What is a Short-Sale?

When you have negative equity and need to sell your home, the sale proceeds will fall short of the balance owed to your lenders.  Therefore, to sell your home those lenders will have to consent to the sales price which may include discounting your mortgage balance, often steeply, and covering closing costs and pro-rations – this can involve nuanced negotiations.  The lenders also typically pay the real estate commissions, so you can usually be well-represented at no cost.

In the economic meltdown of the last several years, short-sales have become the dominant trend in many markets – this is certainly true in Las Vegas where homeowners have faced deep losses in their home equity and are sideways or under-water.  If someone faced with this situation doesn’t need to sell their home, then they’re fortunate.  But when they do, professional, expert assistance is recommended … and we offer that professional, expert assistance on the legal, tax and credit reporting consequences.

NOTE: entering into a short sale process is a form of strategic default and almost always involves purposefully defaulting on your mortgage(s).  This WILL damage your credit rating – the extent of which varies – but usually causes much less damage than allowing a foreclosure.

Once a buyer is in place, the proposed transaction is submitted to the lenders and a complex negotiating and evaluative process begins.  In many cases, if you’re experiencing what is deemed a valid personal or economic hardship, the lenders will partly or entirely waive the leftover debt or deficiency from the sale – but this isn’t always the case and there are some cases where the seller will still owe a deficiency after the sale or have other ramifications.

For those with negative equity there are specific goals or benefits from a short-sale:

- maintaining control of the debt and process vs. giving the lenders control

- closing on the sale without having to take cash into the closing

- being free and clear of the leftover debt or deficiency and moving forward with life

- avoiding foreclosure or bankruptcy

- containing and lessening the impact on their credit-rating

- returning to home-ownership … and soon

Why Would Your Lender Agree?

 

Lenders don’t do favors – they do what is economical or practical, and will sometimes even agree to waive all or part of the deficiency if the short-sale process is handled properly.  Their loss mitigation departments typically weigh the costs and implications of foreclosing or other options versus the cost of allowing your sale to close and waiving future debt.  They recognize that your REALTOR ® can typically obtain a better selling price than they can through an REO (real estate owned) or auction sale.

Lenders consider a wide number of factors and require borrowers to submit fresh financial and other disclosures which they use to create solutions and validate their decisions.  Each State has different laws that guide the lenders’ rights in their decision-making and strategies.  Lenders also try to estimate the current or probable value of the property through an appraisal, Broker Price Opinion (BPO), or Broker Opinion of Value (BOV).

If you have a particular hardship that caused your negative equity or need to sell, or can hamper your ability to commit to future debt, then these facts can be a substantial asset in how we negotiate the short-sale on your behalf.  Those hardships can include:

- divorce or legal separation

- pending renewal of your mortgage with unaffordable terms

- loss of employment or income, or needing to physically move for a job

- military transfer or deployment

- illness or ensuing medical debts

- death or disability of a family member who had contributed to keeping the mortgage current

There are no hard and fast rules here, and no way to predict if your lender will appreciate or consider your particular hardship.  This is one of the primary reasons to choose a REALTOR ® who is knowledgeable and competent at negotiating your short-sale … and our team has exceptional skill in this regard.

 

Legal and Tax Issues

 

When you begin to consider a short-sale, your mortgage may already be in default – or you may be advised to strategically default on purpose to initiate a favorable context for processing your short-sale – i.e., it is difficult to press an argument of hardship when the subject mortgage is current.  Furthermore, once the short-sale is approved, the conditions of approval can involve technical legal language and a wide variety of consequences.  These are complex considerations requiring advice from both an attorney and a licensed tax specialist.

The right team for a successful short-sale is:

- your REALTOR ® – ROB FLITTON, THE CLOSER

- your attorney

- your licensed tax specialist or CPA

As your REALTOR ® we are limited to listing and advertising your property for sale, finding a qualified buyer, and then coordinating and negotiating the basic short-sale terms with your bank – we have no expertise in, and make no representations about, the legal or tax consequences of your short-sale, and we strongly recommend you consult your attorney and licensed tax specialist both in advance and before accepting the final terms and conditions offered by the lenders.

In most cases we’re negotiating with sophisticated, powerful financial institutions to waive massive amounts of debt, as is hoped for – we simply want your professional advisors to be sure that you’re protected against the power of those financial institutions.

There are documents that the lenders should see and need to see – and there are documents they shouldn’t see.  We’re properly trained and experienced to know which.

Alternatives

 

A short-sale is just one of several potential options available to you.  We can informally suggest some other options, but aren’t in a position to know all of your options – we only know that once you receive legal and tax advice and decide to go through a short-sale, we’ll do the job exceptionally well.  Your attorney may recommend first trying to refinance or modify your mortgage, various government programs, or in some extreme cases even permitting the foreclosure to happen or to file bankruptcy – these are matters we cannot consult on.

Communication

 

One of the most important aspects of conducting a short-sale is the communication between you and your REALTOR ® – especially in a divorce situation.  We fully recognize and understand the importance of communication and keep you fully informed throughout the process.

We do not engage in a short-sale listing or process with any other agenda but protecting our clients and being paid a fair commission for doing so.

Getting the Deal Done

 

Succeeding in a short-sale approval, and negotiating favorable terms and conditions, takes a certain nuanced touch – and we possess that nuanced touch.  We also speak bank – in-house, we have tremendous prior experience in the financial industry.

Also, time is of the essence.  We employ daily and weekly action strategies for each short-sale account we manage.  Those plans include lender-communication, management of the condition of the house, and buyer-communication – it is vital to maintain the buyer’s interest level and to not lose the deal.  The Multiple Listing Service (MLS) is rife with re-listings following the loss of the buyer – if not managed well, they get fed up and move on.  Our team keeps a sticky and persistent presence on your case until it is closed.  We want your challenge fully resolved and for you to be highly satisfied with the results.  If we don’t close the short-sale, we don’t get paid for our work.

Once we list the short-sale, we undertake an aggressive campaign to find a qualified buyer.

Listing Strategy

 

After the purchase deal is presented to the lenders, they need to feel comfortable with the validity of the price and this has a lot to do with the listing strategy we employ – initial pricing, market-seasoning, plus how, when and if price adjustments occur.  The lenders often need approval by the investors holding the loans, and in the least have a fiduciary obligation to them.

An inexperienced agent might waste months of time by not understanding this fundamental issue.  We cannot divulge details of our strategies here where our competitors can view them … but you’re in good hands with us.

Lenders are more flexible than many perceive them to be.  They have some fixed guidelines, but the negotiator assigned to your case usually has wide latitude of authority.  Part of the negotiator’s confidence in the final decision they make has to do with how they feel about the REALTOR ® dealing with them and how well the seller’s case is presented.

 

Rob Flitton – REALTOR ®