Facing Foreclosure? A Short-Sale May Be Something To Consider
If you are facing foreclosure, you are not alone. Hundreds of thousands of home owners have been affected by changes in adjustable interest rates, loss of jobs and the slowing economy.
A bit of history — In February of 2008, 2,250 families in the metro Phoenix area lost their homes to foreclosure. This marked the highest monthly rate for loan defaults in the Phoenix Valley since 1990, according to the Arizona Republic. But February 2008 was not the end of this — foreclosures continued to flood onto the real estate market each and every month since late 2007. When will this trend stop? No one knows for sure, but experts are saying it won’t be anytime soon.
As of April 2012 there are now currently fewer foreclosures on the market for sale, but that does not mean the trend has stopped. Unfortunately there are currently many homeowners who are living in their homes, but who are not paying their mortgage payments, due to job loss or other issues. At some point the banks will step in and take these homes over, adding to the foreclosure inventory.
Losing a home is scary and can be an embarrassing thing. Depending on a person’s personal situation there may be alternatives to foreclosure. Seeking professional advice as quickly as possible before it is too late to save your home and/or credit history is critical. If circumstances changes in your life, such as a loss of a job, illness, divorce or some other hardship that is hampering your income and making it difficult, or impossible, for you to make your mortgage payments, don’t delay in making contact with your lenders if you want to try and work out a modification. Of if you get into a troubling situation and can’t get a loan modification, or just need to move on and get your home sold, then contact a Realtor immediately to get help with a possible short-sale for your home.
Once the lender files a Notice of Default, your options are limited. Don’t wait to speak with your lender. Don’t wait until the situation becomes serious. Don’t wait until you fall behind on payments. Most lenders will be reluctant to work out repayment schedules or agree to a short sale after foreclosure proceedings have started.
What is a Short Sale?
Short sales occur when a mortgage lender agrees to allow a homeowner to sell their property for less than what is owed on the loan. For a lender to even consider a short sale process the homeowner must prove financial hardship and an inability to make mortgage payments. As part of the lender’s consideration, the lender will want documentation, such as copies of three years of past tax returns, copies of pay stubs, a balance sheet and budget that shows how you are spending the money you do have and information about any investments you have. The lenders also will want a hardship letter that covers your situation about why you can no longer make the payments. The lenders also want information about any other loans on the property. Basically the home owner is “selling” the lender(s) on the fact the owner has a hardship great enough that the lender(s) should consider working with them to allow the home to be sold for less than is owed on it.
Lenders will not set a price that they will accept up-front. To be successful in trying to short sale a home, the owner needs to work with a Realtor, who will prepare a Comparative Market Analysis (CMA) showing what similar homes are selling for. The Realtor works with the seller to establish a price for the home to be listed for and proceeds to market the home. The seller must understand that they will not get any money at all once the home is sold, but if the short sale is successful, the home owner may walk away from the home with a less blemished credit status than if the home is foreclosed. Once an offer is received, then the offer, along with other required documents are sent to the lender(s). Lenders also want what is called a Pre-HUD. This is a document that is prepared by an Escrow company showing what the lender can expect to receive should an offer be accepted. It is common in Arizona for the lender(s) to be reviewing multiple offers at the same time.
The entire short sale process generally takes several months and months. Lenders have many, many properties they are considering for a short sale process at any one time. Many of the loans have been sold to other investors, who the lenders have to consult with. Banks will do their own appraisals and bank price opinions once they have a short sale “package” to review. The entire process can take many months to get an outcome from the lenders. And while there are homes that do get a favorable short-sale to happen, sellers need to recognize that many of the homes which owners are attempting to short-sale ultimately will foreclose, regardless of what offers are on the properties. And of importance to recognize is that it can take months for the short sale process. What this can mean is that even if there is a buyer who “might” be accepted by the lenders to allow for a the short-sale to happen, most buyers cannot wait for months to know if they will get a home, and many buyers who make offers for short sale properties often end up moving on to other properties before lenders can decide on a short sale home what they will do.
All of this said, if you are a seller who is facing foreclosure, a short-sale may be worth considering. If you do get a successful short sale, there may be less damage to your credit score than a foreclosure. Also note, there may be tax ramifications associated with a short sale or foreclosure.
A Realtor cannot provide legal or tax advice.
If you don’t have an existing relationship with a tax adviser or attorney, Benjamin Realty can refer you to legal and tax services in Arizona who can help you with those questions. If you are a seller considering a short sale, you definitely need a Realtor who is knowledgeable about the current market and short-sales.
Is A Short Sale My Only Option?
No, it depending on the your circumstances, your lender(s) may agree to a loan modification. Your lender(s) may reduce your mortgage payments, extend the terms of the loan, or provide other options to allow you to remain in your home.
If you need to sell your home and believe you are a candidate for a short sale, contact us for a consultation.