NOT ALL SHORT SALES ARE CREATED EQUAL

WHAT IS A SHORT SALE?
A Short Sale occurs when lenders or banks agree to allow a homeowner to sell their home for less than the home owner owes on their home loan.  This kind of a sale has to be approved by the lender any time the sale price of the home will not be enough to pay off the associated home loan.  Someone has to take a loss, and it is usually the lender/bank in the form of the approved short sale.  This is one of the options a borrower may have to avoid foreclosure of their home.

NOT ALL SHORT SALES ARE CREATED EQUAL

Simply stated, all lenders have their own set of rules to approve short sales.  The number of lien holders on a home, the type of liens on a home, the level of seller cooperation and who is negotiating the short sale on behalf of the seller all can impact whether a short sale becomes lender approved or not.  For example, many of the major banks have streamlined their procedures to efficiently approve short sales.   Wells Fargo, Chase and Bank of America take less time to process a short sale than GMAC or a smaller bank or credit union.   A home could even have three liens with three different banks; you can imagine how the stars have to align to get all three lenders to agree to take losses.

A seller has more to lose if he goes into foreclosure but completing a short sale is a personal decision.   For Buyers, however, Short Sales must also be carefully evaluated:

In Today’s market, purchasing a short sale does not necessary translate to purchasing below market value.   Banks understand that values are going up and the inventories are low with homes coming to the market with multiple offers.   With that, banks expect to sell the home at the current market value, at minimum;

• If you are willing to put an offer on a short sale, you MUST exercise patience.   A response may take from a week to 6 months, depending upon who the lenders are and how many lenders have a claim on the property;
• Keep in mind that a short sale home is a distress home and it may need some deferred maintenance issues resolved.  However, the repair issues in an occupied home many times are less severe than the repair issues with a bank owned home or a vacant home being sold a short sale;
• The Seller will generally provide seller’s disclosures outlining the history of the home, for buyer’s review during contingency periods;
• Buyer will be able to get a marketable title instead of insurable title which is usually granted when buying a bank-owned home.

PATH TO A SUCCESSFUL SHORT SALE

 

• A complete short sale package will include a listing agreement, the seller’s financial information, a hardship letter, the buyer’s offer, proof of funds from the buyer - among other documents;
• A complete short sale package must be submitted to the lender or lenders in a timely manner;
• An offer at the current fair market value will be an incentive to get the lender to approve the short sale.   Lenders will review the best exit strategy for your loan - including but not limited to foreclosure - if they feel the listing price and offer are too far below the fair market value;
• An experienced listing agent that knows how to push through the short sale is essential;
• A patient buyer who will ride out the wait for their offer to be approved is important too.

WHY DO BANKS ACCEPT SHORT SALES?

• When a home becomes vacant, lenders are required to pay higher insurance premium fees, there is more deferred maintenance and there is an increased possibility of vandalism;
• Remember, vacant homes = vandalism = lower values for the community;
• It is costly to complete foreclosures.  With a cooperating seller, lenders avoid more fees on possible eviction or damage to the property securing their loan.

 

DO SHORTSALES WORK?
Yes, they do work, but you must work with an agent that understands the intricacies of short sale transactions and the current market trends.   There are many things that need to be taken into consideration when assessing if you, as a buyer, want to put an offer on a short sale home.  For instance, your agent must find out how many lien holders there are, who the lien holders are and if there are any offers in the works.  Is the property going to be taken off of the market while the bank decides if the sellers accept you offer?  Is the listing agent well versed in Short Sales? Is the seller really looking to complete the short sale or just stalling the inevitable: Foreclosure?

UNDERSTANDING THE HARP PROGRAM

What is the HARP program? If you are current on your mortgage payment but upside down on your home, you should at least read my blog. 

HARP is short for Home Affordable Refinance Program and it is federal government program that aims to help responsible underwater home owners to refinance their current mortgage, even if the current market value of your home is lower than what you owe on the mortgage loan.   How does this help you?

1. If you have a high risk loan, such as a 5 Year Adjustable or Interest Only loan, HARP will allow you to convert your mortgage to a fixed-rate mortgage.
2. Themortgage payment is reduced to a much lower interest rate; thereby, lowering your payments AND the total you will pay while you have the loan.

