What Happens in a Short Sale?

Short sales can be very complicated, which is the reason that many owners shy away from them. Well they do require some work on your part, hiring a knowledgeable agent will limit your work and make the changes of success increase dramatically.

The first step is determining the "true market value" of the property. A good real estate agent can provide a market analysis and give you a realistic idea of what the home can sell for under current conditions. Many mistakenly use use zillow.com or other real estate related sites to determine the value of your home. While these are useful tools, generally, their prices are quite inflated over market. Also, as has been the case recently, if the market is continuing to move down, the value of your home may also be declining and the estimated valuations on these sites may be very high.

The lender is also going to need a calculation of estimated closing costs. We always use an attorney to figure out such figures, especially since, in a short sale situation, the lender is the one that pays all of these items. These include a title report, BPO or appraisal, attorney fees, real estate commission, unpaid liens such as HOA fees or property taxes and other items. All of this may add up to a substantial amount of money, so it is very important that this report to the lender be accurate, once again, demonstrating the reason to use a qualified real estate attorney.

The lender will need to be notified of your current situation. Generally, a qualified real estate agent will have you fill out all the necessary paperwork to send to the loss mitigation department at the lending office. However, it is beneficial for sellers to request a short sale package from the lender. The reason for this is that the real estate agent cannot, in many cases, send this information to the lender until an offer is placed on the property. However, the homeowner can request and sent in this paperwork immediately, thus reducing the total time needed for a short sale. It is important that if you decided to fill in and submit this paperwork yourself, that you talk to someone who has the authority to make the required decisions. Remember, lenders are under no obligation to accept a short sale but, again, generally, it is in their best interests to do so. Some lenders will not consider a short sale until you have missed a payment or two. Others are very open from day one. It is good to know where your lender stands with regard to short sales, and again, a qualified real estate agent working in mitigation can help with this.

It is very imperative to consider your tax obligations! Do not underestimate this! Many times there can be a substantial tax obligation after a short sale has occurred. The same is true with a foreclosure, in fact, generally even more so. DO NOT RELY ON A REAL ESTATE AGENT TO HELP YOU WITH THIS INFORMATION. If a real estate agent tries to give you this advice, they could be costing you thousands of dollars and are breaking the law. Be sure to talk with a CPA or a tax attorney to explore all your options.

The last step is finding a buyer for the property. At this time, the offer and comps will be submitted to the lender for approval. If they approve the price, a closing can be set. If not, an agent should continue to work with the lender to either accept the price, counter at a reasonable price, or work to find another buyer at the price accepted by the lender.

Those are the basic steps to a short sale. Obviously, there is much more work involved that a qualified real estate agent can fill you in about as you progress in the process, but do not be afraid. If you are using the right personnel, the procedure should not be difficult for your and the hired professionals can combat the work and the issues as they come.