Options to Foreclosure: Short Sales or Property Management?

Options to Foreclosure: Short Sales or Property Management?

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By Elaine VonCannon, ABR, SRES, Associate Broker, Notary, Team Leader, Property Manager, Award Winning Agent

In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was. Banks and mortgage lenders scrutinize short sales because they stand to lose some of their investment, as does the homeowner. I am writing this article to illustrate that a short sale can actually prevent foreclosure, if it is done with enough expertise and foresight. A short sale may actually preserve a person's credit rating and help them to exit from a property they can no longer afford.

If the short sale is not likely to be approved by the lender, another possibility is turning the home, condo or townhouse over to a property rental manager. It is better to show a rental income on the property rather than a loss. There's no reason to report a loss due to lack of affordability when the home is rentable.

Find an Experienced and Compassionate REALTOR for a Short Sale

If the homeowner opts for a short sale, it's a good idea to select a qualified REALTOR with expertise in the area. Other characteristics a REALTOR should have are compassion and patience. The person losing their home is probably not in the best state of mind, so an understanding REALTOR is helpful. Since lenders often take three to four months to decide upon short sales, patience is a much needed attribute as well.

Finding the Right Mortgage Broker for a Short Sale

In addition to meeting the requirements of the lender, the homeowner must also sometimes negotiate a second mortgage with another lender. In this case, the first mortgage company must work with the second company to forgive the debt.

Although most mortgage companies do have a short sale department, it is often a challenge to find it because employees are sometimes unaware it even exists. The seller must either be persistent without being too aggressive or give a REALTOR permission to work with the lender. Tapping into the appropriate department is sometimes a challenge. The seller must grant the REALTOR permission and give him or her the loan number first.

Inspection of the Short Sale

When a buyer purchases a short sale property it is 'as is.' Home buyers who are wanting more information can request an inspection, for informational purposes only. The seller is not required to fix anything that is broken, and the buyer needs to be aware of this. An inspection can be performed prior to an offer with the permission of the listing agent. The buyer may back out of the sale at this point if there are repair issues revealed in the inspection.

However, the buyer cannot make an offer and then back out after the home inspection. So the time to complete an inspection on a short sale is before making an offer. Likewise, on short sales where homeowners association documents exist, it is best for the buyer to review the rules and regulations before the offer is made, in case there are objectionable terms.

What are the Necessary Documents for a Short Sale?

Lenders will only consider a short sale if the seller is behind two or three payments. There are some primary documents required by the lender for short sales. These include a hardship letter and financials. Sellers should be prepared to provide other information as requested, since many lenders have different rules with short sales on properties.

How Long Does the Home Buyer or Seller Have to Wait for a Short Sale to Complete?

The process of short sale on a property often takes about four months. First the REALTOR must contact the lender(s) and begin the process. Then he or she must have all offers for short sale submitted and reviewed by the lender(s) - which may take from 60-120 days. The lender(s) may reject all offers, or counter with others. The outcome could solidify a sale or begin the process all over again.

Some Final Thoughts on Short Sales

Whether the REALTOR is a buying or listing agent, he or she must still have empathy for the person who is selling. This is often a highly emotional time for the seller. They may be upset. Perhaps they do not want to move from their dream home. A REALTOR who has empathy will have more success in navigating the difficult waters of short sales.