For example, if your current mortgage payment is based on 5.5% but you could lower the interest rate to 4% your payment would change by about 263.00.  See the illustration below – this is only an estimate and your lender will be able to calculate your savings based on your credit worthiness, income, assets, and liabilities

HARP Program Requirements

• Your home mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac;
• you must be current on your mortgage, and cannot have made a payment more than 30 days late in the past year;
• You must have negative home equity (you owe more on your mortgage than your home is worth) and do not have a limit to how much you are underwater
• Refinancing must help the affordability or stability of your mortgage;
• You must have the ability to continue making payments;
• Mortgages owned or guaranteed by the FHA, VA, or USDA are not eligible for HARP.
• Your property must be 1-4 units;
• Your property can be a primary residence, second home or investment property.Your property can be a primary residence, second home or investment property

Why is the government doing this? HARP prevents further housing meltdown while rewarding responsible home owners who are upside down in the homes and who have low “teaser” rates.  This program stabilizes mortgages by converting high risk homeowners into more stable situations.  This benefits entire communities.  Most participant lenders do not charge origination fees. For more information visit:

https://www.fanniemae.com/content/faq/harp-du-refi-plus-faqs.pdf

Disclaimer: The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes: and the consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.

HAPPY FRIDAY!
How is the market in Central Florida? Here are some numbers for you to think about...

From May 28th, 2009-Present, there were nearly 30,000 homes sold in Central Florida . This number includes sales in Seminole, Orange , Osceola and Polk counties for single family homes under $500,000. 43% of the sales were bank-owned properties and 20% short sales.

Currently, we have 15,000 homes listed for sale in Central Florida. 42% of the active listings are bank owned and 30% are short sales. Of the 10,000 properties currently pending (under contract) 60% are short sale properties and 20% are bank-owned.

Short sales tend to stay pending for a while due to the length of time required to obtain third party approvals.

For more specific numbers or information, please contact the Reaves Team Orlando and will be happy to drill down these numbers.

The numbers are originated from Multiple Listing Service (MLS) for Central Florida.

WHAT IS A SHORT SALE?

A Short Sale occurs when lenders agree to allow a homeowner to sell their home for less than the home owner owes on their home loan. This kind of a sale has to be approved by the lender any time the sale of a home will not be able to pay off the associated home loan from the sale. Someone has to take a loss, and it is usually the bank; in the form of the approved short sale. It is one of the options a borrower may have to avoid foreclosure of their home.

The seller is still the owner of the property in question; however, in order to transfer title to potential purchaser, the lender must release the lien on its collateral to the loan given to the borrower, which is the house.
Not all lenders will accept short sales or discounted payoffs, especially if they believe they will get more money from foreclosing and selling the home themselves.
Not all sellers or all properties qualify for short sales.

Why A Short Sale:

For Buyers:
Prices might be lower than with a bank owned property becuase the competition on short sale homes is less than with a bank owned;
While the home may need some deferred maintenance issues resolved, the repair issues in an occupied home many times are less severe as the repair issues with a bank owned home;
Seller will provide seller’s disclosures outlining the history of the home;
The buyer will be able to take possession of the home on the same date that they close;
The closing will be handled by a title company and the buyer will be able to get marketable title instead of insurable title.

Do Short sales work?
Yes, they do work but you must work with an agent that understands the intricacies of short sales transactions. There are many things that need to be taken into consideration when assessing if you as a buyer want to put an offer on a short sale home. For instance, your agent must find out how many lien holders there are, who the lien holders are, are there any offers in the works, is the property going to go be taken off of the market while the bank decides if the sellers accepts the offer? Etc.

For Sellers:
Short sales appear on your credit report as "pre-foreclosure in redemption", not as "debt discharged due to foreclosure"
A short sale can help homeowners avoided further collection activity or a foreclosure action;
Sellers can help maintain property values by ensuring that the listing agents are doing their homework with the listing price;
Sellers that remain in their home help decrease vacant homes in the neighborhood which attracts vandalism and subsequently decline in values;
There is a new law that comes into effect April 4th, 2010; where seller might qualify for 1500.00 relocation fees under the HAFA PROGRAM.

On the sale side, a good listing agent will list the property at a reasonable price; otherwise, the bank that has a lien against the property will not approve the sale price in the short sale. The property must be heavily marketed and once an offer is received the listing agent must submit a “short sale package” to the lien holder as soon as possible. This package is quite extensive, but is necessary if the lender is going to agree to take a substantial loss on a short sale. Sellers must consult with a CPA for possible tax ramifications.