A FRESH START FOR HOMEOWNERS IN DISTRESS!

These are difficult times for many people. It can be said that we are going through a truly historic time in history. A lot of people are under stress. A great many homeowners are having difficulty keeping up with mortgage payments. Some are behind on their payments with little or no hope of catching up. Many more are facing a re-set of interest rate soon and know they will not be able to keep up once that happens. Some have tried to have their mortgages modified without success. For too many, the specter of ruined credit and foreclosure is looming.

For a great number of these people, there is a way out before that foreclosure happens. There is a process through which they can be relieved of that terrible debt burden and make a fresh start. As Anna, a young mother who we recently helped through this process said “We can breathe again! We are starting over with this burden gone!”

The process we are describing here is called in real estate and lending jargon a “short sale.” If you are a homeowner in distress this process could be your ticket to a fresh start.

This will not work for everyone. Let’s get that straight at the start. However, it will work for a great many. The key is to work with someone who really knows how to work in the process. We do know how.

This is kind of a long story so please bear with us.

JUST WHAT IS A SHORT SALE?

When a homeowner needs to sell a house and the proceeds of the sale are not enough to pay off the loan or loans on the property, one of two things must happen. Either the seller must come up with the remaining money to pay off the loan, or the lender must agree to accept a payoff of less than the loan amount. If the lender agrees to take the lower amount, the sale is said to be a "short sale" or "short pay off."

Here is an example. Homeowner Bob owes the mortgage company $350,000 on his house. That is the outstanding loan balance. However, in this market, all he can get for the house is $300,000. For his own reasons, homeowner Bob cannot wait for the market to stabilize and values to go back up. He must sell now. If he gets the lender to agree to take $300,000 instead of the $350,000, he can proceed with a short sale. If not, he must come up with the $50,000 difference plus transaction costs at closing. If he can do neither and cannot stay in the house and continue making mortgage payments, homeowner Bob faces foreclosure.

HERE IS WHY MANY LENDERS WILL AGREE TO A SHORT SALE

Banks and other lenders are under stress right now too. They are looking to minimize losses on a lot of mortgages. Now banks and other lenders do not really want to foreclose on houses. Even in “normal times” they almost always lost money. Now for sure they lose money. Usually a lot of money. Many lenders realize that given the circumstances, if they agree to a loss and take the short sale pay off, they will actually lose less than if they proceed through the foreclosure process and then sell the house themselves. Losing as little money as possible is called “loss mitigation” in the business and just like in any business, some are better at it than others. Not all lenders will do this but a great many will. As we said, some are better than others.

HERE IS WHY YOU MAY WANT TO DO THIS

In a short sale, the bank agrees to take the short payoff on the loan. That means your mortgage has been paid in full. If you have gotten behind in payments, your credit will still be affected. However, you will not have an even greater hit to your credit record that a foreclosure will cause. With this behind you, you can move on with your life. You will have a fresh start and can breath easy again.

WHAT IF THERE IS MORE THAN ONE MORTGAGE?

It is still possible to complete a short sale with more than one loan to deal with. As you can imagine, it will be more difficult however, as there will be two different people or entities to satisfy and get approvals from. We have experience in dealing with this situation.

WHO CAN SELL THEIR HOME IN A SHORT SALE?

Lenders who will work with a homeowner to do a short sale must be convinced there is some kind of hardship involved for the homeowner. Some examples are the homeowner cannot keep up with the mortgage payments due to job loss, job relocation, divorce, family emergency or crisis such as illness or death or a mortgage interest rate adjustment that increased payments beyond the homeowner’s ability to pay.

WHAT DOES IT COST TO DO A SHORT SALE?

In most cases it costs the homeowner nothing out of pocket. The commissions, title and escrow costs involved in the transaction are paid by the lender. (In essence, the actual seller will be the lender). If the sale does not go through, your real estate agent does not get paid. That is a risk of the business. The homeowner may have to pay any outstanding homeowner’s association dues however, for the transaction to be able to close. This would be negotiated.

HERE IS HOW THE SHORT SALE PROCESS WORKS

The homeowner must first select an experienced, skilled real estate agent, such as The Guthrie Group, to meet with them for a no cost no obligation, confidential consultation to thoroughly evaluate their situation. It will be determined at this consultation whether a short sale has a chance of succeeding or not. The homeowner and agent will also determine at this time whether they feel comfortable about working with each other.

Assuming the agent and homeowner agree to go forward, the homeowner then will authorize the agent to speak to the lender’s representatives. A listing agreement is completed with the homeowner and the home is put on the market. The agent will try to get the best offer possible. Once a sale has been negotiated by the agent and agreed upon by the homeowner, the sale contract is presented to the lender for approval.

During the above process other steps will be taken. Explanations of hardship and supporting documentation will be required by the lender. The agent will assist the homeowner in completing and gathering the necessary documents and present them to the lender. The agent will also prepare a document to be presented to the lender called a “BPO.” This stands for “broker price opinion.” That’s jargon for a fully researched and completed report as to the current market value of the property. Think of it as a type of appraisal. The lender will require this. Remember, the lender needs to know the contract they are being offered is the best possible price for the property.

Final approval or disapproval is, of course, in the hands of the lender. Some lenders are faster than others about working through the process. Some are excruciatingly slow. Remember, a lot of lenders are just completely swamped right now. This process can take from as little as a couple weeks to as long as 6 months. Everyone involved in the process, seller, buyer, agents, etc., will need to be patient.

Once approval of the contract has been received, it usually takes 5 to 30 days for the sale to close escrow.

FINDING A NEW PLACE TO LIVE

Remember, we are in the real estate business. We can help you find a new place to rent and deal with the details on that too! Another load off your mind!

Call The Guthrie Group Now at 925-778-1908 or click here to email!

MORE QUESTIONS AND ANSWERS

The following are some more of the questions we get most often on this subject. Please understand though that we cannot cover all possible issues in this space. Please contact us if you have any further questions or concerns regarding your situation. There is absolutely no obligation and your privacy will be respected.