Consider a Short Sale instead of foreclosure

If you owe more than your Orange County, California house is worth and can't afford your payments, you might be able to sell it for less than you owe -- without having to pay the lender the difference. If you can no longer make your mortgage payments and your home is upside down, a foreclosure may not be your only option. A Short Sale is a sale of a home in which the market price is less than what is still owed on the home. It is a procedure sometimes agreed to by banks and mortgage lenders who often prefer to take a small loss, rather then going through a lengthy and costly foreclosure process. If you have been considering a short sale, or if you have been looking for help with one, you have come to the right place!. To assist you, you will need an experienced real estate team of short sale experts, including a licensed Realtor and professional negotiator. To help with a short sale, continue reading to see how I can be of assistance!

A Short sale may be a win-win

• The seller gets out of the mortgage liability without facing bankruptcy.
• The buyer gets the home at a reduced price.
• The lender agrees to a loss it considers minimal without going through a foreclosure and being saddled with an un-salable property.

While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit by not having to go through the process of foreclosing on the borrower and then having to put the property on the market. A market saturated with foreclosures can cost lenders billions -- and as much as $50,000 per foreclosure

Why do a short sale?

There are many reasons why home owners will consider doing one. For some, the home has just become too much of a burden. The stress of making high payments, association dues, property taxes, and insurance payments on a home that is declining in value is just no longer worth it. In some cases it could be better to cut your losses by selling the home and saving those payments instead. If you have been saying " I need to do a short sale of my Orange County home" or " I am considering a short sale" it may be for some of the reasons below:

• The home was bought during a market peak and it is now worth much less than the amount owed

• The home has an adjustable rate mortgage with payments that are no longer affordable

• Income loss due to job layoff, illness, etc

• Divorce 

• Loan modifications did not produce the desired results

• To avoid a full foreclosure which may be far more harmful to your credit

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The Short Sale process

There are several steps required to initiate the short sale process and to list your home. These include signing a standard listing agreement which  authorizes me to market and sell the home. There may be a few additional forms to sign, including an addendum that explains your rights as the seller and informs you about other details or possible consequences of the sale.  There are also several items you will need to provide to me or my negotiator to allow us to speak with the lender on your behalf and to justify the necessity for selling your home. Many of these items are listed below. I will perform all of the necessary steps to market your home including taking photos, putting your home on the MLS (Multiple Listing Service),  putting up a yard sign, and installing a lock box so agents can show your home.

Items that are typically needed from you to start the process:

This outline may not include all items that take place or be asked to be completed by the bank. It’s intended to be an average list of items that may be required to complete a transaction.

•             Authorization letter to bank;  this gives the bank permission to talk with me or my negotiator

•             Listing agreement signed and forwarded to bank with Comparative Market Analysis (a document that I prepare)

•             Hardship letter - Several paragraphs that explain your circumstances and reason that you need to sell.

•             Two months pay stubs

•             Two months bank statements

•             Two years of W-2’s

•             Two years of tax returns

•             Payment coupon for home payment

Items lender may consider while reviewing your request:

•               Do you have investment/rental properties

•               Do you have a savings account

•               Do you have a 401K

•               Are property taxes current

•               Are Homeowner Association dues current

•               Is your home loan a purchase money loan or refinance with cash taken out?

•               Other income including child support, alimony, dividends, etc.

Once we receive an offer:

•               I will submit the offer to my negotiator. This will then be forwarded to the lender along with the rest of the package.

•               Lender assigns an “opener”

•               “Opener” orders appraisal and/or Broker’s Price Opinion 

•               Once “opener” reviews comparables, appraisal and Broker Price Opinion, it is forwarded to bank negotiator

•               Negotiator may request new seller financials (updated from original submission)

•               Bank may request Buyer information to do a background check on buyer.

•               Offer(s) then turned over to senior management at bank. This process may take another month or two.

•               After senior management approves, the offer is returned to the negotiator with the bank’s terms for acceptance.

•               Buyer may or may not accept the bank’s terms and conditions;  if buyer elects to not go forward, deposit monies should be returned to the buyer.

•               If buyer accepts new terms, escrow is opened and contingency periods will commence on bank’s acceptance date.

Questions and answers

Of course you will  have many questions and I have addressed some of them below. Please fell free to contact me if you have additional questions. I will be happy to discuss your situation by phone or in person! 

What is a short sale?

A “short sale” refers to a situation where your are selling your home but you not have enough equity to be able to sell the property, pay off liens and cover selling expenses. In other words, there is more owed on the home than what it can be sold for on the market. Lenders use the term to describe this as a loan that is “upside down.” While many sellers are potentially facing foreclosure, a short sale may also be necessary for a seller who bought high and took out a lot of equity and might be forced to sell due to a divorce, illness, or job transfer.

Do you handle the whole process?

I handle the sale of your home and all negotiations with your lender(s). This takes much of the worry out of the process for you. You are still advised to consult with various professionals such as your tax advisor, CPA, or financial advisor, as we cannot offer advice outside of our area of expertise. 

What costs are there to me as the seller?

You should not have any out of pocket expenses. Real estate commissions and the negotiator frees will be paid by the buyer and agents, not by you. I will also list your home as being sold "as is, where is, without warranty"'. Buyers understand that you are going through a distress sale and you will not be required to make home repairs or pay for closing costs, home warranty, termite repairs, etc. 

What about escrow fees, title, and other costs?

The lender typically offers to pay a certain amount toward these costs. I always send an addendum to the buyers and their agent to inform them that you (the seller) will not be obligated to pay any closing costs in excess of the lender contribution. 

What if I have more than one loan?

We analyze your situation to see if you will be short on all loans or perhaps just the second or third. In some cases, the first lender may receive full payoff, in which case you will just be short on the second. In either case, my negotiator will contact all of the lenders and work with them to negotiate your sale. The second or third lenders understand that they will receive nothing if the first lender forecloses. As such, many of them are willing to negotiate a settlement and they are generally willing to cooperate with the first lender in selling your home.

What is an "approved" short sale?

This refers to a situation in which the lender has now agreed to al of the terms, including price, real estate commissions, closing costs, etc. If we have an offer that meets minimum criteria we can usually go straight into escrow. If not, we typically go back the existing buyers and make them aware of the lender's terms. 

In order to approve the short sale, how will my lender determine fair market value of my home? 

The lender typically does an appraisal or BPO (Broker Price Opinion). A BPO is usually done by a real estate agent who has been hired to perform a valuation of the subject property based on comparable sales. 

How long will the short sale take?

Generally no less than 60 days but sometimes longer, depending on how may loans are on the property, the difficulty of negotiating with various lenders, etc. 

What if I am already in foreclosure or if my lender has assigned an auction date?

We will do our best to obtain a postponement of the auction date by notifying the lender that you are in the process of a short sale. Generally speaking, they will be willing to work with you, as they prefer a short sale to taking back a property through foreclosure. The final decision is always up to the lenders however and we cannot guarantee that we can stop foreclosure proceedings. 

Will the short sale affect my credit?

Yes it will, but typically less so than a foreclosure. There is no concrete rule since lenders act independently. In general, a short sale could reduce your FICO scores by 75 to 125 points while a foreclosure could reduce your FICO scores by over 200 points. These are only estimates and actual impact to your credit could vary widely. You are always advised to consult with your CPA, attorney, financial advisor, or lender for more specific information on how your credit could be affected by the transaction. 

Why list your Orange County, CA home with Ron Denhaan and Associates?

Ron Denhaan - Realtor Realty Executives OC Coastal (949) 290-3263 Ron@rondrealestate.com