than a $1.2 million default judgment?
Sound unreasonable? It is not. But you need a good attorney who has done this before. I have the luxury of working with one of the best on a national level.
Thanks for sharing this wealth of information. One other consideration when advising our Sellers on the short sales is the forgiveness by the IRS. It is my understanding sellers will not be obligated to pay income tax on the amount of forgiveness on those loans which were purchase money loans and remaining on the property but those loans which were refinanced, there would be tax due on the difference between the original loan and current loan. There would also be taxes due on any second or third Trust Deeds placed on the property which are not a part of the purchase money loans. This is my understanding according to my CPA. If anyone knows differently, I would appreciate hearing back. One of my Sellers received a judgment for a $90,000 second after closing, what a shock! Sellers added a Pool and other goodies. Any information we can use in helping our clients through these issues is very helpful.
I think the short sales issues are pretty much the same everywhere. The real issue is which bank you are dealing with.
Great info! Seems the biggest reason agents don't get paid is buyers who walk after all the work is done and the bank has issued an acceptance. There is a free, cooperative service for Realtors to get those properties resold ASAP at www.RealEstateRoadkill.com
Frank and Sharon .. I like your teaching here ... "If you are behind in your payments, call your bank(s) and keep communications open. Ask to speak to someone in the Loss Mitigation Department. You may qualify for a loan modification or another program. Seek the advice of your financial adviser, accountant and attorney to give you all the information about your particular situation."
We agree. Best wishes.
Donna, thanks! And ditto to you for link love!
Katerina, it is a good discussion, isn't it?
Lynda, thank you!
Mayra, yes we are seeing that here also.
Ronnie, yes I think Sally Cheeseman wrote about that. Hopefully you can get that reversed!
Ryan, 2nd lienholders usually will negotiate, if they get some $$.
Martin @ Weichert, I have heard of attorneys who can delay the foreclosure for up to a year demanding documents that many times the bank can't produce because the loan has been sold - sometimes multiple times. I do wish more loan modifications were being done so people could stay in their homes.
Carole, that is a great point. Thanks!
Gene, Yes. Countrywide is widely held as the most difficult bank to work with.
Daniel @ Elite, True. It is critical to educate buyers at the beginning so they will wait. But when the bank comes back with a ridiculous counter, which has happened, sometimes they walk anyway.
Harrison, thank you. We would like for homeowners to be able to stay in their homes with loan modifications.
Michael, you're welcome.
Josef, didn't know exactly how to respond to your comment, so I went on your blog to see who you were.
In your comment to me, you wrote: 'your "qualifications" for a short sale are incorrect. There are no "hardships" required.'
This is an excerpt from your post entitled "The Credit Collapse-What went wrong, and how it pertains to Short Sales' on 1/14/2009:
"Steps to a Short Sale
The following steps are a condensed version of how to complete a typical short sale.
Step One is determining if you are eligible for a short sale. There are some misconceptions about who qualifies, and the answer is simply, anyone that can demonstrate any kind of "hardship." Hardships can include sickness, loss or reduction of income, divorce, upward adjusting payments, or simply a need to sell. The common denominator is a lack of equity to pay selling costs and the full mortgage balance due to depressed property value. The seller may or may not be currently delinquent on their mortgage, and the much mentioned "fact" that a seller must be delinquent to be granted a short sale is simply not true."
Great information and a great post. Congrats on the feature in the newsletter.
I always enjoy reading posts, comments and opinions here on Active Rain about Short Sales, and REO's. As an Agent who specializes in working mostly with Investors, I have had the opportunity to tap into and learn some of the new strategies and techniques being used. With that said; my only suggestion and advice to you my peers is to re-educate yourself about Short Sales. The process has changed dramatically in that the Hardship letter has been replaced by the HUD 1 statement!!! The Investor holding the notes only want to know one thing! Show me the money!!!! Ironically, the weakest document in most agents short sale package is the HUD 1. Don't think for a minute that the Title Company knows what they are doing.If you learn how to tweek the numbers on the Hud 1 and make it stand out as the most important document in your short sale package-it will speed through the system with ease.
