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Michael DeLaere (Blaze) Realtor, Five Star Real Estate 843-327-9454

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Short Sales & Foreclosures

Here's some things you need to know about short sales...

Short sales are a fairly recent phenomenon. The short sale process can be a long and frustrating process for all involved. I can't go into detail without knowing the specifics of your situation, but I will give you some pointers to keep in mind.

A short sale occurs when the mortgagee (bank) allows you to sell a property for less than what is owed. When a property is "upside down," that means that you owe more than it's currently worth.  The only way that you can sell a property that is upside down is to take extra money to the closing table, or to sell it "short."  The only way to sell a property short is with the mortgagee's approval.  As you can imagine, this is not as easy as it sounds!  I hear people say all the time that banks are not in the Real Estate business and therefore they just want to get rid of the distressed properties on their books.  That may be true to a certain extent but I would also like to point out that banks are not in the business of losing money either!

In order for the bank to approve a short sale, the seller must prove that they are in financial dire straits. If you are the seller, be prepared to fill out a lot of paperwork!  You will need to provide your bank account records and other financial information, pay stubs, tax records, and a hardship letter explaining the situation that you are in. Short sales are only for people with severe financial problems. If the bank thinks that you should be able to make good on the loan, they will not approve a short sale. In a lot of cases you will be directed to other options first, such as loan modification, etc.  

If your short sale is approved by the bank, you are not out of the water yet!  Make sure that the bank is waiving your deficiency. Unless that deficiency is waived, you will still owe the difference between the sales price and the loan payoff amount. At that point you no longer have the property, but you still have a huge pile of associated debt. There are also tax issues to consider. The Mortgage Forgiveness Debt Relief Act... Be careful, and use a professional that is experienced in short sales!
 
From a buyer's standpoint, a short sale is a contingency in your sales contract that gives the seller's mortgagee (bank) final approval on the sales price, but it doesn't end there.  Often times the seller's bank will dictate the terms of the sales contract stipulating what can and cannot be done, the sales price, the timeline, etc. They have reams and reams of additional addendums and forms that each party has to sign and adhere to.  

Here's how the short sale process works. A buyer and seller reach a meeting of the minds and ratify a sales contract according to mutally agreed to terms. This is usually at a price close to fair market value. So far, so good. Now the seller's bank will have to approve the terms of the contract. This is where it gets sticky! In addition to approving or denying the sales price, the bank will often times insert themselves into the negotiation and make demands of there own. It may be wrong but they do it all the time!

I have seen them demand a higher sales price, stipulate that the buyer pay for costs usually associated with the seller, make the buyer pay down a portion the sellers debt, reset the closing date to their terms, etc.  They may not even acknowledge the contract and simply foreclose on the property while you still have an active offer pending.  This is scary for everyone involved in the deal.

Whether you are buying or selling a short sale, you need professional help!  A Realtor that is experienced with short sales, and an attorney short sale negotiator is what you need.  Do not go it alone!  Some short sales are good deals, and some are nightmares to tell you the truth. Short sales are not for everyone, so make sure that you know what you are getting yourself into!

I would be happy to discuss this further with you at anytime, just give me a call. Advice is always free.

Be cautious - Michael