What is a Short Sale?

A short sale can be an excellent solution for homeowners who must sell and owe more on their homes than the homes are worth. However, there are many misconceptions and myths about short sales. As a Realtor in Charlotte, North Carolina, this has been my experience.

I have listed homes and received offers, negotiated the offers between the buyers and seller and have come to terms. Then only to have the seller announce, “Ok, so I have to bring money to closing. I don’t have the money. So let’s do a short sale”. Having to bring money to closing does not qualify a seller for a short sale.

The qualifications for a short sale include:

Financial Hardship – There is a situation causing the seller to have trouble affording the mortgage.

Monthly Income Shortfall – "I have more month than money." A lender will want to see that the seller cannot afford, or soon will not be able to afford the mortgage.

Insolvency – The lender will want to see that the seller does not have significant liquid assets that would allow the seller to pay down the mortgage.

Have you recently had to call your lender to discuss making some modifications to your mortgage? I would love to hear your experience, please post a comment. If you’re current on your mortgage, I have heard many homeowners tell me that their lender has nothing to say to them at that point. I am in no way encouraging you to not pay your mortgage to get your lender’s attention. But believe me, if you stop paying, they will be calling you and, at that point, they will want to talk to you.

So in the scenario above, once a seller receives the offer and wants to close the transaction as a short sale, it is too late. The Realtor needs to know prior to listing the house that this is a potential short sale or if during the listing period the seller can no longer afford the home, the Realtor needs to be notified so that the proper process can be put into motion. Additionally, since the buyer has a contract on the home, the seller can be sued for failing to sell the home.

First, if you think you are eligible for a short sale, get a Realtor who holds the CDPE designation, Certified Distressed Property Expert. Agents with the CDPE designation have been trained in all aspects of the short sale process, and know how to deal with the parties involved in foreclosures. A CDPE can explain what options you have, and get you on the path to recovery. I am a CDPE.

There is list of documents that, along with your listing agreement, needs to be submitted to your lender prior to marketing your home. Included in the marketing of the home, it needs to be disclosed to buyers and other agents that this is a potential short sale. The buyer needs to know this prior to making an offer so that they can be educated on the process as well. (I keep saying potential because the lender has to give the final approval once an offer is received and they may not. The lender may prefer to foreclose on the property).

Once an offer has been made and the buyer and seller have come to terms, the executed contract is sent to the bank with all of the disclosures and addendums. The property is then listed as “Pending” in MLS. The short sale disclosure is very clear to say that the offer is contingent on the bank’s final approval.

For example, the buyer and seller may agree on a price but the bank, once completing their market research on the property, may then respond to the offer - at this point the buyer can accept or terminate the contract. This process sounds easy, however it can take months.

One HUGE pitfall that we see is that the banks, once receiving an offer, will contact a random real estate agent in the area and have them complete a Brokers Price Opinion better known as a “BPO”. These agents are a big part of the bank’s market research. The BPO assists the bank in deciding whether or not the buyer’s offer is fair. Sad to say, many of the agents who complete the BPOs inflate the prices or don’t know the area as well as the listing agent. Many of them hope that if they give a nice high price, they may end up with the listing. This hurts everyone involved, including the banks.

I have had short sale transactions that have taken 8 months, where the first and second set of buyers got tired of waiting. It sometimes takes months and several buyers to have a successful short sale closing.

Despite what you hear or read, short sales are very cumbersome and lenders are hard to deal with. It sometimes takes them 14 days to acknowledge that they have received a fax. When you call, you never get to speak to the same person, if you are even lucky enough to talk to someone. So you are constantly describing your seller’s situation over and over to different people.

Currently I have a short sale where I submitted the offer to the lender in August. In November they finally responded to the offer. I was excited when the buyer accepted and we all expected to close within 30 days. HOLD IT!!! A new negotiator was assigned. The negotiator ordered a new BPO and increased the price by almost $20,000. We are now debating the price. I hope the buyer can continue to be patient.

The long and the short of it - if you think you are in a short sale position or are going to be in one, don’t wait until you get an offer to talk to your Realtor about it. That is not the right time; you will most likely lose the buyer at that point. Talk to your Realtor prior to putting your home on the market.

It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, more than one out of eight homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.

I am a CDPE, helping families Avoid Foreclosure while saving much of their credit is what I'm Certified to do. Is someone you care about struggling to make their mortgage payments or needing to sell their home but can't because it's worth less than they paid? There are Options! Have them call me today.

Following this article is a list of short sales and foreclosed properties that TeamHeidi represents. For a list of all distressed properties in and around the Charlotte North Carolina metro area please contact Heidi Hines today or visit www.foreclosedhomesofcharlotte.com.