Lyn, thank you!
Matt, this is a pay it forward attitude that Active Rain is so famous for. Thank you!
Todd:
Great post! It only touches on the basics of a Short Sale. Good Information. I have been doing “Shorties” as I call them for years. I do a two step listing. I go to the home do my basics and obtain the Lender Information as well as the Listing Agreement. I have a Short Sale Addendum to the listing Agreement. The Addendum states will it will be advertises as a Short Sale and what Conditions must be met. I send the Listing Agreement to the Lenders as Well as the Letter of Hardship and last two Seller’s pay stubs etc… and get them to agree as well on a separate Agreement, which is Addendum #2 to the listing ( Lenders Addendum to the Listing for a Short Sale. This works out really well for me. I do a lot of Shorts and it works. By the way I’m usually a critic of most Blogs but, hey way to go. See ya at the TOP! I give you an IQ Score of 190.
Anonymous because you would not believe who I’am.
Just got word! Sold -Pending 5 Shorts over the phone, took4 days from start to acceptance from all parties. That's listing to Contract to Pending 4 days. You can not beat that with a stick. Commission earned $35,000. Closing next week. Not Bad for 4 days worth of work!
Anonymous because you would not believe who I’am
Matt:
How do you tweek a HUD-1? Sounds like someone may loose his Licensure? HUD-1 is what it is you can not tweek it! I've been doing this stuff for years and years. Tweek? Maybe they'll call you The Tweeker in the State Pen doing Five -Ten. Dumb Thought! or maybe you just did not exspress yourself well?
Good post on short sales. I read it pretty quickly but did you discuss that the banks say they will issue a 1099 to the sellers who will need to claim the difference as income? I had heard that the government was forgiving this but have not done my research on it yet. Does anyone know about this?
Kelsey - Great question - there are some people who will not have to pay taxes (on personal residences) but I have read that everyone gets a 1099. This is an area that I would leave to an accountant and be sure to advise a seller to speak to one. That would be a topic for a future post!
Congratuation on this excellent, very informative and comprehensive post. It was a pleasure to read...and agree.
We REALTORS may be the last kind voice these sellers hear regarding their homes. The banks are so swamped, it isn't that they don't care, it is almost as if they don't have time to care. The more informed we are, the more helpful we can be. This was a very informative post. Thanks!
In response to my comment about TWEEKING the HUD 1! from an anonymous contributor here. Let me say that I acquired that word in reference to the HUD 1. from a video webinar sponsored by the largest Broker/Owner of Coldwell Banker franchises in the country. On that Video, he interviewed an Investor who is buying and closing on more than 50 short sale properties a month. The whole presentation was "HOW TO TWEEK YOUR HUD 1" I won't go into detail here, but I can assure you that it is not illegal. The facts are; Over 90% of HUD 1's prepared by Title Companys are inacurate and incomplete. Enough said!
A little knowledge and education goes along way. Hopefully, your next comments will have a name attached to them.?
Vicky, thanks!
Pat, it is indeed a tough time for the sellers. I spoke with a lady yesterday and I could hear the anguish in her voice, the pressure, and the just wanting to get it over with.
Matt, don't know who that commenter was but there could be an entire book written on this subject. One thing I will add is - make sure the HUD 1 has a date far enough out to include the time it takes to get the process done. If the date passes and taxes, insurance, interest change, well, then you're having to renegotiate part of the sale and depending on how many parties have to approve it, it takes time.
The only thing that is constant with short sales is constant change.
Amen to that one Mike!
Wow.......this conversation is still going on. Wow!
Mike - You are so right. The only thing we are guaranteed is change!
Anna - Yes, it has been a rather lively discussion!
Sharon and Frank: It would take a week like this one for me to not notice a great post such as this one. You did a great job with the subject! I just re-blogged it.
It is now featured on the Optimist Group. Thank you for your fine work!
That is a good explanation on a problem that is affecting a lot of people and with so many different variables and situations for each Short Sale (owner occ, investor, lenders, 1st and 2nds same lender, different lenders etc). Thank you for the helpful information.