Short Sales: Everything you wanted to know and did not know who to ask.

     Nowadays, many homeowners are recognizing that their home can not be sold for the amount of money owed against it.  This is called by the media, being upside down in the mortgage.  To avoid a foreclosure and the bad credit that goes along with it, the homeowner decides to offer the property as a short sale and enlists the services of a real estate professional to get this job done.  Frequently this is a very attractive price in order to get rapid market response.

     Most important for us to understand in this situation, the seller may agree to a contract and price, but that contract and price must be agreed to by the lender or lenders that have liens against the real estate. The lenders have to agree to accept less than the amount of money owed. Until all lenders and lien holders agree, the seller cannot perform on the contract unless someone comes up with more money to pay off the mortgages.

      If you are such a homeowner, please call me immediately to discuss how we can work through this situation.

      If you are considering buying such a property, I can help you negotiate with the owner, but the owner then has to negotiate with all the lien holders and get their acceptance of our price, terms and conditions. Be aware this is frequently a time consuming, patience required, aggravating and frustrating process. Only the flexible, patient, dedicated buyers need apply.

       For those of you willing to live with prolonged uncertainty, I will be your champion negotiator. 

       In the short sale, for example, the big lake view home is listed for $1,100,000. However, the owner has a first of $750,000 and a second (home equity loan called a HELOC by the industry) of $600,000. 

      You as a cautious investor want to offer $900,000 because you see it as a fixer upper that needs over $100,000 in cosmetic and structural corrections.

     Even if you and the property owner agree and sign a contract for a $1,000,000 purchase price as is subject to your satisfaction with inspections, we must get signed acceptance by the two mortgage holders to take less than is owned to them before we can close escrow.  Typically the contract contains a clause this contract is subject to mortgage holder approval.

     Then new negotiations begin.  All short sales I have heard that succeed were written the purchase is as is.   The lenders do not want any repair or correction contingencies.   

      Likely the property owner will owe the difference to the lender banks even after purchase proceeds are given to the lenders.  That is another reason why negotiations take so long.

      Many times I have experienced the banks rejection of the offer that we all worked so hard to reach.

      During all these negotiations the clock is still running for the lender to complete the foreclosure process and to all our dismay the Trustees sale and foreclosure happens. 

      Because we both need to plan on two to four months for the process to take place, patience is very important.  Still there is only a small chance that we will successfully close escrow. 

      During those months you will probably be spending money on inspections, appraisals, escrow fees etc.  If the negotiations fail, you are out that money.

      There is also, in most cases, a statement that says, Not a settlement-in-full, and the deficiency balance remains a legal encumberance against the seller.  When the seller finds that statement in the paper work, they too can become less than excited about the process. 

      Next month I will discuss the foreclosure process to explain the steps and the process.

      If you have further questions, call or email me with your questions.

      Sometimes the best deals are with the long time home owners who owe very little against the property but really want to liquidate their holding.